Home Loan Terms

Banks or financial institutions have made buying your dream home much easier. Usually you have to wait years to save enough money to buy a house. With a home loan, you can buy a home quickly and then repay the loan in monthly installments. The bank can give you a loan for a fixed period of time where you have to choose simple or fixed interest rate.

You must choose the loan very carefully so that the interest rate is low and take the right loan.

Home Loan Terms You Should Know

1. Down Payment or Margin

While buying a property, the loan amount that banks approve is mostly 70-80% of the property value. The remaining amount has to be arranged by the borrower. For example, if you plan to buy a house worth 50 lakhs. Then the bank will ask you to arrange 30% to 40% as down payment or margin.

2. Equated Monthly Installment (EMI)

While taking a loan, this is the term you will hear most of the time EMI or Equated Monthly Installment is the monthly amount you pay to the bank to repay the loan. It is pre-calculated and known to the borrower before taking the loan. The EMI is calculated based on the amount borrowed, the applicable rate of interest and the loan tenure.

3. Credit Appraisal

Before sanctioning a loan, the bank checks several parameters to ensure the borrower’s ability to repay the loan. These include income, savings, age, employer, assets and liabilities. Verifying these details means avoiding the possibility of default.

4. Pre-Approved Properties

Banks scrutinize properties that qualify for home loans in this case some builders get this sanity check done by banks to promote the sale of their properties. A pre-approved property is not a 100% safe property, and therefore an investment First one must test.

5. Sanction letter

Sanction letter is the confirmation that the loan is sanctioned. An approval letter confirms the eligibility of the applicant for the loan and all other details of the loan such as loan amount, interest rate, tenure, EMI etc. related to the property or other issues.

6. Security/Collateral

Banks sometimes require a security or collateral which is an asset to ensure the ability to repay the loan. This asset will be used to recover the loan amount in case of any default.

7. Mode of Disbursement

Once the verification and validations are done by the bank after receiving the application, the bank agrees to disburse the loan amount. Loan disbursement can be done in 3 modes:

Advance: The full amount of advance loan is disbursed by the bank to the borrower before the construction is completed and is known as advance disbursement.

Partial: When a loan is disbursed a part of the loan amount before the completion of construction and the remaining amount is disbursed after the completion of the construction work, it is known as partial disbursement.

Complete: When the loan amount is fully disbursed after completion of any work, it is known as complete disbursement.

Many may be familiar with the above mentioned terms and conditions and you are much more aware person to understand the home loan process. This way you can find a good home loan partner to purchase your dream home.

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