Buying a house can be great as a long-term investment; however, with real estate prices being so high, this decision is a difficult one to make. An effective solution to this is to apply for a home loan that will provide the finances required. Lenders generally offer 20 years to repay home loans, which gives you an ample amount of time to clear the loan comfortably.
Now, if you decide to go for a home loan, there are a few terms related to home loans that need to be understood. This is important to make sure that the entire process of getting the loan goes smoothly and avoid any unnecessary confusion.
So, go through these 6 jargons that you should be aware of when it comes to applying for a housing loan.
- Credit appraisal
Any lender will check an applicant’s ability to repay the loan. Lenders get an understanding of an applicant’s repayment capacity by reviewing various factors such as their monthly income, age, outstanding debts, expenses, creditworthiness, as well as payment history. These aspects play an important role in the applicant’s home loan eligibility. This verification process is called credit appraisal.
- Loan disbursement
Once the lender verifies all your documents and approves the loan application, they will transfer the loan amount to your account. This is known as the disbursement process. There are various types of disbursement such as advance disbursement, partial disbursement, as well as full disbursement.
For loans that include high sums of money such as a home loan, lenders require borrowers to provide collateral as security. When you apply for home loan, the property for which the loan has been taken is used as collateral against the loan. In case of a default on the loan, the lender has the right to seize the asset as compensation.
- Down payment
A home loan does not cover 100% of the property cost. It can cover up to 80-90% of the property value, depending on the loan amount. You will have to cover the remaining amount, which is known as the down payment on the loan.
Pre-EMIs are for those properties that are still under construction. In such cases, the home loan is disbursed in partial amounts based on the instalments that need to be paid to the developer. Initially, payments on the loan would only clear the interest on the loan amount that has been disbursed. Payment towards the principal amount of the loan will only start after the entire loan amount has been disbursed. The payment in which you are only clearing the interest of the loan is known as pre-EMI.
Now that you are familiar with these home loan terms, go ahead and speak to a lender. Make sure to find out which loan plan is best suited to your budget. This can be done with the help of a home loan EMI calculator where you can check whether the home loan’s monthly instalments are within your budget.