What Is a Home Loan and How Does It Work?

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A home loan is a financial tool that can be used for home purchasing. Lenders charge interest over the loan amount for an agreed loan tenor. Home loans can be approached for either buying a ready-to-move property or under-constructed property. The repayment process is done through cash or online payment in the form of Equated Monthly Instalments (EMIs) over an agreed period also known as loan tenor, depending on the nature of the loan.

Types of Home Loan

You can choose a type of home loan according to your needs and purposes. The different types of home loans are:

  1. Home Loan Balance Transfer: This loan can be availed of whenever there is an attractive offer or when an existing or new lender is offering a loan at a lower interest rate.
  2. Home Purchase Loan: This type of loan is availed of for financing the purchase of a ready-to-move property or under-construction property.
  3. Joint Home Loan: As the name suggests, under this loan, you can co-apply for a home loan with one (or more) individuals. This feature will enable you to receive a higher loan amount, depending on your co-applicants’ profile and credit history. 
  4. Home Renovation Loan: To fund the renovation of an existing property, a home renovation loan can be used.

Who is Eligible for a Home Loan?

Leading lenders in the market extend home loans to Indian citizens in the age group of 23 to 62 years (for salaried and professional applicants) and 25 to 70 years (for self-employed professionals). Additionally, one must be able to showcase a regular and stable income, along with a strong credit history.

The Home Loan Process

The working of a home loan is an easy and smooth process, involving the application of loan, verification of documents, and sanction of loan. The whole process happens very quickly in the case of HFCs such as Bajaj Housing Finance.

Below, we elaborate on all the steps involved in a home loan.

Step 1. Loan Application

Once you have shortlisted the lender with the best interest rate, you have to apply by filling out the application form. This process involves enquiring about the loan details, knowing the processing fees, and submitting documents. When you apply for home loan from Bajaj Housing Finance, you can avail of the contact-free loans facility, under which the whole process of loan application is done virtually, except the last stage where one needs to sign the loan agreement and complete the registration formalities. The required documents for availing of a home loan include: 

  • Application form with photographs duly signed
  • Identity, residence, and age proof
  • Last six months’ bank statements
  • Last three months’ Salary-slips
  • Income tax returns (Form16)
  • Educational certificate and proof of business existence (for professional applicants)
  • Last three years’ income tax returns (again, for professional applicants)

Step 2. Application Processing and Document Verification

After a lender receives your loan application, they will hold a financial inquiry regarding the borrower’s income and property that has to be purchased. All the documents including the bank statements, employment details, address proof, income proof are duly scrutinized to check the creditworthiness of the borrower. This process takes two days or less if the correct documents are submitted. Field investigation is done to verify the property details, as the lenders measure the loan to value rate (LTV) of the property. Bajaj Housing Finance offers you a home loan up to 75 to 90 % of your property’s value. 

Step 3. Credit Appraisal & Loan Appraisal

During this step, the lenders check the credit score of the borrower to make an estimate of the loan amount to be sanctioned. Credible lenders will grant loans only when the CIBIL score of the borrower is 725 and above. Lenders do not want to grant loans to those who have defaulted on payment or have a bad credit history.

Step 4. Offer Letter and Acceptance

The lender will send an offer letter where the charged interest rate, loan tenor, type of interest (fixed or floating), mode of repayment, and loan amount are clearly mentioned. It is important and advisable to read the offer letter thoroughly before sending the acceptance mail/letter. You simply need to mention the loan amount you desire and sign the acceptance letter. The acceptance letter is a copy of the offer letter, that lenders keep for the record.

Step 5: Sale Deed 

Here, the lender ensures that you have paid the down payment. The sale deed is registered at the relevant Sub-Registrar’s office. The original property documents are collected by the lender.

Step 6. Loan Agreement and Loan Disbursal

All the borrowers (co-applicant) will have to sign the loan agreement. For under-construction property, a tripartite agreement between the lender, borrower, and builder is signed. Here, loan disbursal is done in stages according to the construction stages of the property. For ready-to-move property, the loan disbursal is done in one payment.

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