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Home Loan Tips

The home buying process can seem complicated, but if you take things step-by-step and you know how to choose the right home loan, you will soon be holding the keys to your own home!

Ten steps to buying a home

Step 1: Figure out how much you can afford. What you can afford depends on your income, credit rating, current monthly expenses, down payment and the interest rate. The calculators can help, but it is best to visit a lender to find out for sure. A housing counselor can help you figure out how to manage and pay off your debt, and start saving for that down payment!

Step 2: Know your rights

Step 3: Shop for a loan. Save money by doing your homework. Talk to several lenders, compare costs and interest rates, and negotiate to get a better deal. Consider getting pre-approved for a loan.

Step 4: Learn about home buying programs

Step 5: Shop for a home. Choose a real estate agent, Wish list - what features do you want, Home-shopping checklist - take this list with you when comparing homes.

Step 6: Make an offer. Discuss the process with your real estate agent. If the seller counters your offer, you may need to negotiate until you both agree to the terms of the sale.

Step 7: Get a home inspection. Make your offer contingent on a home inspection. An inspection will tell you about the condition of the home, and can help you avoid buying a home that needs major repairs.

Step 8: Shop for homeowners insurance Lenders require that you have homeowners insurance. Be sure to shop around.

Step 9: Sign papers. You're finally ready to go to "settlement" or "closing." Be sure to read everything before you sign!

Terms used in Housing Finance

• EMI: Equated Monthly Installment till the loan is paid back. It consists of a portion of interest and the principal
  
  
• Floating Rate of interest: Rate of interest which varies with the market lending rate. This means that there is an element of risk of paying more than budgeted amount in case the lending rates goes up
  
  
• Monthly Reducing balance: In this system interest reduces monthly with repayment of Principal amount
  
  
• Annual Reducing Balance: In this system principal is reduced annually at the end of the year so you end up paying interest even for the portion of principal you have actually paid back
  
  
• Fixed rate of interest: Rate of interest remains unchanged throughout the period of the loan
  
  
• Processing charge: It's a fee payable to the lender on applying for the loan
  
  
• Prepayment Penalties: When loan is paid back before the agreed term of the loan, then banks/ institutions charge penalty for the prepayment
  
  
• Commitment Fee: Some institution charge commitment fee in case the loan is not availed within a stipulated period, after it is processed and sanctioned
  
• Miscellaneous Cost: It is quite possible that some lenders may charge documentation or consultant charges .

Choosing the Right Home Loan

If you are planning to buy home, you need to know about home loans processes, troubleshooting and how to choose the right home loan for house that falls within your budget. There are various types of home loans offered by different financial institutions. You need to figure out which type of home loan is beneficial for you.

Types of Home Loans Available:

• Home Equity Loans


• Home Extension Loans


• Home Improvement Loans


• Home Purchase Loans


• Land Purchase Loans


• Mortgage Loans

Many banks and financial companies offer home loans. But before choosing any home loan option, consider few points as mentioned below.

Property Types: You should know more about type of property in lieu of which you seek loan. There are loans offered by banks to Resident Indians and NRIs for ready property, under construction property, self-construction and home improvement.

Loan Tenure: The loans provided by financial institution are offered in tenures or period of years. You should check out the tenure for loans available in the market. There are loan tenures available for upto 25 years.

Repayment Options - You need to choose between fixed and floating rate home loans. Many banks and financial institutions will provide you with the option of switching from a floating rate home loan to a fixed rate home loan once a year at no extra cost. But you need to check out the facts first with the loan providing firm.

No Penalty option - There are also no penalty option offered by few finance companies. In this mode, you can opt to pre-pay up to 25% of your loan every year. Pre-payment is permitted after a minimum of 6 months following loan disbursal.

Tax Benefits - You should know the right of your tax benefits on home loans. Resident Indians are eligible for certain tax benefits on principal and interest components of a housing loan under the Income Tax Act, 1961.##

List of Premium Banks Offering Home Loans:

• ICICI Bank - ICICI Bank Home Loan


• HDFC Bank - Adjustable Rate Home Loan


• Bank of India - Star Home Scheme


• Standard Chartered - HomeAssist


• State Bank of India - SBI Unique Housing Scheme


• Bank of Baroda - Housing Offer


• Citibank- Building & Renovation of House

Always check with a financial home loan expert or financing company to understand home loan processes and to avail the best bargain on your home purchase.