STAGE 2
MONEY MATTERS

Let's face it...money matters; especially when you plan a big-ticket expense like buying a home. Knowing how to go about garnering the funds for it and being prepared will ensure that you purchase goes through without any hiccups.

Stage 2 makes you aware of all the financial aspects of the purchase that you must take into account...

Eligibility

To know if you can afford your dream home with the help of a loan, calculate the following:

Savings for the down-payment

RBI allows a loan-to-value ratio (LTV) of up to 90% for home loans of Rs.30 lakh or less. For loans above Rs.30 lakh and up to Rs.75 lakh, the LTV stands at up to 80%. Accordingly, banks and NBFCs will require you to put up around 10-20% of the cost of the house, depending on the value of the house, as a down-payment before they sanction a loan for the balance amount. So, for instance, if you have saved up Rs 3 lakh for your home until now, you can typically expect to get a maximum loan amount of Rs 27 lakh from your lender.

Current levels of income

The loan that will be sanctioned will also depend on your current income. This gives your lender an idea of how much you will be able to pay out in EMIs every month. Ideally, the EMI on your home loan should not be more than 40% of you take home salary, if you have no other outstanding loans to service.

Value of homes that you have shortlisted

The last variable in determining the amount of loan that you are eligible for is the value of your home as assessed by your lender. When you take a home loan, your property is mortgaged to the lender until you repay the loan. Irrespective of the figure that the buyer and seller settle on, the lender may have its own way of determining the value of the property.

Maximum Funding

Any institution will be funding to a maximum amount of 90% of the value of the home (value<30 lakhs) and 80% of the value of the home for value(>30 lakhs) or the maximum eligible amount whichever is less

Other factors

Other factors that a lender will take into account include your age at the time of application for a loan, loan amounts currently being serviced, CIBIL score and credit history, employment track record, etc.

What are the other factors that lenders take into account?

If you are a Resident Indian Individual who is salaried you are welcome to apply for a home loan from Infoline Home Loans either individually or jointly. Co applicants can be your spouse, close relatives, partnership firms, and private limited company.

Based on my salary and date of birth, what is the amount that I am eligible for?

Calculate your eligibility
BUDGET

The price that you negotiate forms a large part of your home buying budget. However there are other small and large amounts that must be added to this lump-sum amount to arrive at you home buying budget. These could form as much as 25% of the actual cost of purchasing a house. They include:

Cost of the property:

This is a base cost that will determine other add on costs.

Stamp duty:

This differs from state to state but is likely to be in the range of 5-7% of the value of the property being purchased

Registration fees:

You have to pay a registration fee of 1% to 2% of the property cost to the local court.

Parking space:

Over the past decade, there has been a trend towards selling exclusive but optional parking space along with the purchase of an apartment. The cost of the parking varies according to the type of property you purchase.

Security features:

From necessities like grills to utilities like CCTVs, the cost of making your home secure could vary depending on the add-ons you choose.

Interiors:

Doing up your home to meet your tastes and requirements will cost too. Include estimates for the makeover in your home buying budget.

Monthly maintenance:

In some societies, there is a trend to collect maintenance as for a number of years as a lump-sum.

The sum of all these costs has to be weighed against the sum of your total level of savings and the loan that you are eligible for.
Creditworthiness

Beyond your age and current financial status, you credit history is an important determinant of whether you will receive a loan. Any potential lender will look into your past credit behaviour - as captured by your CIBIL Transunion Score and Credit Information Report (CIR)- to gauge your credibility.

So that you are one step ahead, visit www.cibil.com and view your credit score and CIR by following a few simple steps:

Complete a form that requests personal data
Make a payment of Rs 500 via Net Banking / Debit Credit / Cash Card
Answer 3-5 simple questions about your Loans & Credit Cards as part of the authentication process
Once the authentication is complete, you will have access to you credit score and CIR
According to CIBIL, "79% of the loans approved are for individuals with a score greater than 750". If your score is substantially lower, it may be prudent to improve your score before applying for a loan.
creditworthiness

Visit https://www.cibil.com/online/credit-score-check.do and purchase your credit score and CIR

Choosing a lender

It is always best to shortlist to a single lender before you applying for pre-approval, even if the process costs you nothing. This is because lenders make enquiries with CIBIL once you apply for a pre-approval and multiple enquires negatively affect your credit score.

Here are some criteria on which you could base your choice:

Rates offered

Many websites offer a table of comparison between the home loan rates offered by various lenders.

Processing charges and other fees

While comparing rates make sure that you include processing charges and other fees to get a more accurate picture of what each lender is charging.

Complementary services

Many lenders offer add on facilities that could save you some money elsewhere. For instance, if the bank already has a list of pre-approved projects or offers legal support, you benefit.

Prepayment policies

Flexible prepayment policies are an added advantage

Feedback from other customers

Home loans are usually long term commitments so make sure that you hitch your wagon to a lender that is cooperative and helpful. You can garner information on these aspects from existing customers.

Last, but not the least, try to negotiate with the lenders on your list for a favourable rate of interest and the terms of the loan. A flexible lender may offer you a better deal.

Fixed versus Floating

A fixed rate loan essentially means that the rate of interest that you pay is fixed through the tenure of the loan. Accordingly the EMI remains unchanged.

A floating rate loan on the other hand is linked to some policy rate - i.e. rate set by the RBI. It will move up when interest rates in the economy rise and vice versa.

If you expect interest rates to rise over the tenure of you loan, you are better off with a fixed rate. However, if you expect interest rates to fall, you will benefit from a floating rate.

Aside from gauging trends, both types of rates have their benefits. Fixed rates allow you to plan your cash flows better while floating rates ensure that the rate of interest you pay is in line with the rate that you may receive on investments that you have made in fixed return instruments.

These days some lenders allow you to change you option from fixed to floating and vice versa, naturally, at a cost.

about EMIs
What's EMI?

An EMI or Equated Monthly Instalment, as the name suggests, is the fixed sum of money you have to give your lender every month towards repaying your loan and paying interest on the amount borrowed too.

Components

Accordingly, every EMI that you pay is split into two components - Interest and Repayment. When you start repaying your loan, a larger part of the EMI is interest but as the years go by, interest becomes a smaller component and the repayment amount becomes larger. Effectively, as you pay off your loan, the interest payable falls as your outstanding loan amount decreases.

EMI and Tenure

EMIs and Loan tenures have an inverse relationship. If you choose a higher EMI, the repayment term becomes shorter and vice versa. Accordingly, lenders will offer you a range of EMI-Tenures pairs on your loan.

EMI and Interest rate

In a floating rate loan, if interest rates rise, your lender will probably give you the option to either increase your EMIs or increase the tenure of the loan. When interest rates fall, you can either pay lower EMI for the same term or the same EMI for a lower term.

Loan insurance

A home loan is a long term commitment. While servicing a home loan, if some unforeseen eventuality befalls the borrower and the family is unable to continue servicing the loan, the lender will be forced to sell the loan to settle outstanding dues. Accordingly, a number of lenders have bundled home insurance into the loan product.

Housing loan insurance

Generally, when insurance is bundled with your loan, the insurance is calculated on the reducing balance, i.e., it is synchronised with your loan so that it covers only the balance outstanding (principal + interest). Further, the cost of this insurance will be included in the EMIs you pay. The premium on such insurance depends on the loan amount, age of the borrower, the medical history of the borrower and the loan tenure. In the event that the insurance is triggered, the lender receives the sum assured and the house is turned over to the borrower's nominee.

Term loan - a good alternative

In the event that your lender does not insist that insurance should be bundled with your housing loan, you could purchase a term insurance policy that covers the value of the loan. In the event that the insurance is triggered, the nominee receives the sum assured and is responsible for repaying the lender. Term insurance, which is generally the cheapest form of insurance, cannot be synchronised with the outstanding value of the home loan. Accordingly, there is likely to be a surplus amount that the nominee will retain after paying off the lender, if the borrower's demise occurs late in the loan tenure.

Tax-implications*

Repayment of housing loan is eligible for tax benefits on both components of the EMI - Principal and Interest:

On the Principal

A tax deduction of upto Rs 1.5 lakhs per annum is allowed under Section 80C of the Income Tax Act for repayment of the principal amount of a housing loan. This limit is offered on the combined sum of all investment/expenses that form part of the 80C basket such as PPF, EPF, ELSS, tax-saving FDs, etc.

On the Interest Payable

A tax deduction of upto Rs 2 lakh per annum is allowed on the interest paid on a housing loan under Section 24 of the Income Tax Act. However, the actual deduction you can avail is the lower of the actual interest paid and Rs 2 lakhs.

Stamp duty charges and registration fees are also eligible for a deduction under Section 80C. Again, they share the overall limit with other instruments listed under the section.

Processing fees, service fees or any prepayment fees applicable on the sanctioned loan are also deductable under Section 24. So, a deduction can be claimed on the total of these fees and the interest paid during the year.

*Check for details and exclusions with your lender or tax consultant

budget

Let me arrive at a ball-park figure of the total costs involved in purchasing a home

Let me arrive at a ball-park figure of the funds I can collect to purchase a home

Tally your budget

creditworthiness

Visit https://www.cibil.com/online/credit-score-check.do and purchase your credit score and CIR

CHOOSING A LENDER

My shortlist

Name of lender
Interest Rate
Other charges
Complimentary services
Pre-payment policies
Feedback
FIXED VERSUS FLOATING

Which type of loan will suit me better?

Reasons why a fixed rate loan will suit me better
Reasons why a floating rate loan will suit me better
ALL ABOUT EMIS

Let's calculate EMI for various loan amounts and tenures using IIFL's online calculator

LOAN TENURE
LACS
LACS
LACS
LACS

YEARS

YEARS

YEARS

LOAN INSURANCE

In case I have the option to choose, which type of insurance will suit me better - bundled housing loan insurance or term insurance?

Reasons why bundled home loan insurance will suit me better
Reasons why a term loan will
suit me better
TAX-IMPLICATIONS*

How much tax will I save on various loan amounts and tenures using IIFL's online calculator

LOAN AMOUNT
LOAN TENURE
YEARS
YEARS
YEARS