Home Loan Guide for First-Time Home Buyers

It is a dream for everyone to own a home, but at the same time, applying for a loan is also a hurdle to face. The lengthy process of a loan requires systematic and legal planning. For first-time home buyers, it is a challenge to understand the home loan procedure. From applying for forms to getting funds, this process takes a few weeks and months for confirmation.

Whether you are buying a home for the first time or a second time, this guide will help you comprehend the home loan process while ensuring safe and precise buying.

What is a Home Loan and EMI?

A home loan is a safe money borrowing process in which financial institutions give funds to build, buy, or renovate a home in exchange for the property itself as collateral. You can repay the funds within the given time period through smaller splits of money called Equated Monthly Installments (EMIs).

Types of Home Loan

There are various types of home loans depending on the use and purpose.

1. Home purchase loan: The most common loan and one of the best first-time home buyer loans, used especially to buy a new home.
2. Home construction loan: A loan owned by someone who has a plot and wants to construct a home from scratch.
3. Home renovation loan: This is the loan from a financial institution to upgrade, renovate, or repair an existing home.
4. Home extension loan: A loan to add new space to your existing home, such as a floor, extra space, or room.
5. Land loan: It is a loan to purchase new land or a plot.

Eligibility Criteria for a Home Loan

Applying for home loans not only requires collateral, but you must also meet some eligibility criteria:

1. Age: Salaried individuals aged between 21 to 65 are eligible. While self-employed professionals should be between 23 to 70.
2. Credit score: Your credit score must be 725 or more for loan approval and eligibility.
3. Income: Basically, a regular source of income is required to repay the loan. But financial institutions consider both salaried income and self-employed income, (15,000 – 25,000 per month for the salaried employees and 3-5 lakh per annum for self-employed).
4. Employment: It is necessary to be salaried or self-employed for the eligibility of home loans.

Required Documents for a Home Loan

Generally, financial institutions demand some documents for a safe and legal home loan. These are the documents that you need to apply for a home loan:

KYC documents

To confirm your identity and address, you need to submit your identity proof, like a PAN card, Aadhar card, Driving license, or Passport.

For address proof, you require electricity bills, an Aadhar card, a Voter ID, or any other documents that demonstrate your address.

Income proof

A stable income proof is required for both salaried and self-employed individuals:

Salaried individuals require:

• The last 3 months of salary slips.
• ITR and the latest Form 16.
• Appointment letter.

Self-employed individuals require:

• The last 2-3 years of ITR.
• Audited balance sheet and profit & loss accounts for the last 3 years.
• Business registration certificate.

Bank statements

The last 6 to 12 months of bank statements are essential because they show your salary credit and bank liabilities.

Filled application form

You must fill out an application form provided by the financial institution. This form includes all your personal, bank, and employment information.

Property documents

For a reliable loan process, the bank requires some property-related documents, such as:

• Sale deed
• Title deed
• Approved building plan
• Encumbrance certificate
• Property tax receipts

Factors Affecting the Home Loan Process

There are some factors that you should be aware of because they can affect your home loan process. After fixing these elements, you can safely be eligible for a home loan:

Credit score

Your credit score indicates discipline and creditworthiness. A credit score of 750 or above can be considered the best score, through which your loan can easily be approved. A bad credit score can lead to loan rejection.

Income stability

Your monthly income or stable employment depicts your ability to repay the loan.

Lenders can determine your stability with job history, bank statements, and tax returns, which increases the chances of loan approval.

Debt-to-income ratio

DTI compares your monthly debt payment to your gross monthly income. It indicates your ability to manage monthly payments. Your home loan will be approved easily if your DTI is 25% or lower. Although the DTI between 25% – 40% is also considered good for some lenders, providing some extra information and documents. While there is a high chance of rejection, if it is above 40%.

Down payment amount

The down payment is the main factor of the home loan process that decides your monthly EMIs, loan approval, interest rate, and more. The lower down payment leads to lower approval chances, higher monthly EMIs, and higher interest rates.

Things You Should Keep in Mind Before Applying for a Loan

Before applying for a first-time buyer home loan, you should be mindful of these things:

Your financial readiness

Whether you are borrowing a small loan amount or a larger loan amount, your repayment capacity, credit score, and down payment should always be considered. All these factors will determine your suitability for a home loan. Keep everything clear and within your ability to repay.

Loan tenure

Loan tenure is the total time length for repayment of the loan, including the interest and principal amount. Your EMIs and interest are agreed upon loan tenure. Choose the loan tenure based on your budget and long-term financial goals.

Documentation

Gather all the required documents before applying, including personal identities, property papers, and bank documents. Collecting all documents will ensure smooth and faster loan approval.

Read all terms and conditions

Carefully go through the terms and conditions of the loan before signing the agreement. Make sure to clarify all loan-related doubts and confusing factors to the lender.

Conclusion

Buying a home isn’t just a dream; it is also a responsibility that requires a home loan aligned with budget and flexibility. The home loan process contains various checks and confirmations, which can directly influence your loan approval chances. It is better to gather all documents, verify property legalities, and carefully read all terms and conditions for a better home loan. Buying a home for the first time is challenging, but Govindam Groups has well-designed flats that can fit your budget as well as your preferences. Along with this, they integrate with various financial institutions that provide loans at better interest rates.