A Few Home Loan Terms and Conditions that Borrow Should Know
When you borrow money from others, it has its own terms and conditions. Similarly, if you borrow your home loan from the bank, it has its certain terms and conditions.
If you want to take a Home Loan from the bank or an NBFC, you need to meet such terms and conditions.
Here are a few basic Home Loan terms and conditions you should know about:
- Margin or Down-payment
While taking a Home Loan, the bank pays a certain percentage of the price of your house. The remaining amount that you need to invest in is the margin money or down-payment. The Reserve Bank of India (RBI) has set a certain limit for down-payment. In June 2017, the limit was set to 90% of the property value. You need to check the current limits while applying for a Home Loan.
- Sanction Letter
A sanction letter is a confirmation from the bank that you can be the customer of the bank for Home Loan. However, it does not sanction the loan simultaneously. A sanction letter has the following details:
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- Loan amount
- Loan tenor
- The rate of interest on the loan
- EMI amount
- The validity of the sanction letter
- Terms and conditions of the loan agreement
A sanction letter is valid for six months. You need to check your Home Loan eligibility and avail the loan in these six months.
- EMIs
EMI is the equated monthly instalment that you need to pay to the bank to repay off your Home Loan. According to the thumb rule, EMI should not surpass more than 30-40% of your monthly income, including all the liabilities. Banks calculate the EMI on the basis of principal amount, loan tenor and rate of interest on the loan. You can also calculate your monthly EMI with the help of Home Loan EMI calculator.
- Credit Appraisal
Before sanctioning a loan, banks conduct a credit appraisal of the borrower to check his/her creditworthiness. It indicates your repayment capacity and credit history. Banks consider the following parameters to confirm the creditworthiness of an individual:
- Income of the applicant and the co-applicant
- Age and qualifications of the applicants
- Nature of profession
- Tax history
- Assets and investments
- Recurring liabilities
- Additional sources of income
- Security in a Loan
Security is an asset that you need to provide to the bank while taking a Home Loan. In most cases, the house to be purchased is considered as an asset by banks. In case you fail to repay the loan, the bank can take over the property and sell it to recover the loan amount. Hence, you must read the terms and conditions of banks and choose the one which is favorable to you.
- Processing & Administrative Fees
Banks charge processing and administrative fees for the documentation of your Home Loan agreement. This fees usually varies from 0.5% to 2% of the loan amount. The rate of fees is laid down in the terms and conditions.
The Bottom Line
Taking a Home Loan is a thoughtful process. You need to check all the terms and conditions of a Home Loan of different banks and then choose the one that suits your requirements.
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Category: Debt
