8 Basic Home Loan Terms You Should be Aware Of

The easy availability of house loans has made it easier for people to buy their dream home. Today, you need not wait for several years to save enough money to purchase a home. Instead, you can approach a financial organisation, apply for a home loan, buy a house, and repay the loan slowly through EMIs. But availing a loan is a vital financial decision and a long-term commitment. Hence, it is paramount that you are aware of the different home loan-related terminologies.

Here are 10 home loan terms you must know before applying for a home loan-

EMI

EMI (Equated Monthly Instalment) is the amount you repay every month to the lender till the end of the loan term. The lenders pre-calculate the home loan EMI before disbursing the amount. It is calculated based on the amount you borrow, the applicable interest, and the duration. During the initial years of repayment, a significant part of the EMI goes towards repaying the interest. As you continue to repay every month, a major portion of the EMI is used for repaying the principal amount.

Down Payment

When you apply for a home loan, you would inevitably come across this term. The financial institutions in India do not offer a loan to cover the 100% value of the property you wish to buy. The maximum amount you can avail is 80% of the property cost. You must pay the remaining 20% from your pocket as a down payment.

Pre-approved properties

The lenders approve the home loan application after verifying the property-related documents and physical inspection of the property. In some cases, the builders get their property pre-verified and pre-approved from the lenders to sell their property faster. But a pre-approved property does not mean it is 100% safe for purchase.

PDC or Post Dated Cheque

PDCs are a series of cheques that the borrower issues to the lender for withdrawing the EMIs. These cheque bear a future date and it must be cleared on the mentioned date. Ensure that you have sufficient funds in your bank account before the due date to avoid penalty charges due to cheque bounce.

Sanction Letter

Sanction letter is one of the most important documents for a borrower. The letter issued by the lender states that the loan application is confirmed to be granted. It also confirms that the borrower meets the lender’s criteria. Sanction letter mentions other loan-related details like the loan amount, the EMI amount, interest rate, and the loan duration. A lender reserves the right to cancel the loan even after issuing the sanction letter.

Credit Appraisal

Before approving the loan, the lender assesses the borrower’s repaying capacity and the process is known as credit appraisal. The lenders do this to avoid the risk of default on the part of the borrower. During the credit appraisal process, the lender may ask you to disclose information regarding your annual income (including salary and other sources), age, savings and assets held, liabilities (if any), history of employment, etc. Based on the information you provide, the lender may reject or approve your loan.

Disbursement mode

After the lender has verified the property-related papers, they proceed with disbursement of the loan amount. There are three ways of loan disbursal– Advance, Partial and Full.

Pre-EMI

In some cases, the lenders disburse the sanctioned amount in parts, which is called partial disbursement. It usually happens when the property you wish to buy is an under-construction property. After the loan is approved, you must repay the interest on the sanctioned amount until the full disbursement. This period of repaying the partially disbursed amount is called Pre-EMI.