Navigating the 2023 Real Estate Market: A Comprehensive Guide to Home Loans

Feb 13th 2024
A Comprehensive Guide to Home Loans | Real Estate Market Insights

Whether you are a businessman or a working executive, you can’t deny the fact that buying a property is no easy thing. This is because of the presence of numerous factors that affect the final decision of a property buyer. From choosing the right location to home loan application, nearby landmarks, and interest rates, these factors always play a prominent in role in affecting the decision. Apart from this, one needs to do a thorough study on the ongoing real estate sector in 2023 to gain some valuable insights that can help in smart and sagacious decision-making. 

When it comes to buying a residential property in India, the first thing a buyer considers is a home loan. Since, the value of a property tends to be high, likely in lakhs, it makes true sense to ease the monetary burden by seeking a home loan from banks or NBFCs in India. Fortunately, getting a home loan is no longer cumbersome due to the cut-throat competition in the real estate sector and banks are vying to offer home loans at attractive interest rates. If you are looking for a home loan to buy a property, here is a guide on how to secure the best deals on a home loan. 

What is a home loan?

A home loan refers to an amount that is borrowed by a property owner from lending institutions like banks to pay the cost of the property he purchased. This borrowed amount needs to be repaid in the form of Equated Monthly Instalments (EMIs) over a tenure. A home loan carries a specific interest that is negotiated between the borrower and lender at the time of final loan sanction. 

The Reserve Bank of India and Home Loans

All the home loans provided by banks and other financial institutions come under the purview of the Reserve Bank of India, which has laid out some guidelines related to a home loan. Below are the latest guidelines setup by RBI for home loans in 2023

1. Repo Rate

The Reserve Bank of India (RBI) has set the repo rate at 6.5% as of 8th February 2023, which indicates that it has been increased by 25 basis points. This increase tends to put more burden on the borrowers in the form of increased monthly instalments. 

Due to the latest guideline, the interest rates for home loans would go up for both existing and new property buyers in India. 

The repo rate puts a straight impact a home loan interest rate. When RBI lowers the repo rate, the borrowing cost goes down and a loan taker can seek to benefit from it. 

2. Loan To Value (LTV) Ratio

LTV ratio is the measurement of lending menace by various financial organizations like banks and NBFCs before offering a home loan proposal to a borrower. 

To help people buy property by making home loans more affordable, RBI has surged the Loan to Value Ratio up to 90% if the total home loan value is under Rs. 30 lakhs. In addition, the home loan LTV ratio is beyond Rs. 75 lakhs is 75%. Hence, the upper the LTV ratio, the easier it would be to purchase a property by seeking finance through a home loan.

3. Prepayment Charges

The maximum loan value and tenure for a home loan can be Rs. 1 crore and 30 years. If a person pays off his home loan in parts or in whole before the end of the loan tenure, he can choose to save money. This is simply by depositing a bulk amount towards your home loan account. Hence, the RBI has eliminated the prepayment charges in cases of fluctuating interest rates and maintained the penalty at 3% in cases of fixed interest rates to help loan borrowers who decide to prepay their loans. Earlier, the prepayment charges for a home loan were up to 5% of the loan balance.

4. Balance Transfer

For those borrowers who want to refinance their home loan, it is necessary to know that the Reserve Bank of India has eliminated the foreclosure charges. Home loan takers can transfer their existing home loan to a different bank offering lower interest rates. So, during the transfer of an existing home loan, the borrower won’t have to make any foreclosure payment.

Things To Do While Applying For A Home Loan in 2023

1. Compare Different Home Loan Proposals – A smart property buyer is one who never relies on one source of funds. Ideally, one should get home loan proposals from different banks and NBFCs. In today’s times, people can search for the best home loan rates and apply for the same online. This is quite faster and simpler for people. Moreover, it also helps them compare different home loans being offered to them in terms of foreclosure charges, balance transfer facility, monthly instalments amount, loan amount, etc. Choose the one that seems more affordable to you. 

2. Tenure – while seeking to get a home loan, the tenure of the loan is one aspect that can’t be overlooked. This is because it has a direct impact on the loan instalment. Ideally, one should go with a shorter loan tenure as it would lower the total interest one would pay towards the home loan. However, if you don’t have any issue in paying instalments for a longer term, you can go for a home loan with longer repayment tenure.

3. Credit Score – The credit score indicates the loan repayment capability of a person. This score ranges between 300 and 900. The closer it is to 900, the more the chances of getting your home loan approved. Ideally, a credit score of 750 or above is considered excellent to get attractive home loan interest rates. So, before applying for a home loan, do check your credit score and negotiate with the lenders. 

4. Down Payment – Down payment refers to the upfront amount a borrower pays from his own pocket to purchase the property. The remaining amount can be paid by him through a home loan. Usually, most properties need at least 10% as a down payment. Always remember that the more the down payment, the lesser will be the loan amount. 

5. Processing Charges - Every home loan borrower is supposed to pay this amount to the lender towards the processing of the application. Most banks and NBFCs levy a processing charge of up to 2% of the loan amount + GST. The processing cost typically differs from one lender to another. To control any additional burden, you must be on the lookout for the bank charging a nominal processing charge.

6. Documents – Since the home loan process is quite extensive, it is necessary to be aware of all the documents needed for a home loan application and its processing. From income documents to identity proofs, and income tax returns, arrange for all the required documents in advance to avoid any further hassle.

The Conclusion

A home loan is a major component of a home buying process as most property buyers choose to take a home to finance this purchase. Therefore, it becomes necessary for them to acquaint themselves with the entire home loan process, and its elements before making a home loan application. At Investkraft, we help people in understanding home loans better and getting them the best deal on the home loans. Contact us today to know more. 


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