It is everybody’s dream to one day, buy and own a home, be it an apartment or a house. Fulfilling your dream to possess a home can be made easy by acquiring a Home Loan. Simply put, a home loan is a sum of money borrowed from a financial institution or bank to purchase a house.
Buying a home is probably one of the largest purchase you would ever make in your life. You would need to understand home loans and their intricacies if you plan to buy a home through a home loan. Here, we present a simple guide for acquiring a home loan in Pakistan and what are the elements one has to consider upon getting a home loan.
Home Loans are offered to both salaried people and business owners earning from PKR 300,000 to PKR 50 Million, this can shift from case to case and from bank to bank. An individual can apply for a home loan directly from a bank or a building society as well. A home loan is credit taken to purchase property or land. In Pakistan, an average home loan tenure that is offered to an individual can go up to 25 years. The credit amount that you borrow is “secured” against the value of your home until the point is paid off completely. On the chance that you are not able to pay the bank back, the bank can reclaim your home and sell it off it to recover their pending payments. Keeping this point in mind, an individual should therefore be careful and take certain precautions while getting a home loan.
Most banks offer various products to handle your specific wants while getting a home loan; there are different types of loans available in Pakistan. The following are some types of loans offered to individuals:
Buy a Home: You can use this type of Home Loan when you want to buy a specific property with a constructed home, such as an apartment.
Construct a Home: You can use this type of Home Loan when you own a property already but need the financing for construction.
Home Improvement: You can use this type of Home Loan when you already own a home and would like to upgrade renovate or repair it.
For those of you who are more interested in Islamic Banking than conventional banking, Islamic Banks in Pakistan also provide home loan facilities. In the Islamic banking system, banks utilize two types of models classified as: Diminishing Musharka and Ijarah.
In a Diminishing Musharka model, the bank turns into a co-owner of your home and you in the long run purchase units of the house from the bank over a period of time.
In an Ijarah model, the bank purchases the home for you and you pay the bank back over a period of time, which the bank classifies as rent. After a certain time duration agreed between both parties, the bank gifts the house to the individual – rights of the property are transferred to the individual then.
Banks generally assess the individual’s capacity to be able to repay the loan, before they approve a loan. Mentioned below are some factors that banks consider while providing you with a bank loan.
- Income: You as the borrower need to demonstrate your ability to repay the loan and for which you’ll have to submit reports with respect to income, current assets, liabilities, training and experience and so on. For the business requiring a home loan, banks will analyze financial statements to see how successfully the business has been operating for the past 2-3 years.
- Credit History: Banks look into your credit history such as existing loan repayments, mishandled accounts or old credit cards. This is checked through a database of past loans and repayments available with the State Bank of Pakistan, through the eCIB or Electronic Credit Information Bureau system. Each bank reports outstanding loans, repayments and delays to SBP and which go into the eCIB system. If your credit history is clean, obtaining a home loan would be much easier.
There would be some elements that you need to consider as well when you apply for a home loan. Evaluate what your bench marks are for the following:
- Loan Amount: The total amount of loan that you are planning to take from the bank for your home.
- Loan Tenure: The total duration of your home loan.
- Mark Up / Interest Rate: This is the percentage the bank will charge you on the loan amount you will borrow on your home loan. The higher the markup, the more expensive your loan is going to be.
- Monthly Payment: The monthly payments you will make to the bank to pay off your home loan.
- Property Insurance: This is the insurance of your home and is required for the tenure of your home loan.
In Pakistan, there are a number of banks providing different home finance products for their customers and you can avail any of them while buying or constructing your home. Some of these banks that give you this facility are mentioned below:
United Bank Limited (UBL) – UBL Address
UBL provides financing for both buying and constructing purposes, under the name “UBL Address”. These loans are made available with two types of interest rates (known as floating and adjustable). To be eligible, you need to be a resident of Pakistan and earning a minimum monthly income of PKR 15,000. Note that a family can qualify for this loan even if the total income of both spouses total up to PKR 15,000. One can get up to 500,000 and bigger loans by taking advantage of this service. These loans are granted for duration of 3 to 20 years.
Standard Chartered – Home Purchase & Home Credit
Standard Chartered is a well-known name in the banking sector. In Pakistan, Standard Chartered Bank provides financing only for completed residential properties (and not for commercial properties). Once you submit the application, they will verify to determine if you meet their eligibility criteria. The borrower’s monthly income should be at least PKR 30,000 per month and he/she should be not less than 25 years of age. One can get as much as 30 million worth of financing from Standard Chartered Home Purchase scheme. On the other hand, Home Credit is intended for people who are going for maintenance or construction work.
Muslim Commercial Bank (MCB) – Pyara Ghar
MCB offers a range of financing options for different purposes including home purchase, renovation, construction or land purchase. Their home finance option is available in all major cities like Lahore, Karachi, Islamabad, Faisalabad and Rawalpindi. MCB provides up to 20 million loans for a period of 2 to 20 years; however, you cannot obtain this loan for commercial properties.
In an event that you are searching for home finance, you could always stop by at the bank that suits you best and talk to the operations or branch manager there for more detail.