10 things to know before you avail a home loan

there are several uses of real estate property as an asset. you can either buy a house to be your home, use the house as a real estate investment, or rent that house to a tenant or number of tenants and earn rental income.

you will need to avail a loan to purchase the property. there are various banks offering home loans, as it is one of the most popular types of loan. you need to properly plan before availing the loan to make a good financial decision.

there are 10 things you should know before you apply for and avail a home loan: 

1. eligibility criteria
   before availing any loan, knowing the eligibility criteria is important, home loan is no exception. first, you need to see whether you qualify for a home loan. each bank will have different criteria for potential home loan borrowers. the eligibility criteria include age, qualification, financial standing, dependents, credit score, ability to repay etc.
   
   you can use a home loan eligibility calculator to get an idea.
    
2. different types of home loans
   there are many different types of home loans that you can avail. the three main types of home loans available are the adjustable/floating rate loan, fixed-rate loan and the combination loan.
   
   you can avail any one of the types based on your preference.
    
3. approve the loan before the home
   before you select your home, you should get your home loan approved by the lender. this will help you narrow down your property options and make home searching more systematic and focused. pre-approval will also make it easier to get a deal for purchasing the home. the lenders can also recommend good properties in your preferred location.
    
4. the loan amount
   the bank will give you the loan amount based on the value of your preferred property/properties. it ranges from 75 to 90% of the cost of the preferred property. at times, your home search will depend on the amount sanctioned by the bank. if you have a co-applicant, the bank will consider his/her income and increase the loan amount.
    
5. additional cost associated with home loans
   there are additional costs which will come with your home loan. this includes interest payments, administrative charges, processing fees, prepayment penalties, etc. your home loan should ideally have zero prepayment charges if you are availing an adjustable/floating loan.
    
6. emi
   the emi stands for equated monthly instalment. it is the amount which a borrower pays to the lender every month. the emi included the principal amount as well as the interest amount on the principal. you need to choose your emi option carefully.
    
7. repayment period
   lenders will offer home loans which various repayment tenures. longer tenure will be easier on your pockets as you will have to pay a lower emi over a longer period.
    
8. documents required
   there will be various documents required when you apply for a home loan. these include your kyc documents, income/credit documents, as well as your property documents. your original property is mortgaged with your lender as a security interest on the property being financed.
    
9. insurance cover
   you will need to purchase insurance when availing a home loan, as it will prevent you from being liable for the outstanding loan. the insurance company will pay the outstanding loan if something unexpected and unfortunate happens to you.
    
10. defaulting on the loan
    it is always necessary to pay your loan on time. in case the borrower defaults on the emi for 3 months, the lenders are empowered to take action against the defaulter directly under the sarfaesi act.