1. What is CIBIL? : CIBIL (Credit Information Bureau of India Limited) founded in August 2000 keeps a credit score (called as Transunion Score) of all the people opting for any type of loan from any financial institution. CIBIL collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to CIBIL by banks and other lenders on a monthly basis. This information is then used to create Credit Information Reports (CIRs) and credit scores which are provided to lenders in order to help evaluate and approve loan applications. Credit Information Bureau (India) Limited (CIBIL) provides a credit score on a scale of 300 to 900 based on your previous credit card usage, how you maintained your bank accounts, any cheque bounces, existing loans, loan repayments and how many times you have applied for a loan or a credit card. The data from banks indicates that loan providers prefer a credit score which is greater than 700. Transunion score is a history of your credit profile, so do make sure that you manage your credit in such a manner that your score stays above 700.
2. Regulatory Body of Home loans? : NHB (National Housing Board) was established in July 1988 under National Housing Bank Act 1987 as governing body for all the home loans in India. It is a subsidiary of Reserve Bank of India. NHB was formed to create a system of long term home loans, to provide financial support to home loan companies, to make home loans affordable, to promote network of dedicated housing finance institutions and to regulate the housing finance companies. All rules and regulations related to home loan credit are as per the guidelines of NHB.
3. Tenure of Home loan: It ranges from 5 years to 30 years. While deciding on the loan tenure, certain factors need to be considered. The most important factor (MIF) in deciding home loan tenure is net disposable income. Net disposable income is the money that you are left with after paying for all the deductions like PF, ESI, Gratuity and Taxes. From this net disposable income the EMI is served every month. If you have a low net disposable income, long loan tenures may suit you fine. But be aware in such a case, though the EMI would reduce, you would be paying interest for a longer period of time. A loan with a shorter tenure would bring with it payment of lesser interest, but of course a higher EMI. Also while deciding tenure things which should be kept in mind are stability of Job, chances of promotion or increment, continuity of income, etc.
4. Interest Rate: There are two models of interest rate in the market. One is fixed interest rate concept where the rate of interest and EMI remains same for the complete tenure of the loan or till the time loan account is closed whichever is earlier. The second and most common type of concept is floating interest rate home loan. In such home loans, the interest rate and tenure of EMI is dependent on the base rate of the lender. As the base rate changes the home loan interest rate and tenure also changes. Fixed rate home loan are beneficial when the interest rates are expected to rise in the near future and floating rate home loans are beneficial when interest rates are expected to fall in near future.
5. Loan Eligibility: The loan amount to be sanctioned depends on your income and previous track record of repaying your loans and credit card dues. Home loan lenders generally provide 80 per cent of the value of the property as the loan amount, subject to your income. While assessing the income criteria, they do not consider some of your salary slips heads for calculating your net monthly income. They only consider the income heads which can be used to repay your loan. For example, your LTA and medical allowances are deducted from the monthly net salary you receive. You are expected to spend the amount received under these heads for the specific activities they are being provided for. This is one of the reasons why we generally see a difference in the eligibility amount quoted in the website and actual amount realized once the application is processed.
6. Foreclosure/ Prepayment Charges: Earlier banks/home finance companies used to charge foreclosure or prepayment charges if the loan is prepaid before due date. Such levy of charges was detrimental to the interest of borrower as he or she was hesitant to switch over the loan to take lower interest rate benefits offered by other banks. This system of Foreclosure/ Prepayment Charges was prohibited by RBI in its Master Circular on customer services in bank dated 02nd July 2012. This prohibition is only applicable on floating interest rate home loans and not on fixed interest rate home loans. So always keep in mind that if you have taken a floating interest rate home loan you can foreclose it anytime you wish to without paying any charges.
7. Negotiate: Do negotiate your interest rate with the lender. Despite all claims of being fixed, lenders do accommodate up to a few basis points. Many a times, financial institutions reserve their best of rates for loans that are to be disbursed quickly. So approach them only when you have finalized your property deal and you require disbursement shortly. Most lenders have monthly targets to complete, so if you are around the end of the month, your negotiating could probably fetch you an attractive rate. Also there is scope for negotiations in processing fees and waiver of up to 50% is achievable if negotiated properly. You never know, negotiations might pay off. “Baat karne se hi baat banti hai”.
8. Home Loan Charges: When opting for home loan, you should be aware of other charges that come with it. Lender’s charge processing fees, service fees and administrative expenses. These charges are a percentage of your loan amount that is actually sanctioned to you, and not on what you actually take home. When the EMI’s start rolling in, charges for swapping post-dated cheques, modifying monthly installment or tenure etc would be billed to you. So check the lenders schedule of charges properly and if possible avoid making such changes.
9. Loan Agreement: Don’t be afraid of the bulky loan agreement. Ensure you read it carefully, though it may seem a bit difficult. Your lender may agree to a lot of points verbally, but it’s what is mentioned on the agreement that finally holds good. Never sign a blank loan document, even if the marketing personnel tell you to do so. Check the details filled in your loan document to ensure that the terms are the same as what you agreed.
The Points mentioned above are not the only things to remember. These are the 9 most important ones based on the personal opinion and experience of the writer.
Buy your dream home quickly but safely.
Writer is a Chartered Accountant and Director, Dhanuka Group