loan borrrowers
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Are you a first-time homebuyer who has finally made up mind to opt for a loan in order to invest in your dream home? If yes, then before entering into the process of home loan application and approval, there are some necessary terminologies which being a first- timer you must know so that you can have access to the perfect and best loan options. Here’s a look:

Margin Money

It is one of the most important terms which a home buyer especially a first-time must know. Margin Money means that amount which is not provided by the banks to the borrowers. It means the difference between the property value and the sanctioned home loan amount. In India, RBI has set a limit for all the banks. According to it, a bank or a financial institution cannot sanction more than 80% of the property value.

Let say that you are interested in buying a property worth 1 crore, so as per the RBI mandate, the bank will finance only 80 lakh and rest 20 lakh will have to be arranged by you as a down payment.

Sanction Letter

Another important term which a home buyer must know is about home loan sanction letter. It is a letter which is offered by banks/financial institutions that have details about the sanctioned loan amount and its tenure which is almost 3 months. After receiving the sanction letter, a home buyer has to buy a property within a specific time period. If a buyer fails to do that, then the letter gets rejected and the whole approval procedure starts again from zero. A home loan sanction letter comprises of following details:

  • Sanctioned Loan amount
  • Loan Tenure
  • Rate of Interest and EMI
  • Validity of sanction letter
  • Terms and Conditions of the loan agreement

Equated Monthly Installments (EMI)

Well, most of the loan borrowers are familiar with this term as it is quite common in today’s financial landscape. EMI means that amount which a borrower has to repay to bank/financial institutions once the loan amount gets sanction. Banks calculate EMI with the help of Loan amount, rate of interest and loan tenure. Banks also provide amortization schedule to the borrowers in order to keep a regular check on the EMI repayment.

Post-dated Cheque

Don’t be afraid if banks ask you for a post-dated cheque while processing your home loan. It is a regular practice as banks use these cheques in case for repayment of your loan vis-à-vis EMI. A home buyer has to submit these cheques duly signed by them. However, banks can only process these cheques on the specified date given by the borrower.

Credit Appraisal

A credit appraisal is that process which is done by banks before finalizing the amount of loan to the borrower. Here, the banks evaluate the financial background of the borrower so as to ascertain his/her eligibility for the loan. It comprises of following documents:

  • Incomes of the applicant and co-applicant
  • Age of applicant
  • Qualification and nature of his/her profession
  • Employer details
  • Tax history and credit behaviour
  • Assets and investments
  • Liabilities

Security/ Collateral

In order to secure their loan amount, the bank asks the borrowers to secure any of their asset or property to ensure regular EMI payment. If in case, a borrower fails to pay the EMI, then banks may confiscate the security or the collateral of the borrower. So, it’s necessary that always go for only that amount for which you can easily pay monthly EMI.

Apart from all the above, there are more terms like loan disbursement, pre-approved property, resale property, etc. which are more or less quite common and known to most of the buyers.