Things you should know before getting a home loan

At some point most of us try to go for a home loan to buy a home. I was going through the process for the last one and half months and I didn't know anything about it till I started. I learned a lot of things on the way and learned that it is not a smooth process as shown in the advertisements or claimed by banks. I thought about documenting the same so that it will be useful for people like me who never bothered about similar things through out their life.

In my case I bought an already constructed house at my home town, so the process may be slightly different for getting a loan for constructing a house.

The process starts once you finalize the property and make a sale agreement with the seller regarding the price of the property. Then you need to find a financial institution or bank who is willing to finance the loan. Check with 3-4 banks and then proceed. Check with your friends or relatives regarding their experiences with different banks and choose one convenient for you.

Some points to consider at this stage:

* You need a margin money of at least 20 percent of the property value . Bank
will finance only the rest. Some banks will give you a loan of up to 90 percent, but it is bank's discretion.


* Note that what ever be the agreement between you and the seller, bank will finance only the value you are going to mention in the title deed. Some banks will give you an option to give a portion of the loan as home improvement, but again it is bank's discretion.

* Check the different interest rates for the loan. There are two kinds of interests rates fixed and floating. You can't say one is better than the other as it depends on the current interest rates and variation that may happen in the future.

* Check the pre-payment penalty you have to pay if you pre-pay the loan. Some banks doesn't have pre-payment penalty if you repay after the initial 6 months.

* Ensure that you have a good credit history and provide correct information in the loan application form so that your loan won't get rejected.


Initially you may have to provide the following documents.

1. Completed application form with passport size photo
2. Copy of identity and address Proof
3. Salary slip for the last 3 months
4. Bank statement for the past 6 months
5. Copy of the latest Form 16
6. Copy of PAN card


Once you fill up and submit the application form the bank may ask for a processing fee depending on the loan amount.

You have to submit the following property documents or copies:

1. Copy of the title deed
2. Copies of prior title deeds .
3. Location sketch
5. Possession certificate
6. Encumbrance certificate for last 13 yrs
7. Latest land tax receipt
8. Agreement for sale
10.Building tax receipt
11.Approved plan


At this stage when you have submitted a few or all the documents, bank officials will visit the location to verify the property and do an assessment. The sanctioning of the loan amount also depends on this assessment.

Your will get a sanction letter from the bank after this process. Once they get a report regarding the assessment, bank will send the documents to a lawyer for verification. Depending on that bank may also ask for additional documents.

Once the verification process is complete, the bank will issue a cheque in the sellers name. You need to fix a date for the registration and let the bank know. Then the cheque will be handed over to the seller on the day of the registration. The new title deed will be prepared by the bank's lawyer and a lawyer or his representative will accompany you during the registration process. You have to pay for the stamp paper charges to the bank's lawyer in advance or you need to buy it directly and give it to the bank one or two days prior to the registration date.


You need to bear the following charges.

* Stamp paper charges.
* Lawyer's fees for document preparation
* Registration charges

Once you complete the registration bank will keep the documents but will give you a copy attested by a notary.

Lessons learned:

There is not much difference between time required to process a loan between a public sector bank and private bank other than you will get a warm welcome in a private bank and you will get a cold response from a public sector bank official. Initially you will feel that getting a loan from a private bank will be more easy, but finally they will also take the same time and require the same documents asked by the public sector bank. They may ask more documents than they mention the first time.

If you want to get it processed fast it is better to go through the loan agent in the bank than going directly. In my case, I realized that most of the time I ended up doing most things myself because I didn't go through an agent and many times I didn't get proper guidance.

Note: I don't claim to be an expert in details regarding a home loan. This post is based on my experiences while taking home loan. There may be variations in the process from bank to bank . Also the process may vary depending on the type of home you are buying.

Useful links:

4 home loan facts by Manish Chouhan
Loan EMI calculator from HDFC
tips while buying house by Manish Chouhan