Everyone dreams of a lavish home in the suburbs. But the first question that pops up in your mind is whether you can afford it. Well, the answer depends on many factors. But can you get a 100% home loan in India? The answer is a no.
You cannot get a 100% loan in India. According to the RBI guidelines, any financial institution and housing company can offer 85-90% of the home loan. The borrower ought to pay the remaining 15-20% of the fraction in the form of a down payment.
Why don’t you get a 100% home loan in India? The RBI does not permit any lender to exceed a Loan-to-Value (LTV) ratio. It is fixed by the RBI and varies with the property price.
However, several options are available to accumulate funds to pay for the home loan.
In this article, you will find a detailed understanding of applying for home loans online and other factors that come into the picture. So let’s begin.
How are home loans disbursed in India?
You require sufficient resources and financial support to buy a house to sustain interest rates every month, in addition to the added expenses for the house construction. Home loans come with varied interest rates, but what is a 100% home loan?
A 100% loan is a loan that covers the entire amount towards the purchase of the property. It implies that you are not required to make a down payment as a part of the agreement. But in India, you don’t get a 100% free loan.
The maximum loan amount varies with the total loan amount. If the loan amount is up to INR 30 lac, you could get 90% financing. Similarly, if the loan amount is between INR 30 lac and INR 75 lac, you can get up to 80% financing from the banks and NBFCs.
Factors affecting the home loan and interest rate
Several factors affect the home loan amount and the EMI and vary from one lender to another. Some of them are listed below-
1. Credit/CIBIL Score
Every lender examines the eligibility and credibility of the borrower before qualifying them for the home loan. The primary factor that guarantees the home loan is maintaining a good CIBIL/credit score.
Having a clean bank record and clearing other obligations on time ensures you a home loan with less hassle. Many financial institutions consider a CIBIL score of 750 to 800 as the ideal standard and offer attractive interest rates.
2. Income and repayment capacity
Your income, existing loans, and credit cards also decide the loan amount.
3. Value of the property
You might wonder how the value of property affects the loan amount. It takes a considerable share in the assessment by banks. If the property value is high due to the following reasons such as location, recent trends, and the builders, automatically, the total cost of the property soars.
It leads to high demand, and the sellers quote a high price. But it may not be the same case with the lender. They may offer fewer loans owing to uncertainty in the loan repayment.
4. Age of the property
The property age is another factor that plays an important role. Many financial institutions deny giving home loans if the property is old and does not have enough market value.
Ways to fund the remaining home loan amount
You cannot get a 100% home loan from a single lender. However, you can avail of up to 90% of the home loan from the bank, and you can secure the remaining 10% required for the deposit by the following sources. By doing this, you can reduce the severity of the expenses.
1. Take a personal loan
Personal loans come to the rescue when you want financial assistance during emergencies. The best part is that the personal loan is unsecured as opposed to the home loans by banks.
Personal loans can be for any purpose, and hence it is your safe choice for the deposit. Leading NBFCs like Money View offer personal loans at competitive interest rates within hours.
2. Withdraw from the EPF account
You can withdraw funds from the Employee Provident Fund for purchasing your dream home. Although it is not a loan but your life savings, it allows you to pull up 36 months of salary, which reverts a vast chunk of your troubles.
3. Use your investments as collateral
Investments are the best way to drive your savings upward, and they come in handy during emergencies. For instance, taking a secured loan by putting up your fixed deposits as collateral will ensure a home loan at lower interest rates.
4. Mutual funds
One way of accumulating a large sum of money for a down payment would be investing in mutual funds. If you have planned well before on the home purchase, investing in equity for a minimum of 5 years can increase your funds substantially that can be funneled towards paying the deposit.
3 things to remember before taking a home loan
Home loans are not paid off in a day or even a year. It takes decades of your earnings to land on the house you want. Hence the points mentioned below will provide a broad idea of what to expect while taking a home loan.
1. Taking a home loan can be risky and a burden
You must put up security while buying a home loan. These secured loans can put your investments at risk since your assets are directly at peril. Additionally, taking a loan is a burden to your existing financial commitments.
2. Calculate your finances and make a rough estimate of the monthly interests
While taking a home loan, you must put aside up to 40-45% of the monthly income towards paying the interest for at least 30 years. So this is a large number, and therefore you must carefully scrutinize your bank statement and understand how you can manage to pay interest every month.
3. Check for the approval status of the property
Since a home loan is a high investment, you must be vigilant of the sacrosanctity of the property papers and the required details. The property must be in the seller’s name, and it should be legally binding. Most NBFCs and banks don’t provide home loans if the property is disputed or does not have the approved building map plan.
Home loan interest
One question that arises while taking a home loan is whether the interest rate varies with the property price. The answer is a yes. If the property price is below INR 30 lac, the interest incurred is lower.
If the property price ranges between INR 30 lac to INR 75 lac, then even the interest rate increases. Generally, the home loan interests range between 7% to 8.5% depending on the lender and your credit score.
Final thoughts
Every person saves a considerable amount of their savings to build a dream home to live in. Hence every bank and NBFCs offer home loans at attractive interests. They don’t give a 100% loan to the borrower. You must pay up to 10% of the total loan amount for the deposit to initiate the process.
