Home Loan

Purchasing a house of your own is a dream that many of us aspire to achieve at some point in time. It is a long-term goal as the capital required to fund the purchase of a home is huge. Nowadays banks have made it easier for people to own their own houses by introducing home loans. 

What is home loan?

Home loans are secured loans sanctioned by the banks, housing finance companies and non-banking financial companies (NBFC’s) for long-term. A home loan can be availed to buy an apartment, a plot of land and construct a house or repair or renovate your existing home. In this type of loan, the house acts as a collateral till the loan amount is repaid in full. 

Home loan terminologies you need to know:

Principal: It is the money loaned by the lender to buy or construct the house.

Interest rate: Interest rate is the percentage charged by the lender on the borrowed amount.

Down payment: The amount that must be managed and paid by the buyer. Usually, banks cover 75% to 90% the cost of the property. 

Eligible loan amount: This is the amount you are eligible to get from the bank as a loan. The eligible amount varies from one bank to the other and is calculated based on factors like income, credit score and income ratio. 

Co-applicant: A person who signs the loan document along with the borrower and is liable to pay the loan on behalf of the borrower, in case the main borrower is unable to pay back. 

Equated monthly installments: It is the amount the borrower has to pay the bank every month within the loan tenure.

Interest rate: The home loan comes with fixed interest rate or floating interest. The floating interest rate fluctuates throughout the loan tenure depending on the markets. 

Eligibility criteria of home loan:

Banks follow the process of due diligence. This is a kind of background check performed by the banks, to understand your eligibility before approving the home loan. Thus, you must understand the eligibility criteria of home loans: 

Age: as per rules, salaried professionals aged between 21-60 years and self-employed aged between 21-65 years can avail home loan.

Income level: A higher monthly income indicates the ability to pay higher EMI on time Thus the borrower is eligible to take higher loan and repay the loan on time. 

Credit score: A CIBIL score of 750 points and above helps you secure a loan with better interest rate as it indicates better credit habits. Similarly, a low credit score indicates outstanding loans or a bad repayment history.

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