Applying for a home loan? Here are tips to make your task easier

Buying a house is usually a complex process, involving loads of documentation, time and money. Since purchasing a property requires a huge sum of money, most individuals apply for a home loan from banks or other financial institutions.

However, home loans are different compared to other forms of borrowing, mainly because the amount involved is much higher than personal, auto and education loans.

When applying for a home loan, there are several aspects that borrowers need to assess. From document submission to calculating the equated monthly instalment (EMIs) and tax benefits, monitoring each aspect is equally important.

Therefore, individuals applying for a home loan need to come up with a holistic plan before they apply for a home loan. Having said that, here are five tips to make your task easier.

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There are a set of basic documents that are mandatory for a home loan application. These documents may not be required when an individual applies for a small-ticket loan, but are necessary in the case of home loans.

For starters, individuals will need a copy of their PAN, Aadhar card and proof of current address. A passport-sized photograph of the applicant is required as well.

Borrowers also have to submit proof of income. Banks may ask you for salary proof for the last three to six months. You could either provide a salary slip, salary certificate and bank statement (6 months).

Income tax proof is also necessary in the case of home loans. You need to submit copies of Form 16 for the last two financial years (Both Part A and part B) and Form 26AS.
In case there is a co-applicant involved in the process, the same details need to be submitted for both borrowers.

Although it is the first step while applying for a home loan, it is the most important one.

Finding a bank that offers you the lowest interest rate on a home loan is necessary as it will reduce both your monthly and long-term burden.

Not only will you be able to pay off the loan faster, but your monthly EMI will also be lower. Financial experts and planners say it is ideal to first look for a bank that offers you the lowest interest rate as it makes the entire process simpler and less expensive.

Checking loan requirement and eligibility

After identifying the bank from where you want to apply for the loan, the next step is to decide on a rough amount that you are planning to borrow.

Banks usually lend five to six times the amount of your annual salary and the amount is higher if there is another co-applicant with a steady source of monthly income.

It may be noted that the amount of loan eligibility varies for every bank. Factors like nature of profession or overall repayment capacity are also taken into consideration by banks before determining the loan amount.

Banks also take into account the value of the property while sanctioning the loan. While the maximum loan amount that an individual can get is 90 per cent of property value, most banks usually offer 80 per cent.

Having a rough idea about the loan requirement and eligibility will help you make several long-term calculations before the final loan amount is sanctioned by the bank. In most cases, individuals can just head over to their closest bank branch and inquire about loan eligibility in detail.

Once the bank has given you a final home loan eligibility estimate, the next step involves selecting the ideal repayment tenure for the loan. This process is equally important as your EMIs and the total interest you end up paying will depend on this tenure.

Home loans usually have a longer repayment tenure in comparison to personal, auto and education loans. Some home loan tenures can stretch up to 30 years. However, whether you will be able to apply for a 30-year repayment tenure will depend on your age.

Banks ideally give a 30-year tenure to younger individuals aged 30 or below. So, a person who is aged 28 or 30 may get a 30-year repayment tenure, but someone aged 45 or 50 will not get the same offer.

When a borrower opts for a longer tenure, the monthly EMI burden is significantly lower but the total interest paid on the loan is much higher.

This step comes after the bank has sanctioned you the desired home loan. Home loans come with major tax benefits on monthly EMI payments and other additional tax-saving benefits.

Individuals who have opted for a home loan can claim various deductions under Section 80C, 80D. Borrowers who have taken a home loan and paying monthly EMI should know that there are two parts to it: interest and principal amount payment.

The interest portion of the EMI paid in a year can be claimed as a deduction from total income up to a maximum of Rs 2 lakh under Section 24 of the Income Tax Act. Similarly, borrowers can also claim a deduction on principal repayment as well. This deduction is allowed under Section 80C of the Income Tax Act and a maximum amount of Rs 1.5 lakh can be claimed under it.

In case of a joint home loan, each loan applicant can claim a deduction for home loan interest up to Rs 2 lakh each and principal repayment of up to Rs 1.5 lakh under Section 80C.