BUYING A HOUSE

BY ATHUL & DIWAKAR

STEPS TO BUYING
A HOUSE
 Step 1:Budget

A proper budget has to be planned to know how much

money will be left each month to meet your expenses.
Remember that your first property will seldom be your
final property, so search after your present property
getting needs first, and let the long term take care of itself.
You should guarantee that the property you are getting
will satisfy your present needs and be within your budget.
As a property buyer, understanding your family’s present
major needs will help you make the right decision.
 Step 2:Location

It is essential to choose Take a good look at the location

and the locality. It is better to try a place adjacent to the
prime location of your city so that the price is not that
high. Location will also have a large impact on the resale
value of your home. Choose wisely and your home may
be your best investment.
 Step 3:Rental rates in the area

If you are are planning about investing in a rental

property, homes in high-rent or highly populated areas
are ideal. Knowing the rental rate in the area helps you
to choose the right property and location.
 Step 4: Good Resale Value

Resale sale Value is an important thing to consider before

you plan to invest or buy a property. Property buyers
never consider resale value when they buy. They make the
mistake of focusing solely on a prime locality or the
budget of the property. If you choose the wrong property
or location, it is possible that your future sales price will
always be less than the other homes around it.
 Step 5:Loan eligibility

Home loan eligibility depends upon the repayment

capacity, income, existing loans or debts and age of the
loan applicant. The lending company or banks provide
online services such as home loan eligibility calculator to
calculate loan eligibility of the home loan borrower. The
maximum loan that can be sanctioned varies with the
banks and the eligibility criteria may vary according to
the bank or RBI regulations. As home loan rates increase,
the loan eligibility for a borrower becomes stiffer.
 Step 6:Stamp Duty & Registration Fee

This is an important expense or tax, much like the sales

tax and income tax that are collected by the
Government. When planning your budget for property
buying and deciding to buy a property, you need to
know the rate and charges applicable in your city. If you
want to know the market value of your property and the
stamp duty amount on it, you need to contact the Ready
Reckoner to locate your valuation zone and sub-zone.
Find out the stamp duty amount applicable to you as per
the market value.
 Step 7:Additional Costs
Even if this isn’t your first home buying experience,
you will want to get help from a team of professionals.
Fees or service charge by real estate agents, lenders or
mortgage brokers,home inspector, land surveyor, lawyer
or notary etc should be considered. Find out how much
is the maintenance charge. Will car parking be provided
and do you have to pay extra for it. If your previous
owner did not have a vehicle, speak to the secretary of
the society and ask for a parking lot.
 Step 8:Property insurance

Property insurance safeguards your financial future if

certain damages occur to your property. The cost is
relatively low and provides coverage in case of problems
with the property title, certain damages or any legal issue.
There are many different home insurance policies to
choose from, with varying levels of protection. When
taking a decision to protect your major assets, it is
important to have a resource you can trust, to guide you
along the way. Choosing the right house insurance protects
your property and makes the process of buying easy.
DIFFERENT TYPES OF
HOME LOANS
 1. Home loan to purchase house

It is the most common loan type wherein the customer

purchases either a resale property or builder allocated
property. In case of a resale transaction, the property is
fully constructed. However, in case of builder allotted
property, the property may be fully or partially
constructed.
 2​. Residential plot purchase

Purchasing of plot allows the buyer to either construct a

house on it whenever he has funds or retain it as an
investment. For plot loans, around 70% of the loan
amount can be covered by the financial institutes.
 3. Home construction loan

In this type of loan, the customer owns a land and applies

for a loan for the purpose of construction of the house.
Under this loan, the disbursement is as per the
construction stage and cost. Also, the construction needs
to be commenced within 12 months and completed within
36 months of the first disbursement for it to be classified
under HL.
 4. Home improvement/ renovation loan

This loan can be used for various purposes such as

painting the exterior or interior of the house, plumbing,
upgrading electrical system, installing new tiles,
waterproofing, etc. A home improvement loan is ideal if
the customer would like to renovate his house but
currently lack the necessary funds to do so.
 5. Home loan balance transfer

This option can be availed when an individual want to

transfer his home loan from one bank to another bank
owing to reasons like lower interest rates or better
services offered by the other bank. This is done to repay
the remaining loan at revised, lower interest rates offered
by the other lender.
 The top 10 home loan providers in
India are
HDFC Limited
State Bank of India (SBI)
LIC Housing Finance
ICICI Bank
PNB Housing Finance Ltd.
Bajaj Finserv
Axis Bank
IDBI Bank
Tata Capital Housing Finance Ltd.
Kotak Mahindra Bank
 Different Types of Home Loan
Interest Rate

There are two types of home loan interest rates at which

lenders sanction a home loan.

1.FIXED INTEREST RATE

2.FLOATING INTEREST RATE
 What is Fixed Interest Rate?

Fixed interest rates remain the same throughout the loan

tenure. For instance, if you get a home loan at 10% p.a.
for a period of 15 years, the interest rate will not change
till the end of your loan period. However, lenders allow
their customers to switch over to the variable/floating
home loan interest rates after completing a specific period
of time.
Pros: With fixed rate home loans, planning for
finances beforehand becomes much easier. Since the
rates are fixed, borrowers know the loan amount
which they need to pay upfront every month to the
lender. It also helps you save money in case the
lending rates increase.
Cons: You cannot reap the benefits in case the
standard lending rates decrease because the rates
remain same throughout the loan tenure.
 What is Floating Interest Rate?

Floating interest rate, also known as the variable rate of

interest, is subject to the latest lending rates of the bank.
Unlike the fixed rate of interest, floating interest rates
may change during the loan tenure. The rate is dependent
on various factors such as RBI’s monetary policies and
revised MCLR or other lending rates.
Pros: The best thing about availing home loan at
floating rates is that you pay interest as per the latest
home loan interest rates. So if the rate falls, you save
on the payable interest amount. Also, the floating
home loan rates are cheaper than fixed home loan
rates.
Cons: On the flip side, if the standard home loan rates
rise, the payable interest amount will also increase.
However, this happens rarely and thus is preferred by
many borrowers.
 What Factors Affect Home Loan
Interest Rate?
 Credit score: Your credit score is an indicator of your
creditworthiness. The higher your credit score, the more
creditworthy you will be for lenders. Lower credit score usually
attracts a higher interest rate.
 Loan amount: The loan amount you wish to borrow can also
influence the rate at which you get the loan. Lenders have amount
slabs as per which they set the rate of interest.
 Income: The home loan interest rates for salaried professionals is
lower than the interest rate charged for self-employed
professionals. This is because the income of salaried employees is
stable. In case of self-employed, the income is dependent on
various external factors.
 Interest rate type: Home loan interest rate is mainly of two types – fixed
and variable. The interest type you choose for your home loan will
determine the rate at which you will repay the loan for the entire tenure.
In case of fixed rates, the EMIs remain the same for the entire loan period.
In case of variable rates, they change as per the change in its lending rate
such as MCLR.
 Gender of the applicant: Many lenders offer a fixed concession on home
loan interest rates for women borrowers. Such banks offer a concession of
0.5 bps for women borrowers on the prevailing interest rates.
 Bank MCLR: Home loan interest rates are linked to MCLR (Marginal
Cost of Funds based Lending Rate). It is a benchmark lending rate at
which lenders sanction loans. Change in the MCLR will resultantly
change the home loan interest rate in India across all banks and HFCs.
 How to Get Home Loan at Lowest Interest
Rate?

 You can get the lowest interest rate if you opt to avail a 
home loan jointly with your wife and make her the primary
applicant of your home loan. Most of the banks provide home
loan to women on an interest rate which is less than 0.5% of the
general home loan interest rate. This will also increase your 
home loan eligibility.
 You can even opt for a home loan balance transfer if your current
bank or financial institution is charging a higher rate of interest.
You can switch to another bank, which offers a lower rate of
interest. With such a tough competition, banks prefer to retain
their customers who make timely repayments and have a good
credit history.
 How to Calculate Effective Interest Rate
(EIR)?

Effective Interest Rate (EIR) = Base Rate + Markup

Base Rate: It is the minimum rate set by the Reserve Bank of

India (RBI). Lenders cannot sanction loan to customers below
this rate. This rate is subject to frequent changes on the basis of
multiple inputs.
Markup: This is the spread or margin over and above the base
rate. This amount is added to the base rate to get the Effective
interest rate (EIR). The markup may vary from one home loan
scheme to another.
 Which bank is the best to avail home
loan?
Which bank will be the best to avail home loan depends on your
loan requirements. Some of the tips that can help you choose the
best home loan offer are as follows:
 Check for the lowest home loan interest rate
 Besides the interest rate, check for other fees and charges such as
the processing fees and prepayment charges
 Check for the eligibility criteria
 Check if the lender offers prepayment facility, customized
insurance scheme, online account access, etc.
 Also, check for different loan repayment options
 How is home loan eligibility calculated?

Banks and other lending institutions calculate home

loan eligibility on the basis of various factors, which
includes:
 Age: The loan applicant’s age is an important factor for lenders
to determine his/her loan eligibility. With the increasing age of
the applicants, their eligibility also decreases as their remaining
years of service decrease.
 Income: Your income determines your loan repayment capacity.
The more your income, the easier it will be for you to repay the
loan, thus reducing the credit risk for lenders.
 Credit Score: Credit score helps lenders determine how well
you can handle credit. Your eligibility for a loan decreases with
a low credit score. Therefore, customers must always keep a
check on their credit score.
 Property Value: The market value of the property helps in
determining its resale value. It is on the basis of the property
value, lenders decide on the loan amount you are eligible for.
 Work Experience: Lenders prefer giving loan to applicants
with stable income. The longer you work for an organisation,
the more stable you are considered. The minimum work
experience required to apply for a home loan is usually 2 years.
 Comparison of Home Loan Interest
Rates of All Leading Banks in India
Home Loan Home Loan Processing Fees*
Providers Rates
Allahabad Bank 8.40% onwards 0.24% – 0.40% of loan amount
(Max. Rs. 50,000)
Axis Bank 8.85% onwards Up to 1% of loan amount (Min. Rs.
10,000)
Bank of Baroda 8.45% onwards 0.25% – 0.50% of loan amount
(Min. Rs. 8,500; Max. 15,000)
Bajaj Finserv 8.80% onwards 0.80% – 1.20% of loan amount
Bank of India 8.45% onwards 0.25% of loan amount (Min. 1000
and Max. Rs. 50,000)
Canara Bank 0.50% of loan amount (Min. Rs.
8.50% onwards
1,500; Max. Rs. 10,000)
Central Bank of India 8.50% onwards Up to 0.50% of loan amount (Max.
Rs. 20,000)
 Citibank 8.50% onwards Up to Rs. 5,000
DBS Bank Up to 9.50% Up to Rs. 10,000
DHFL 9.75% onwards Salaried/Self Employed
Professional – Rs. 2,500 – Rs.
20,000
Self Employed Non Professional –
Net PAT: 0.5%, Others: 1.5%

Federal Bank 8.75% onwards 0.50% of loan amount (Min. Rs.

3,000; Max. Rs. 7,500)
HDFC Bank Up to 0.5% of loan
8.40% onwards amount or Rs. 3,000, whichever is
higher
0.50% – 1.00% of loan amount or
ICICI Bank 8.70% onwards Rs. 1,500 – Rs. 2000, whichever is
higher
 IDBI Bank 8.60% onwards Up to Rs. 10,000
IDFC First Bank Up to 12.30% Up to Rs. 10,000
IIFL 10.25% onwards Rs 5,000 to 1% of loan amount
Indiabulls
Housing Finance 8.80% onwards Up to 1% of loan amount

India Shelter Finance 2% – 3% of loan amount

Corp. Ltd 13.00% onwards

Karur Vysya Bank 8.80% onwards Rs. 2,500 – Rs. 7,500

Kotak Mahindra Bank 8.75% onwards Up to 2% of loan amount
LIC Housing Finance 8.80% onwards As applicable
Punjab National Bank 0.35% of loan amount (Min. Rs.
8.50% onwards 2,500; Max. Rs. 15,000)
PNB Housing Finance 9.25% onwards Up to 1% of loan amount
Reliance Home Finan 9.75% onwards 0.50% – 1.5% of loan amount
ce
0.35% – 0.50% of loan amount
SBI 8.05% onwards (Min. of Rs. 2,000;  Max. of Rs.
10,000)
Standard Chartered B 9.41% onwards Up to 1% of loan amount
ank
Syndicate Bank 8.35% onwards 0.125% of loan amount (Min. Rs.
500 to Max. Rs. 5,000)
Tata Capital 9.25% onwards 0.50% of loan amount
United Bank of India 0.59% of loan amount (Min.
8.40% onwards
Rs.1,180; Max. Rs.11,800)
9.85% onwards 2% of loan amount or Rs. 15,000,
YES Bank
whichever is higher
EMI calculation in Excel
Loan Amount 2500000
Duration(year) 25.00
Interest % p.a 8.98%

EMI in Rupees(PMT) -INR 20,945.68 Formula 20945.68

THANK YOU