We all desire to have our own home. Many of us have a bucket list that has this one goal in it. Most of us save some portion of our income for this purpose right from the first paycheck. Those that have a house of their own look to buy more as an investment. Still, for most people, buying a property is something that needs assistance in the form of a home loan.

This article details the nuances of getting home loans, its requirements, and understanding real estate investment.

Institutions Providing Home Loans:

In India, traditionally, all scheduled commercial banks provide home loan facilities to customers. Apart from these, there are many Non-Banking Financial Companies (NBFCs) which give home loans. Housing Finance Companies (HFCs) are NBFCs that help make housing credit to customers seamlessly. Aadhar Housing Finance Limited, ICICI Home Finance Company Limited, and Sundaram Home Finance Limited are some examples of HFCs.

Procedure for Availing Home Loan:

The details of the procedure for home loans may vary slightly from bank to bank. Generally, the steps in getting a home loan are as follows:

First and foremost, you have to submit an application detailing your personal and financial information, as well as the information on the property. These details are important for the institutions to check your eligibility as well as the amount of that that you can avail.

One good news is that almost all banks and NBFCs have an online framework in place that can allow people to check their eligibility. Most of the banks and NBFCs have customer-friendly and easy-to-navigate websites. One can make use of these platforms to check if they are eligible to avail of a home loan from that particular institution, as well as the sum of the loan.

Some banks also require you to submit your documents detailing your personal and financial details. After verification of these documents, your application is evaluated by the institution. Should you meet all the necessary criteria, the bank/NBFC approves the loan.

The institutions also charge nominal processing fees for the procedure. After this scrutiny, the loan is disbursed.

Home Loan Interest Rates by Various Institutions:

Interest rates on home loans differ between institutions. This is because the risk assessment of every bank is different. Generally, the interest rates offered by Scheduled Commercial Banks are lower than HFCs. Also, HFC interest rates are floating rates that are market-determined.

The table below gives a picture of the interest rates on home loans in various Scheduled Commercial Banks.

HFCs such as Sundaram Home Finance Limited offer floating interest rates on their home loans. Therefore, they are not listed in the table above.

Factors Affecting Your Eligibility for Home Loans:

Several factors determine your eligibility for an available home loan from institutions. Although some differences exist between various institutions, the following aspects are important for all banks and NBFCs. They are as follows:

1. Income: The banks need to verify whether you have a steady source of income or not. Steady income decides the loan repayability of a person. Thus, you have to show documents as income proof, whether you are a salaried person or self-employed.
2. Age: Age becomes an important factor in gauging your ability to pay. Especially for a salaried person, the closer one is towards retirement, the lesser one’s loan repayment ability. On the other hand, having more years of service makes you more eligible to get a home loan.
3. Credit Score: A good credit score is important in determining your loan eligibility. A credit score is a number that determines your ability to repay a loan on time. It ranges from 300 to 850. A higher credit score means higher creditworthiness. It depends on the following factors: your record of past loans, the length of credit history, types of loans, loan utilization, and creation of any new account. Thus, maintaining a good credit score is important if you are looking to get a home loan.
4. Market Value: Your loan eligibility depends on the property you are willing to buy and its market value. A property located in an upscale area is likely to fetch a good market price upon resale. This reflects positively on your ability to repay. Naturally, such a property will get a higher volume of home loans than otherwise.
5. Current Liabilities: Your current liabilities and payment obligations are taken into account while sanctioning home loans. The higher the current liabilities, the more sceptical the institutions are in granting loans. This is due to the fact that higher liabilities show financial mismanagement. This affects the creditworthiness of a person. Hence, it is better that your current liabilities should be lesser, so that your debt-to-income ratio is lower.

House as an Investment:

Many people often look at buying a second home as a good future investment. The logic is simple. Land is a finite resource. It is not going to get bigger. On the other hand, the demand for land will always increase. So investing in real estate is always beneficial. However, the economics of real estate investment is not as easy as that.

Pros of Real Estate Investment:

1. Steady income in the form of rent.
2. Appreciation of value due to rising demand.
3. Tax benefits and exemptions.

Cons of Real Estate Investment:

1. High initial investment in the acquisition of property.
2. Volatility in the market.
3. Illiquid investment: The process of selling property is difficult when you are in urgent need of funds.

These are important considerations to have before investing in real estate.

Also, it is important to note that investment is essentially summed up in one line: “Buying cheap and selling dear”. If you are looking to take a home loan for a second home, this is an important fact to consider. As stated above, the interest rates on home loans normally range from 8.5% to 10% p.a. For the investment to be profitable, the returns from the property have to be higher than that. Add inflation in the mix and the returns have to be even greater for the investment to even balance out. So, it is generally advised that a second home as an investment should only be purchased if you have funds readily available with you, without taking a loan.

People sometimes have extra funds with them that they wish to invest. As such, there are some alternatives to investing in real estate that may be pursued in such a scenario. They are:

1. Investing in Real Estate Investment Funds (REITs)
2. Investing in stocks of real estate companies
3. Diversification of investment through Equity, Mutual Funds, etc.

Conclusion:

It is clear that the topic of real estate investment is much more nuanced and complex than observed superficially. Having one’s own home is often an emotional subject. However, as with all matters of money, a rational outlook is needed in this regard too. As rational consumers, it is our imperative to have a complete knowledge and understanding of the process. Lastly, even investment in real estate have more facets to it than previously thought. As such, informed decision-making should be the way forward if you are looking to venture into real estate investment.