When applying for a home loan, it is important to get the documentation just right
Home loans can span half the earning life of a young borrower in his late 20s. It’s a huge responsibility for the borrower and a big risk for the lender. Naturally, the documentation and procedures tend to be a little cumbersome. One of the most common pitfalls borrowers face is the lack of adequate or correct paperwork, which makes the process very long-winded and forces the borrower to make several trips to the banker. Here, we try to simplify the process.
Loans related to housing are approved for construction of new house; purchase of readymade house or a flat; extension of existing house; for repairs, renovation, upgradation of existing house; for purchase of a site approved by select government authorities or it an be a composite loan sanctioned simultaneously for buying a plot of land and building a house there.
The minimum age to avail a home loan is 18 years, and lending institutions look for individuals who have a work or business experience of at least five years.
Salaried or business
For salaried individuals, the following documents are essential: 1. A letter from the employer on the company’s letterhead confirming the employment of the borrower/applicant. 2. Original payslips of the last six months. 3. Form 16 and IT returns filed for three previous years. 4. Bank statements of the last three months from the bank where the salary is credited. 5. Proof of age. 6. Proof of address. 7. One guarantor whose income at least meets the proposed EMI — his income proof and proof of net worth is required. 8. Pan card copy. 9. Employment ID card, if available. 10. Passport copy, if available and 11. the highest educational qualification proof.
Self-employed individuals or professionals have to provide all of the above, except the letter from employer and the employee ID card.
Besides this, there are six property-related documents that are a must: The sale deed, the katha certificate, the latest property tax challan, the encumbrance certificate for the last 13 years, the approved building plan from the concerned government authority and, sometimes, the valuation report.
Some other factors play a role, for instance, your age or academic qualifications. Usually, younger applicants with better academic credentials are preferred. People who work for large and reputed companies will find their loans granted more easily. Above all, the individual’s income vs. savings capacity will be considered to set an EMI outflow rate. The quantum of loan sanctioned is 75 per cent (in special cases up to 80 per cent) of the cost of property.
Another factor that plays a role is the borrower’s other loans. Usually, short-term loans such as car, two-wheeler or consumer durable loans are not considered a disadvantage. However, if there are any long-term loans or home loans still active with another institution, the new loan will be approved based on the individual’s income, commitments and repayment capacity.
Loan tenures range from 5 to 20 years, and can be stretched up to 30 years in some cases. The collateral is the property itself but sometimes banks can insist on a guarantor.
The writer is a Bangalore-based financial planner. Mail him at email@example.com