A bridge loan is the scenario wherein if you have enough equity in your present home, the bridge loan will allow you to avail of a loan so you can make a down payment and buy your new house. The only catch here is that the interest rates on the bridge loan are much higher than those on the home loans. Another thing to consider is that it is a short-term loan, and there are also costs and fees involved. Therefore you might do better for yourself if you consider applying for a home loan. The procedure is simple and of course you have to meet a certain eligibility criteria. Once you have identified the house that you want to purchase, you can go ahead and approach any financial institution dealing or disbursing home loans.
Though applying for a home loan may seem like a very difficult task, it definitely need not be that way. Given below are some Home Loan Basic that you need to know before you go about applying.

The first step to getting a home loan involves filling up the application form of the chosen financial institution along with the required documents. Do remember that you will need to pay a one time processing fee at this stage.

You will also require some important documents to get through with the loan processing stage. In case you are an employed individual, you will require verification of your employment form, you latest salary slip/salary certificate which outlines all deductions for atleast the last 6 months, Form 16 from your employer for the last 3 years.

In case you are a self employed individual, you will need a Balance sheet and profit and loss account of the business/profession along with copies of individual income tax returns for the past 3 years as certified by a CA. You will also need a note, which gives the information on the nature of the business, year of establishment, present bankers, form of organization, clients, suppliers etc. And of course you will need a statement proving your net worth as an applicant.

Once you are past this stage you will need to submit the property documents. After getting the approval from the financial institution where you plan to borrow, the loan will be disbursed to you
 

Benefits of Home Loans: You can easily avail home loan from various companies which offer home improvement loans to finance the cost of tiling, plumbing, electrical work, grills, woodwork, painting, compound walls and almost all improvements for your house. In fact it might be a good idea to avail of these home loans, because they offer a number of added advantages as well.
One of the most important benefits of taking a home loan is the interest rate that is allowed on the home loan. Fixed and variable interest rate options are also available for home loans. Many financiers also offer home improvement loans at the same interest rate as they offer the home loans. Most of the prevailing interest rates fall in the range of 7.75% to 8.75%. There is usually a processing fee of 1.00% to 2.00% also that is involved.
The other benefit of taking a home loan is the security that is to be provided. The benefit is that you can use the property that is currently being constructed as the security for the home loans. Of course, most banks and finance companies do not finance more than 85% of the cost of the property mortgaged.
Perhaps the benefit that is most used is that of the tax benefit. The interest that is paid on home loans are deductible from the annual value resulting in a lower taxable income. For self-occupied property, interest to the extent of Rs 30,000 is deductible from taxable income.
The maximum amount of fund that can be received through the home loans varies between 50%-100% of the total cost. Of course the loan amount is also subject to the repayment capacity of the borrower. The usual rule states that the sum of all the monthly installments a borrower has to pay should not exceed 40%-50% of his gross monthly income.
Apart from the income and margin criteria, the applicant needs to be a salaried or self-employed individual. And it is important that the loan is repaid before the retirement stage, or before the person turns 65 years in case he/she is self-employed. On an average the repayment term of the home loans can be extended up to 15 years.
 

Home Loan Agreement: With the ongoing flurry of activity and festivity prevalent in the home loan segment of India recently, a large number of people, in the euphoria to acquire that dream house, tend to overlook some of the most important clauses in the home loan agreement. However, what they don’t realize is that these clauses have a significant bearing on wide number of areas ranging from interest rates to repayment schedules.

Some of the simple clauses of the home loan agreement regarding to simple matters such as how often the housing finance company resets interest rates in a year can make a considerable impact on the floating rate home loans. The norms in the industry practices suggest that interest rates for home loan consumers are reset only when the bank’s prime lending rate is changed. Therefore it is the frequency of these resets that is really important.
Some of the finance companies offer home loan agreements wherein the interest rates are reset in each quarter. Alternately, there are other companies who do the revision only once a year. Sadly not many home loan consumers are aware of the clause related to the fixed rate home loans, which the financial companies sometimes insert in their home loan agreements. This ignorance can cause the customers unintended losses in case of revision of the fixed rate home loan rates.

Most of the customers are not aware that this particular fixed rate clause in the home loan agreement permits the financial institutions to change the loan’s repayment schedules and terms and conditions. The financial institutions in a rising interest rate environment might exercise this option in order to safeguard themselves and in the interest of their own company.

This move is usually not in the best interests of the customer or the home loan seeker as the modification of the repayment schedule, terms and conditions might affect the overall repayment of the consumer. The long list of terms and conditions of the home loan agreement usually contains clauses which might possibly have a number of significant implications for the consumer and therefore it is important that the consumer is aware and makes an informed choice accordingly.

Home Loan Market: The home loan market in India has grown at a rapid and alarming rate of over 40% over the period of the last four years. And from the reports from some of the industry experts, it is evident that there is very little chance that there will be any significant decline in growth rates in the future. Therefore it becomes important at this point in time to examine the key factors that have been instrumental in triggering this high growth period. There are several reasons that can be considered as having attributed to the growth of the home loan market. On the demand side, the first and the most important factor for the growth has been faster rise in incomes as compared to property prices, thus making housing more affordable.

Another important factor that has contributed to the growth of the home loan market is the declining interest rate. This factor has also been instrumental in greatly reducing the cost of servicing a loan. An additional factor is that of the Tax benefits, which have caused a further reduction of the effective cost of borrowing both on interest as well as the capital.

Examining the factors on the supply side, we see some of them have played a very big role in supporting the growth of the home loan market in India. The most important supply side factor is of more competition in the housing finance sector. This has in fact resulted in the companies charging lower interest rates. The lower interest rates are offered in fact sometimes even at the cost of the spread or profit margin.

Another important supply factor that has been responsible for the growth of the home loan marker is the fee that is charged by the financial institutions for getting a home loan. This fee has reduced dramatically over the last couple of years, from over 2% of the loan amount to as low as 0.25%. In fact, some companies are known to waive off the fee entirely.

Most of the housing finance companies in India have introduced several new home loan products in order to meet the needs of a wide variety of customers. Another factor contributing to the growth of the home loan market is the increasing collaboration between housing finance companies and builders. Such partnerships minimize service and funding related costs.

Home Loans Repayment: It is a well-known fact that the Indian consumers are very touchy when it comes to taking a loan, especially if it is a long-term debt. Despite the fact that in the last few years the tax advantages that are associated with the housing loans have increased tremendously, most of the Indian borrowers are in a rush to pay up their loan amounts much before maturity period and are eager to write off their debts. It is common knowledge that home loans are usually long term in nature.

Therefore, when it comes to the issue of home loans repayment at a date earlier than the maturity, the question raised is whether it makes sense for the Indian borrower to do that. The answer to that question is that it is not a good idea in the present environment, when the interest rates on housing loan are at an all-time low, and there are significant tax benefits available to the home loan seekers.

On the contrary, in fact, it might just make better sense for the borrowers to carry debt in general and a home loan in particular is a good idea for the number of advantages it provides over other forms of debt. If the borrower analyzes the repayment schedule carefully and the loan amount is chosen carefully, then he/she will be able to save a good sum through the tax rebates.
Some of the other benefits of the home loans extending over a period of time will be the benefit of the inflation over the term of the loan, as money gets cheaper by the year. The tax benefit coupled together with the effect of inflation brings down the effective interest rate that is paid to a considerable extent.

This doesn’t mean that it is a general rule to never pre-pay the debt. However, there is a time when it is appropriate to do that and one should think of prepaying the loan if possible, but this pre-payment should be planned wisely.
Therefore it is a good idea to not rush in to paying off the home loans or for that matter any other long-term debt. And in case you do decide to pre-pay, it would be a good idea to take time and plan it carefully.

~ A guide to Home loan in India is Authored by M.Hemdev.