Like most people, the largest investment you will make in your lifetime is either for your Home or piece of real estate. As the Ticket size is large it also put you into a heavy debt for some years, but as the property appreciates we would call it a “good debt”. As the Debt is massive you might look for ways to pay off your home loan fast. Many people choose 15-20 year time frame to be debt free, to own their home.
I would like to encourage your decision. I personally see house as your Biggest Asset, and as your earning child. Your house has a potential to generate regular income beyond retirement while you live in the house through reverse mortgage.
You need to plan your cash flows and the timing for the same to stay away from all possible crises.
Step-by-step process of a Typical Home Loan:
When you apply for loan the bank will charge processing charge which ranges from 0.5% to 1% of the loan requirement. While you can apply for the loan up to 85% of the property (policy varies bank to bank) rest of the money will have to be arranged by you upfront. Several builders may ask 25% of the value of property upfront so arranging lump sum at initial stage is important. Some banks also ask for mortgage and expenses of the same will have to be borne by the borrower. Mortgage expenses are over and above the processing charge.
When loan is sanctioned, the next step is to track the disbursement. With the several phases of construction banks keep on disbursing money to builder. Your visits to bank are required for every disbursement. Here bank will offer you two options for repayment they are
- Pay only interest on disbursed amount till the time full disbursement is made
- Pay EMI on full loan amount from the beginning
If you are staying in a rented house choosing 2nd option may be a bit tough. But if you can manage the cash flow, second option is better.
Now let’s observe the final stage of the process, here you will have to pay builder good lump sum that includes registration and stamp charges and other money for deposit to the society. This amount is roughly 6% of the value of the property. You will also have to visit the bank for arranging final payment to the builder. Bank verifies the construction and gives you the photo copy of the final cheque. Based on this cheque builder proceed with registration of the property.
Final settlement is easy in nature, here you will have to submit the all the registration documents with bank. Make sure you have at least ten copies of the registration documents (true copied) because these documents is very important and original copy once submitted with bank is difficult to get back before repayment of loan. You may require the copies of document while transferring electricity connection to your name.
Finally bank collects the entire list of documents in original and gives you the final settlement money. Some money may come to you if you have paid excess money the builder and one cheque will be in favor of builder. Give that cheque to builder and process is over.
Key Documents required:
- Your 3 years income tax returns are required for loan
- Continuous service of at least 1 year is required with current employer is required if you are working
- Existing information on running loans is required for loan
PVS (Prashant V Shah) 