Home Loan

Owning your own home is a significant milestone for many people. Some people are fortunate enough to save the entire amount of the house and purchase it, making the house theirs in one go. Some depend on a house loan to reach this milestone. Getting a home loan comes with great responsibility. It is a commitment that you take for years to come. A home loan tenure can last between 10-30 years, depending upon your lender. Let’s understand in depth what a house loan is and the guidelines you need to keep in mind while applying for this loan. 

What is a home loan?

A home loan is a kind of loan that is specifically created for people seeking financial assistance to afford a home. As the name suggests, home loans are created with the purchase of lending money to a person who is willing to borrow it to purchase a house. The bank provides you with the lump sum amount and keeps the house as collateral till you clear all the repayments. During the repayment tenure, you are expected to pay fixed monthly installments. An interest rate is charged in these installments through which the bank earns. Once you clear all the debt, the home becomes yours entirely. 

Rules and regulations for Home Loans:

Following is the list of rules and regulations that you need to be aware of while opting for an instant home loan:

1) LTV Ratio Guidelines:

The full form of LTV is the loan-to-value ratio. It is the amount offered by the lender as a loan to the total value of the house. The lender will only provide you with the LTV percentage of your house as a loan. This criterion has been declared by RBI. If the value of the home is 30 lakhs or lower the LTV will be 90% of the amount. If the value of the home is between 30 lakh to 75 lakhs, you can get a loan of up to 80% of the total amount. And, if the value of the property is 75 lakhs or higher, loan to value ratio is 75%

2) Rules for foreclosure or prepayments:

As you already know, the repayment tenures of loans are long, a lot can change in so many years. If your income increases during the tenure, or you have spare money to make prepayments against the loan you can do so without any penalty. Earlier a home loan finance company could charge penalties on prepayments since they earn heavily from interest rates. And prepayments or foreclosure reduces their time to keep earning interest. Now, RBI has made the repayment rules flexible in the interest of the borrower, and therefore, there is no fine on it. 

3) Guidelines for switching to a new lender:

If in your ongoing tenure, you come across a new lender that you feel will offer you lower interest rates, you have the freedom to shift to them. If you feel that your home loan provider is charging you heavier interest rates than the standard market rate, or there are new plans available in the market that can help you save money, you can switch freely. The market is changing every day; there could be a possibility that your lender is still charging you as per what the market looked like when you went to apply for a housing loan. RBI allows you to transfer your remaining balance to any new lender of your choice. 

4) General guidelines for housing loan

There are a few guidelines that you need to adhere to when you go to apply for a home loan. Firstly, make sure that you fulfill the eligibility criteria for them. Most lenders require a minimum age of 21 and up to 60 years for a home loan. Moreover, you are required to have a stable source of income and meet their minimum income criteria to apply for the loan. 

Whether you apply for a home loan online or offline, you will be required to have a CIBIL score of a minimum of 700 (minimum credit score could depend on the lender) and necessary documents such as identity proof, address proof, and income proof. 

Is it compulsory to buy Home Insurance while taking a home loan?

The answer to this question is no. RBI has not made it compulsory for a borrower to purchase a home loan insurance plan while getting the loan. However, home insurance is an added layer of security that a borrower can opt for. In case anything happens to the borrower during the repayment tenure where they are not in a position to pay the loan, the insurance company takes care of the loan. In case of the death of the borrower, home loan insurance can be of great relief to their grieving family. While it is not mandatory to get this insurance, one can consider getting it to ensure that their family does not have to take the burden of repaying the loan in those unfortunate times.

Summary:

The procedure of getting a house loan has become easy. You can apply for a home loan as quickly as you shop for something online. You are only required to submit a few documents and fill out an online application. However, a home loan is a tremendous step. One that needs to be taken thoughtfully. There are various guidelines issued by RBI (Reserve Bank of India) and NHB (National Housing Board) that need to be taken into consideration while applying for a home loan. 

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