Owning a house is a dream for everyone. Indians consider it mandatory to own a home as early as possible. However, with the increasing real estate prices, affording a house is becoming difficult with every passing day.
Looking at this situation from a different lens, if you can afford to purchase a house today, the same is expected to generate stable returns in the years to come. Unlike other investment options such as the stock market, real estate has always shown an increasing trend in returns.
Industry experts, therefore, advise that taking a home loan and purchasing a house is no longer a bad idea.
With this context set, let’s try to understand the salient features of a home loan and the documents required for a home loan.
Features of home loan:
As the name suggests, a home loan is issued for the purpose of:
- purchasing a house from a builder
- Resale or construction
- Extension of an existing house
The loan amount sanctioned varies from 2 lakhs to 200 Crores, depending on your requirement, income, and repayment capability. It is a secured loan wherein collateral is required to be provided. It is possible to take a loan for a maximum of 20 years.
If you are planning for a home loan, check for these factors:
1) Loan amount: A loan sanctioned by the bank is dependent on your income statement, past dues, etc. Draw a detailed analysis of the loan amount you would require for the purchase. In addition, one needs to evaluate the impact of EMI on the monthly expenditure. It is generally recommended to plan for a maximum EMI of 40% of monthly income.
2) Insurance cover: The banks also suggest insurance cover against the interest. Look for the insurance company that offers lower interest rates.
3) Interest rates: Analyses the interest rates offered by various banks. One should also check for the impact of floating and fixed interest before making the decision.
Fixed interest rate: In this option, the interest rate applicable remains constant throughout the tenure. This is an advisable option when the interest rates are expected to increase in the future.
Floating interest rate: In this option, the interest rate is exposed to market risk where the interest amount is dependent on the rate applicable in the market. This is an advisable option when the interest rates are expected to decrease in the future.
You can shift from one option to the other based on the future prospectus of rate changes.
Now that the basics of a home loan are in place, let’s understand the list of documents required for a home loan:
1) Income proof:
A statement of income is an important document needed for a home loan. It indicates the credit score of the requisitioner.
It is arrived at by considering the income earned, past repayment of loans, etc. Having consistent income for an extended period and repaying the loan in accordance with a schedule will improve your credit score. With an increase in credit score, the probability of getting a loan sanctioned improves. On the other hand, any traces of delay in repayment/ inconsistency in income shall have a negative impact on the loan sanction.
The following is the list of documents required to prove consistent income:
- Form 16 statement for salaried employees
- For nonsalaried employees – an income statement is needed to establish a steady source of income
- Salary statements for the last 3-6 months
- Bank statements for the previous six months
- Employment identity card, if applicable
- An income tax return filed for the previous two years
2) Property documents:
A detailed investigation of the list of documents required for a home loan is to be conducted by the lender. This is an integral part of the verification process because there might be instances of submission of false documents for getting the loan sanctioned. In case of approving a loan against false documents, the lender will not be able to sell the property and collect the loan due, leading to bad debt. Therefore, keen verification of all the documents submitted is mandatory.
Below is the list of documents required for a housing loan:
- commencement certification for construction,
- Agreement for sale,
- Building design approval copy,
- Receipts against payment made to the landlord,
- House registration copy,
- Sanction Letter from Government,
- Insurance copy.
In case of property allotment done by the developer:
- Allotment letter of the flat,
- Buyer agreement of the buyer and developer,
- Payment receipt,
- Permission to mortgage from the respective authority.
For Resale Property:
- Agreement to sell,
- All prior deeds from the first allotment of the asset,
- Sale deed,
- Approved property layout,
- An official possession certificate and a receipt for land taxes,
- Builder or society provided No Objection Certificate.
If you opt for the construction of a house, a detailed cost estimate breakup is to be submitted.
3) KYC Compliance:
The home loan documents list involves verification of the identity of the requisitioner. This is to ensure that the details furnished and the loan requisitioner is the same. The lender validates all the documents issued by the government.
The following is the list of documents required for a home loan :
- Recent photograph,
- Identity proof such as Aadhar card/ PAN card/ Voter ID/ Driving License,
- Residential proof such as electricity bill/ telephone bill/ bank passbook,
- Age proof such as Birth certificate/ 10th class mark sheet.
4) Investment details:
All the details of existing assets owned by the requisitioner should be furnished. This helps in evaluating the net worth and also estimates the repaying capability. If a requisitioner approaches for a 50 cr loan and the current net worth is only 50 lakhs with no stable income source, the lender will not be able to accept a such application as there is a high probability of default.
Winding up:
The housing loan market has expanded its wings to provide lucrative offers to its customers, including affordable interest rates. Investing early in a home loan is recommended to avail the benefit of lower asset values and savings on tax. However, one needs to carry out a detailed study of the market prior to selecting a lender. The reason being some small-scale lenders do impose higher restrictions and include hidden charges. Choosing the right lender and submitting all the necessary documents as per requirements aids in faster loan sanction.