10 Uncommon Things To Know About Loans Before You Buy Your Dream Home

Not many are confident about of their financial understanding. And, your understanding is often put to rigorous test when you approach a bank to avail of a home loan. While you deal with a huge lot of papers, you come across many things that you are not able to grasp immediately. 

The loan process involves a lot of paperwork and verification, and you have to sign a huge pile of documents. To equip you better when you apply for a home loan, PropGuide answers some of the frequently asked questions.

Who can be my co-applicant for a home loan?

A co-applicant is someone who applies along with you for a loan. Most banks have specified a 'relationship matrix' to define the rules on who can be your co-applicants. These can be your spouse, parents, son or daughter (if sole child). A minor is not allowed to be a co-applicant or co-owner of a property. It must also be noted that all co-applicants are not co-owners but all co-owners have to be co-applicants.

I asked the direct sales agent to sign my loan application form. Is that okay?

The answer a strict negative. Your loan application form (LAF) has to be carefully filled by you. Remember that this is the first document your loan officer will read and cross-check. So, you should never sign and unfilled form, and always read the form carefully before putting a sign on it. Any discrepancy in the application or any incorrect information may create a doubt in your lender's mind which may lead to a rejection of your application.

When does the repayment of the principal amount start?

Repayment of the principal loan amount starts a month after you avail of the full disbursement of your loan. Till the final disbursement of your loan, you pay only the interest portion of the loan. This is called Pre-EMI interest. Some banks offer a unique tranche facility, where you can choose the installment you wish to pay till the time the property is ready for possession. Any amount over and above the interest goes towards principal repayment, helping you repay the loan faster.

To calculate the likely EMI for your home loan, click here.

For how long is the sanction letter from the bank valid?

A sanction letter is a proof that an applicant is eligible to avail of a certain amount of loan from a lender. This letter is usually valid for three months from the date it is issued; some banks even a six-month validity period. If you are not able to avail of the loan within the specified period, you have to go through the sanction process again.

I have not finalised a property. Can I still apply for a home loan?

Yes, you can apply for a home loan before finalising your property, under the pre-approval category. Pre-approval is a written confirmation by the bank that it is willing to lend you a certain amount. The biggest advantage of a pre-approved home loan is that it gives you a clear idea of how much you can borrow from the bank. It helps you plan your budget accordingly.

What is margin amount in a home loan?

Banks require you to contribute a certain amount while buying your home. Your contribution in your home purchase is called margin or down payment.  Many lenders offer loans that require less than 20-30 per cent down payment/margin.

What is the role of an escrow account in a home loan?

An escrow account is a savings account held by a neutral third party. The money in the account covers estimated taxes, home insurance premiums and other special assessments. The officer managing the account makes sure that the closing of the loan goes smoothly, with all stakeholders getting their due. He records the deed and title transfer that makes the home officially yours.

What is the difference between a standing instruction (SI) and electronic clearing service (ECS)?

When you instruct your bank to make regular fixed payments towards your loan installments, it is called standing instruction. A mandate is signed, giving your home lender the permission to take funds from your account in an agreed way. Under an ECS, your account automatically gets debited for your monthly installment, without any manual intervention.

What are the sanction conditions in a home loan?

The sanction letter lists certain terms & conditions (sanction conditions), which you must fulfill before the disbursement of your loan. For instance, the lender may sanction your loan subject to presentation of certain documents or closure of your running loans. By a verification process, the lender will ensure you have met all the conditions and disburse the loan amount only after that.

I chose a 2-BHK flat initially but now want to buy a 3-BHK. Can I swap the property after taking the loan?

Banks allow swapping of properties within the same project. But you have to provide a request letter and must pay the requisite conversion fee for this. The credit assessment of the proposal is not required but you will have to submit fresh title documents, for the new property, as the address and the unit number get changed. The bank may also conduct a legal and technical verification of the these. A no-objection certificate from the developer will also be required. Besides, the new original title deed is collected, along with the cancellation deed.