How to finance Home Buying?
After so many years you have made that decision, yes, you’re buying a home for yourself! With mounting real-estate prices buying your dream home is definitely a Herculean task. You would not want to exhaust all your savings to buy a home. Home financing makes it easy for you.
Banks and other housing finance establishments offer different types of home loans these days.
The following key points would help you evaluate and decide on the best lender for you.
1. Loan Eligibility and Amount
Whether you qualify to get a home loan or not would depend on your occupation (salaried or self-employed), disposable income and number of dependents.
The loan amount you may get will depend on your monthly income and the value of the property.Generally it is 80-85% of the property value. However the RBI, has allowed a loan-to-value ratio (LTV) of up to 90% for home loans of Rs 30 lakh or less.
2. Interest rate
The rate of interest on the loan will determine your EMI and the total interest to be paid by you. Make an informed choice about Fixed or Floating rates.
Fixed rates have fixed EMIs, there are no fluctuations. On the other hand floating rates tend to vary according to market conditions and the EMIs fluctuate too.
|Bank||Floating Interest Rate|
|State Bank of India (SBI)||8.30%-8.60%|
3. Processing charges and prepayment
Banks charge processing fee for processing the loan. This is approximately 0.25%-2% of the loan amount. There are pre-payment guidelines too which are different for different lenders.
The documents sought by lenders are generally same: age, income and address proof, there may however be variations.
5. Turnaround Time
This is the time taken to sanction and disburse home loans.
Now let’s have a look at the different home loan options available
Types of Home Loans
- Loans for a Home purchase : This is the most common loan for purchase of a new or a pre-owned home.
- Loans for Construction of a House :This loan is specially designed for people who want to construct a place according to their wishes rather than buying a per-constructed house.
- House Expansion or Extension Loans :There are loans available for any additional construction.
- Home Improvement loans : Few banks offer loans for any kind of repair and renovation work including electrical work.
- Loans for NRIs :These loans are specially designed for non-resident Indians keen on buying a residential property in India.
- Bridged Loans :Bridged Loans are short term loans opted by existing homeowners who are planning to buy a new property. This type of loan usually requires the mortgage of new house with the bank . It provides funds to the customer to buy a new house till a buyer is identified for the customer’s existing property.
Usually a home loan is one of the biggest liabilities. However, with intelligent planning you can not only create a physical asset for yourself but also avail tax benefits.
So now that you know how to go about financing your dream abode, go for it!