Some banks are offering low interest rates. With rates plummeting to single digit numbers, homebuyers are expected to make a beeline for fresh loans. The home loan process is an elaborate, usually oncein-a-lifetime affair. Hence, prospective borrowers must employ due diligence and do a thorough homework.

Here are some simple steps to make the process easy to go through:

Step 1: Identify your dream house

Is the house large enough to accommodate an increase in the size of your family at a later date? Is the neighborhood safe? Is it close to your place of work and children's school? Is public transport easily available? Are shops located close by? Finally, verify the property documents. After scrutinising the property documents, it is time to go hunting for a good lender.

Step 2: Arriving at loan eligibility

Banks will lend you an amount based on your income, age, and salary. If you have defaulted on any previous loan, it will impact your creditworthiness. Increase your loan eligibility by clubbing your income with that of your spouse's.
Do not opt for a huge loan that could jeopardise your finances. One must borrow as little as possible.

Step 3: Selecting a lender

A huge interest rate means larger EMI outflows month after month. Shop around for the best rates offered by lenders in the market.
Do not overlook fees and penalties. Often people get so carried away in their quest for lowest rates that they fail to notice other charges levied by the lender. A lender may offer lower interest rate but may have many clauses and fees. Application fees, processing fees, legal charges, valuation charges, switching charges and prepayment penalties are a few to watch out for.
Not all banks lend the same amount of money for an applicant's income level. Different banks have different yardsticks for calculating an applicant's loan eligibility. Is the lender willing to lend you the money you require? See if the bank maintains a good customer relationship.

Step 4: Apply for a loan

Fill in the application form. Here, the lender requires information about your assets liability, personal and professional data, and cost of the property you intend to purchase. Keep the down payment or margin money that is about 10 to 15 percent ready. You will be required to submit several documents to substantiate your claims.
Some banks charge a processing fee of 0.25 to 0.50 percent of the loan amount. The bank evaluates your repayment ability based on the information provided to them.

Step 5: Verification process

The banks thoroughly verify details provided by the applicant. All details including your existing residential address, your place of employment, employer credentials and financial standing are verified.

Step 6: Credit appraisal

The bank evaluates the amount of credit that can be given to the applicant. If some documents are misleading, the lender can reject the loan application. Your repayment capacity is based on your income, age, salary, experience, employer and nature of business.

Step 7: Sanction and offer letter

The bank sends an offer letter that indicates your loan eligibility. It includes loan details including rate of interest, loan amount, tenure and repayment options. You can negotiate the rate of interest with the lender to your advantage.
If you are in agreement with the terms in the offer letter, an acceptance copy must be given to the banker for its records. The banker conducts a legal check on your documents to validate their authenticity. They make a technical valuation of the property too.
The processing fee is not refundable and if your application is rejected, you will in all possibility lose this money.

Step 8: Disbursement

After signing the loan agreement, the bank makes a lumpsum disbursement. The banker usually retains the original documents pertaining to transfer of ownership of property. When a loan is partly disbursed, the bank does not start EMIs immediately. Instead pre-EMI or simple interest on the loan amount disbursed is charged.

Some tips to help you manage your home loan repayment better and plan finances for other needs too

A home loan is a longterm commitment for a borrower. You need to make regular repayments month after month for some 15 to 20 years. When a major chunk of the salary goes towards the loan repayment, other important expenses get overlooked. Planning finances becomes a major challenge. Striking a proper balance between debt repayment, investing for the future and meeting home expenses is critical.

Financial planning aims at meeting your long-term financial objectives. It includes asset allocation, exploring investments, tax planning, retirement planning and risk management. Financial planning first involves computation of your earnings, estimating your future needs to maintain your desired lifestyle and arriving at an investment plan to reach your objectives.

If you thought that your home loan was the only longterm commitment, it is not so. Children's education, marriage expenses, retirement savings, medical bills, unforeseen expenses and emergencies are all major expenses. You may also have other debts like personal loans, credit card bills and vehicle loans. Spending too much of your income and improper management of money, can lead you to a debt trap.

The tenure of any typical home loan is usually long. And owing to inflation and other pressures, a floating rate of interest is bound to go up as years pass by. So, your EMI due to the lender may shoot up, but your salary may not move up by the same fraction. Hence, when planning for repayments keep a considerable cushion for these increases in rates. Uncertainties abound. The health of the economy, inflation numbers, interest rates, your job stability and financial conditions are indeterminate elements. Repayments can become an arduous challenge for many borrowers if no cushion is provided.

The interest rates are showing signs of taming down. If the trend continues you can expect further reductions in rates. Borrowers must make as much down payment as they can, so that the burden of their EMIs will be minimal. Then, opt for floating rates, rather than fixing at the current relatively high levels.

If you were contemplating a vehicle loan or another personal loan, simply postpone to a later date. More debt means more financial obligations. For those already reeling under the burden of rate hikes, acquiring new debts can be an unwise move.

The key to successful retirement planning is to start off quite early and benefit from the power of compounding. Retirement planning acquires even more prominence because the inflation monster is waiting to eat into the money in your savings account. Increased life expectancy and escalating medical costs increase the need for a decent retirement savings.

If you are in a serious unmanageable debt, work out plans to sail out of debt first. This may include paying off high interest loans, paying credit card bills on time and cutting down on a lavish lifestyle. Investments in debt instruments, equity vehicles, balanced funds, real estate, and insurance must be made with due diligence. Adopt a disciplined approach and refrain from the temptation to splurge till your debts are paid off.

Some deductions allowed on capital borrowed to finance the construction or purchase of a house

Under the Income Tax Act, for the purpose of computing income or loss under the head 'Income from House Property', for a self-occupied house, a deduction of Rs 30,000 is allowed on interest on borrowed capital. However, a deduction on interest up to a maximum limit of Rs 1.5 lakhs is available if the loan has been taken on or after April 1, 1999 to construct or acquire a house. The construction or acquisition should have been completed within three years from the end of the financial year in which the capital was borrowed. The higher deduction is not allowed on interest on capital borrowed for repairs or renovation of a house. To claim the higher deduction you should furnish a certificate from the bank to which the interest is paid, specifying the amount paid for the purpose of construction or acquisition of the house.

Apart from the deduction of interest on housing loans, the Income Tax Act also permits deduction under Section 80C to assessees. This deduction is allowed on contributions made for specified purposes. An assessee is entitled to a deduction from the total income on the aggregate of these specified contributions. The deduction is allowed only to individuals and Hindu Undivided Families. Other categories of assessees are not entitled to this benefit. Any sum paid during the previous year by an assessee for the purchase or construction of a house (the income from which is chargeable to tax under the head 'Income from house property') is eligible for the deduction.

These expenses are eligible for this rebate:

Any payment due against a self-financing or development authority scheme, or to a housing board engaged in the construction and sale of houses on ownership basis.

Amount due to any company of which the assessee is a shareholder or to any cooperative society of which the assessee is a member, towards the cost of a house allotted to him.

Repayment of an amount borrowed from the Central/State Government, a bank, a cooperative bank, the Life Insurance Corporation, National Housing Bank or any public company with the main objective of finance for construction or purchase of a house. It also includes the assessee's employer, where the employer is a public company.

The amount includes stamp duty, registration fee and other expenses in connection with the transfer of the house to the assessee. No other payments are eligible for deduction.

These related payments are not eligible for this rebate:

Any amount paid by a shareholder of a company or a member of a cooperative society to become a shareholder or member. Amounts spent on addition, alteration, renovation or repair, which are carried out after the house has either been occupied by the assessee or any other person it has been letout to. In case the assessee transfers the house before the expiry of five years from the end of the financial year in which possession was obtained by him, no deductions are allowed. Further, the aggregate amount of the deductions allowed in the prior years will be deemed to be taxpayable by the assessee in the relevant previous years. The maximum deduction under the Section is limited to Rs 1 lakh