Financing Your Purchase

If you like many others are considering a loan to purchase your home, you can approach any one of the many banks that would have approved the project after conducting their due diligence. This due diligence typically covers both technical and legal aspects of the project and cuts down the time that the bank would otherwise take to sanction your home loan.

Home Loan Eligibility
Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable income which is your total monthly income less monthly expenses. Other factors that that the bank considers are your spouse's income, assets, liabilities and stability of income. The higher the monthly disposable income, higher will be your eligibility. Typically a bank assumes that about 55-60 % of your monthly disposable income is available for repayment of loan. The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo.

Equated Monthly Instalments (EMI)
You will repay your loan in equated monthly instalments (EMIs). An EMI comprises of an interest component and a principal repayment component. The EMI depends on the amount of loan that you take, the period for which you take the loan and the interest rate charged on the loan. See the EMI Calculator.

Documents need for Loan Approval
Banks will usually ask you to submit Identity and Residence Proof, your latest salary slip (authenticated by the employer) and Form 16 (for business persons/ self-employed persons) and the last 6 months bank statements / Balance Sheet, as applicable. You also need to submit the completed application form along with your photograph.

Pre_EMI Interest
Your home loan is typically disbursed in instalments, depending on the stages of completion of the housing project. However, your repayment of the loan through EMIs usually begins only after the entire loan has been disbursed which would coincide with the handing over of your flat. So, the interest on the portions of the loan disbursed until you get possession of your flat has to be paid by you. This interest is called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of EMI.

Margin Money
Banks will usually lend only up to 80% of the total value of your home and you are expected to bring in the balance 20% from your own savings. This 20% is called the margin money and has to be paid by you before the bank begins the disbursement of the loan.

Income Tax Benefits
You are eligible for tax benefits on both principal and interest components of a loan under the Income Tax Act. Currently, you are entitled to a deduction for interest payment up to Rs. 1,50,000 per annum and up to Rs. 1,00,000 /- per annum on principal repayment.

Fees and Other Charges
You should be aware of other fees and charges that banks may levy on you apart from the interest rate. These could be in the form of processing fees, legal fees, technical or valuation fees. In comparing the offers from various banks, you should factor in these charges to arrive at your total cost of servicing the loan.