Buying a new home is a daunting task. Choosing your dream home includes struggling with a host of problems to get that perfect house. But this is not all. The most important step is deciding on the perfect home loan which saves you from the hassles during the processing.

Getting a home loan is a lengthy procedure and one may face lot of hiccups in the entire process. There is a need for a systematic approach that could help ease the complicated procedure a little bit and at the same time help you save some money.

Home loan market is huge and there are varieties of home loans available. Some of the popular home loan products are the regular home loans, home extension loans, home improvement loans, home mortgage loans, and home loans for women, non residential property loans, lease rental finance, step up EMI product, etc.

Home loans can be availed by any individual - salaried or self-employed, co-operative societies, corporate bodies and associations of persons. The home loan seeker can avail a loan amount of less than 80 per cent of the cost of the property.

Higher eligibility, competitive interest rates on repayment and tax benefits are the three pillars of home loans providing an incentive to the new home buyers. The loans also empower families to move into better lifestyles. Following are few pointers to be considered before applying for home loans.

Getting a home loan

Who can get a home loan? Home loans can be availed of by individuals (salaried and self-employed), co-operative societies, corporate bodies and associations of persons. Typically, the home loan seeker can avail a loan amount that does not exceed 80 per cent of the cost of the property.

Actual loan amount

The actual loan amount is determined by taking into consideration factors like repayment capacity, age, educational qualifications, stability and continuity of income, number of dependents, assets, liabilities, saving habits etc. In case the individual is married and is an earning member of the family, that individual can become the co-applicant. This will substantially improve the chances of getting a loan as well as increase the total amount of loan taken.

Tenure and documentation

The tenure of the loan ranges from 1 to 20 years. In some cases, loans up to 25 year tenure can be availed. The term however does not extend beyond the retirement age or 60 years whichever is earlier (65 years for self employed individuals).

One should also take into consideration plans for retirement while deciding on the tenure of repayment.

The following are the basic documents required to apply for a home loan. However, the documentation requirements may vary basis customer profile, location of home, loan requirement and several factors.

1.Income and identity proof related documents for the salaried that include Salary Slip, Form-16 and ID .

2.Balance Sheet, P&L A/c and Bank statements for Businessmen.

3.Photocopy of property documents if the property has been identified.

Repayment capacity

The repayment capacity is evaluated considering all the elements. If you are married and have a family to support you must not aim to shell out more than 40 per cent of your net income as the EMI (Equated Monthly Installment). In case of single person who is planning to settle down with family after the first five years of loan disbursement, could easily budget 60 per cent of his net income for the EMI, depending on his lifestyle and spending habits. While these are general thumb rules, it may help in considering other financial commitment – both short and long term – before deciding on the loan amount. The size of the EMI depends on the quantum of loan, interest rate applicable and tenure of loan. Some housing finance companies (HFCs) have a regressive payment scheme meant for home loan seekers who are due for retirement within the term of the loan and have applied jointly with an eligible younger co-applicant.

How do HFCs look at loan applicants?

Housing finance companies look at minimising risk at the time of processing any loan application. There are two distinct processes in a home loan. The first process entails working out your loan eligibility, based on your fiscal status that is rated on the strength of the documents that you submit. Once the eligibility part is through, it means the HFC considers you a ‘good’ credit risk for that amount, and will sanction a home loan of that value, so long as the property stands true on the touch stone of documentation – which is part two: now, the property’s title has to be verified. Only after this is completed can the loan be considered as sanctioned and ready for disbursal.