Purchasing a home might is one of the most major milestones in life. So, don’t let the lack of funds stop you from getting the home of your dreams.
If you haven’t thought about getting a home loan yet, now’s a good time to start. With lower interest rates, tax benefits, and higher loan-to-property value, buying property with a home loan is a lot easier.
A home loan is a long-term commitment, and assessing your repayment capability before you apply for one is necessary, in order to avoid any financial stress in the future.
Some lenders even allow you to customize your home loan according to loan amount, repayment capacity, tenure, rate of interest, and numerous other factors. You can take a pick from home loans with different repayment options like fixed interest rate, floating interest rate, balloon payments, refinancing alternatives, or accelerated repayment schemes.
Here’s why home loans can be your go-to refinancing option when you’re short on funds, but still want to buy that house you’ve always wanted.
Ease of application
Unlike the days when you had to stand in a queue for hours to apply for a loan, you can now apply for a home loan online.
You can go to the website of any bank or financial institution and fill out a form with your professional and personal details, property values, previous bank statements, value of assets, and other financial information.
Compare different interest rates available online and pick one that suits your requirements. Online processing also lets you easily calculate your eligibility and EMIs to give you a better idea of your repayment capacity. Another benefit is that approval of online loans tend to be a lot faster.
The documentation process for a home loan varies from person to person. Once you file all the paperwork, like identity, address, income and age proof, educational qualifications, employment details, and the property documents, they will be analysed and evaluated.
They will calculate your repayment capacity based on your loan amount, income, qualification, employment, loan tenure, and age. After this, you will be given a sanction letter that contains information like your interest rate, loan amount, EMIs, tenure of the loan, nature of interest, and a couple of other important details. Ensure that you read this letter thoroughly before you sign it, and if you have any queries, bring it to the notice of the concerned authorities.
Disbursement is done soon after the evaluation process. The amount you get sanctioned for the loan can generally be anywhere between 80-90% of the value of the property. This is flexible and depends on how well you stand financially, so you can make it work in your favour if you win the trust of your lender.
Higher loan-to-property value
According to the 2016 budget, the RBI is now allowing banks across the country to grant loans of upto 90% of value of the property. Until the latest Union Budget, you could only access up to 90% of the value of your property if property itself was valued at Rs.20 lakh or below.
But now you can do so even for properties that reach values of up to Rs.30 lakh. So, if you apply for a loan for a property that costs Rs.30 lakh, you may be able to get a loan amount of Rs.27 lakh.
For properties valued between Rs.30 lakh and Rs.75 lakh, you can now get 80% of the total property value as a loan.
Home loans don’t just help you finance your new home and boost credit, they also give you additional tax breaks. Most of these tax benefits come under sections 24, 80C, and 80EE of the Income Act, 1961.
Section 80C of the Income Tax Act, 1961 lets you claim tax deductions on the principal amount of your loan, and has an upper limit of Rs.1.5 lakh for a self-occupied property. Of course, for the next 5 years, you aren’t allowed to sell the property on which you’re availing tax benefits. If you’re planning on selling it then it’s best to avoid applying for tax benefits.
For a self-occupied property, Section 24 of the Income Tax Act lets you avail tax redemption on home loan interest charges for up to Rs.2 lakh. The new budget also allows you to claim deductions on interest charges within 5 years of possession of your property.
You can even claim the amount you’ve spent on stamp and registration duties as a tax deduction (all within the limit of Rs.1.5 lakh) in accordance with Section 80C of the Income Tax Act.
There’s even a few interest deductions you can benefit from on pre-constructed properties. An additional tax deduction of Rs.50,000 from the interest charges is applicable for loans of up to Rs.35 lakh, provided that the value of your property does not exceed Rs.50 lakh.
You can also avail additional tax benefits if you’re applying for a joint home loan. This way, you can claim tax benefits for the principal and on the interest amount you’re liable to pay with your co-applicant.
Things to keep in mind
Be sure of your financial capability before you opt for a home loan, and make sure you conduct extensive research on the various loans available in the market. Also, create a contingency plan so that you aren’t caught off-guard in case of emergencies, which could lead you to default on your EMIs.
Use a home loan interest calculator to estimate the interest rates applicable on your loan amount. To increase your chances of getting a loan, make sure you have a top-notch credit score and don’t default on earlier payments. Having a long tenure, paying off other pending loans, and having additional sources of income might work in your favour.
When you’re looking for a home loan apply online for speedy processing and disbursement, before which make sure your finances are in order.
This is a guest post by Nitin Arora. He is an experienced financial advisor who is well known for his ability to foretell the market trends as well as for his financial astuteness. He has worked extensively in the finance sector and has been dealing with the entire range of loans. He has written numerous pieces on home loans calculator, business loans, doctor loans, EMI loans etc. and how they affect the customer in the present market scenario. He has been dealing with a host of reputed clients associated with the financial industry. He has an MBA in finance from Yale Business School as well as years of experience delivering seminars on sound financial practices and debt management. Nitin has also amassed a great name for himself as a financial blogger.