Whether you are a first time buyer or have been within the circle before, buying a home is a tiring process. Moreover, if this process involves a home loan, then you have to deal with bulky paperwork and unaccountable legal formalities. Yet amidst all this you can get hold of one thing that is the loan jargons.
The jargon involved while availing a home loan can be confusing. So if you are ready to take a home loan, here are some terms that may help you in your process.
1)Down Payment- When buying a home the bank does not loan you the entire cost, banks give you 80% of the property cost. You must pay at least 20% of the remaining amount to the builder/seller; this is your down payment.
2) Types of rate of Interest- You can either pay fixed rate or floating rate. With fixed rate your interest rate remains the same throughout the loan period, with floating rate your interest rate varies with the market condition.
3) Sanction letter- It is a confirmation that you are eligible for a home loan. It does not guarantee disbursement. In it the institute mentions the loan amount and the rate of interest. It also mentions the loan period and the EMIs.
4) Modes of disbursement- On verification of the documents the bank will disburse the loan amount. The loan can be in three ways full, partial and an advance. When the bank pays the full amount to the builder/seller then it is a full disbursement.
5) EMI- Repayment of borrowed money to the bank every month is called EMI. It depends on the loan amount, the interest rate, the loan tenure and mode of computing interest.
6) Pre-EMI- In case of partial disbursement payment of interest is payable to the bank on the amount released. This is pre-EMI. You may have to pay the pre-EMIs till the completion of the project till the final disbursement is made.
7) Post-Dated Cheques (PDC) – You have to issue PDCs to the bank for a period of 1-2 years for payment of EMIs. A PDC is issued in advance bearing a future date.
8) Pre-approved Property- When approached by a builder, banks perform a requisite due diligence of a project. If everything is in order the property is a pre-approved property. Buyers should not consider a pre-approved property as 100% safe.
9) Credit appraisal- It is the examination of your credibility to judge your ability to pay back your home loan amount. Banks check your income, age, past experience, qualifications, existing loans etc. This gives the lending bank an insight into your past records.
10) Security- When availing a loan, you have to keep an asset with the bank as security. This serves as a protection to the bank if you are unable to or fail to repay the loan. Generally the home on which the loan is served acts as the security.
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