Mortgage – what is it and how does it work?

Buying a residential property and building a home is the culmination of dreams for most Indians. However, investing in a residential property is a major financial decision, and a complete down payment may not be feasible for most people, particularly young professionals, at the start of their careers. Home loans and mortgages are the solutions to building real estate assets that appreciate over time while paying off the property cost in easy EMIs. Let’s look at some of the basics of home loans and mortgage payments.

What is Mortgage? Why opt for it?

A mortgage is any loan used to buy a real estate property, particularly a house or flat. Banks and NBFCs consider your loan application based on your credit score and repayment capability. When you buy a residential property in Mumbai or the suburbs, the ownership of the property is held by the lender until you pay off the debt with interest. The presence of collateral makes for easier loan approval and lower interest than an unsecured loan. The repayment of the principal and interest is made in the form of equated monthly instalments or EMI over the term (tenor) of your choosing.

How to start the homebuying process?

Firstly, you select a project, and a property based on your need, expected ROI, and repayment capability. A consumer-friendly online portal like Blox can help you understand the real estate value in different neighbourhoods and zero in on the perfect apartment for sale. Now you will need to start the home loan application and mortgage process. First, compare the lending rates and terms of reputed banks and housing finance companies and decide on the loan product that is most convenient for you. Now, look up the document requirements for the application. This could include personal financial documents like salary slips, bank statements, KYC documents, and property details, including the developer’s permits and intent to sell.

What should I do next?

Contact the lender and fill in the application. These days most lenders prefer online applications and allow applicants to upload supporting documents. The lender will now undertake complete scrutiny of the application and verification of the documents. The loan amount will be credited to you when the application is approved and processed. Some deductions, like the processing fee, are charged from this loan amount. Now you will proceed with the home-buying process, but the bank may retain the sale deed and other documents as part of the mortgage. In some cases, the lender may also insist on a life insurance plan equal to the loan amount.

What do I need to have before I start the loan and mortgage process?

  1. Your personal financial and KYC documents

  2. Most lenders offer about 80% of the property value as loans. You must provide the remaining 20% down payment.

  3. Developer documents, including land title, various permits, and intent to sell.

  4. Your credit report. Most lenders check your credit score before they approve the loan and mortgage.

  5. Check the EMI calculator and decide on a comfortable tenor. You will also need to decide about fixed or floating interest rates.

Buying a residential property in Mumbai is a dream for most people. However, navigating the funding and mortgage process may be difficult for first-time home buyers. Expert guidance from relationship managers of consumer-centric real estate platforms like Blox or financial advisors can help navigate this difficult process.

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