If a home loan is taken wisely and planned, the dream of owning a home can be easily realized. Here, learn all the important rules related to home loan eligibility, interest rates, EMIs, insurance, and defaults, which you need to know.

Owning a home is everyone's dream, but with rising property prices, this dream cannot be fulfilled for most people without a home loan. A home loan is a significant decision for first-time home buyers, as once the loan is taken out, the EMI obligation lasts for years.

If you are considering a home loan, it's important to understand its intricacies first to avoid any problems, confusion, or extra charges later. Here are 10 important things to know about home loans.

1. Home Loan Eligibility

Before taking out a loan, it's important to check whether you're eligible. The bank determines the loan amount you can get based on your income, salary stability, age, credit score, job/business status, and number of dependents.

2. Types of Home Loans

There are three types of home loans:

3. Benefits of a Pre-Approved Home Loan

If the loan is pre-approved in advance, then:

The budget becomes clear.

Negotiations are beneficial

Selecting the right property becomes easier.

Many projects are approved without much documentation.

4. How much will the loan amount be? (Loan-to-Value Ratio)

Most banks offer loans up to 75–90% of the property value. You must pay the remaining amount as a down payment. If you add a co-applicant, the loan amount may increase.

5. The Total Cost of a Home Loan

The loan is not limited to just interest. These include:

Processing fees
Admin charges
Franking/legal charges
Prepayment/foreclosure charges
Prepayment charges on floating loans should be zero.

6. Understand EMI and Pre-EMI

EMI includes both principal and interest, and you pay these amounts to the bank or lender every month. However, if you are purchasing a property that is currently under construction, the pre-EMI system applies.

In this case, the bank does not disburse the entire loan amount at once, but instead disburses the amount in installments based on the developer's needs and the progress of construction.

As you receive the loan amount, you pay interest on that amount only. This interest is called pre-EMI interest.

If you prefer, instead of paying only interest, you can start paying the principal installments, i.e., you can start EMIs from day one. To do this, you need to divide the loan into installments and start EMIs on the total amount disbursed.

7. Home Loan Tenure

Home loan tenure can be up to 30 years. As the tenure increases, the EMI will be lower, but the interest will be higher.

8. Documentation Checklist Required for Home Loan

Proof of identity and address (Aadhaar/Passport/Voter ID)
Proof of income (Salary Slip/ITR/Balance Sheet)
Property documents (Sale Deed, Builder NOC, Tax Receipt, etc.)

9. Insurance Required with Loan

It's a good idea to take out Loan Protection Insurance when taking a home loan. This loan provides you with a cushion in case of any unforeseen event and frees your family from debt.

10. What is default and what happens?

Paying your EMIs on time is always the safest and safest course of action. But if a customer fails to pay three or more installments in a row, it's considered a default.

In such a situation, under the SARFAESI Act, 2002, the bank or lender has the right to take direct action without court permission. This means the bank doesn't need to go to court to take action against you.

If you're facing financial difficulties and finding it difficult to pay EMIs, it's better to talk to your lender immediately rather than remaining silent. Sometimes, banks may extend the repayment period or provide temporary relief. Therefore, it's wise to find a solution before the problem escalates.