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Home Loan

Home loan or housing loan is essentially an amount of money borrowed from a financial institution or bank for the purpose of buying a home. It constitutes a fixed or adjustable rate of interest as well as terms of payment. The housing or home loan can be taken for the purpose of either buying a house, construction of a new house, purchase of a plot of land or even repairs, extension, and renovation. All banks in India provide the facility of availing home loans at various interest rates, tailored to suit a variety of audience.

Types of Home Loans

There are different types of home loans offered by both private and national banks in India. NBFCs or non-banking financial companies also offer attractive home loans. The decision regarding which type of home loan you should go for depends entirely on your unique needs and affordability. The types of home loans in India has been explained below:

  • Land Purchase Loan: Land purchase home loan is offered by NBFCs and banks to individuals to purchase land or a plot for the construction of a home. Approximately 80 to 85 per cent of the total cost of the plot or land is covered by the bank.

  • Home Construction Loan : A home construction loan is granted by the banks or financial institutions to individuals who want to construct their home on a land or plot that is owned, or at least co-owned by them.

  • Home purchase Loan : The amount borrowed from the banks or financial companies to purchase a home is called a home purchase loan. The interest rates can be floating, hybrid, or fixed in this loan type. Also, the banks only give 80 to 85 per cent coverage for the market cost of the home.

  • Home Extension Loan: The banks and financial companies lend money to individuals for the purpose of expanding the house. Only a few banks provide this as a separate loan, whereas most of the financial institutions offer it as a part of the home improvement loan.

  • NRI Home Loan : This loan is provided by the banks and financial companies to NRI individuals who are interested in buying or building a house in India. The format of the loan application is the same as any other home loan, however, the approval process is a bit complex.

  • Home Improvement Loan: If you already have a house but do not have the funds to do renovation activities such as the painting of the house, borewell digging, electric wiring and other repairs, you can avail a home improvement loan from the banks.

  • Home Conversion Loan : This loan is granted by financial companies and banks to people who already have a home loan and want to transfer to a new property.

Home Loan Features and Benefits

There are various features and benefits of home loans such as:

  • You don't have to deal with increased property rates.

  • Don't have to spend all the savings.

  • You get tax benefits on interest paid and principal repayment.

  • No need to pay large amounts at once.

  • Sense of accomplishment.

What Are the Documents Needed to Avail a Home Loan?

The documents required to avail a home loan in India are the following:

  • Completely and correctly filled loan application form.
  • Investment statements (if any).
  • Passport size photos (Number differs from bank to bank).
  • Approved construction plan and other documents for the proposed construction or extension of house from the local authorities.
  • Housing board/Builder/NOC allotment letter.
  • Cost valuation or estimation report from the CA of the financial company or bank.
  • PAN card, signature, and identity proof.
  • Employee identity card (for government employees).
  • Salary slips and bank statement for last six months prior to application.
  • Address proof such as Voter ID card, bank statement, passport, bank statement, driving licence, telephone/credit card bill or property tax.
  • Property papers with Completion Certificate and Occupation Certificate as applicable.
  • Cost estimation or valuation report approved from the financial company or bank´s evaluator.

Who is Eligible for a Home Loan?

The Eligibility Criteria For a Home Loan in India are:

  • You must have a decent credit score, preferably between 750 to 900.
  • Self-employed individuals or business people must produce their proof of income to justify the loan amount.
  • If you have a bad credit score at least 3 months prior to applying for a home loan, it can adversely affect your chances of getting a loan.
  • You must have a regular and steady source of income.
  • The eligibility to receive loan does not depend on any particular profession.
  • The minimum age eligibility to receive a home loan is 21 years old.
  • If you have a good savings history with the bank, your chances for loan approval are high.

How to Top-Up Your Home Loan?

The top-up loan can be taken over your existing home loan amount until 20 years of the loan duration or until the entire loan tenure. However, you must have a good record of repayments with the bank for at least 1 year prior to top-up home loan application. You must also make a valid mortgage in the name of the bank.

You can apply using both online and offline methods. Most banks and financial institutions allow online forms for a top-up home loan. Otherwise, you can also visit your home branch to apply for top-up home loan.

What are different modes to pay your Home Loan EMIs?

There are a number of modes through which you can pay your home loan EMI:

  • Delayed start EMI option
  • Decreasing EMI option
  • Increasing EMI option
  • Lump sum payment option
  • Longer tenure repayment option
  • EMI waiver option

Top Housing Loan Companies in India

Home loans are provided by all banks and numerous non-banking financial companies (NBFCs). The top home loan providers in India are:

  • State Bank of India (SBI)
  • Housing development finance corporation (HDFC)
  • Indiabulls Housing Finance Limited (IBHFL)
  • LIC Housing Finance Limited
  • ICICI Home Finance
  • L&T Housing Finance Limited
  • PNB Housing Finance Limited

Fees and Charges Applicable to Home Loans

Different types of fees and charges applicable to home loans apart from the interest and payment amounts are as follows:

  • Processing fee
  • Legal fee
  • Technical valuation fee
  • Prepayment fee
  • Balance transfer fee
  • Franking fee

Ultimately, the charges and fee amount you pay will be completely dependent on your interest rate, type, and tenure. Be careful to evaluate all the associated charges and fix an approximate amount before choosing a home loan.

How to Apply for a Home Loan?

The step by step process to apply for a home loan has been provided here. This takes online home loan application into consideration. If you are more comfortable with offline home loan application, it is suggested that you take your documents to the branch of your bank or financial company of preference.

Step 1- Select the home loan type you want to go for.

Step 2- Select the home loan provider you prefer.

Step 3- Select the interest rate option.

Step 4- Apply online using the website of the bank or financial institution.

Step 5- Attach relevant documents.

Step 6- Wait for the verification to be conducted.

Step 7- Visit the branch for further processing of home loan application approval.

Frequently Asked Questions

When do I make my home loan application?

You must apply for a home loan when you have a steady income with proof, you are at least 21 years old and your credit score is above 750.

What is tenure of a home loan?

The tenure of a home loan is the maximum duration inside which you must repay your home loan along with the interest.

What is the Eligibility Criteria for a Home Loan?

If you have a steady source of income with proof and a minimum age of 21, you are eligible for a home loan. However, various other criteria come into play such as your credit score, savings history, etc.

Can I apply for a joint loan with my friend?

No. Banks in India only approve co-owned home loans with siblings, spouses and parents.

What is the maximum number of joint borrowers for a home loan?

A maximum of 6 people and a minimum of 2 people can take a joint home loan.

What is a floating rate home loan?

Floating interest rates for home loan varies with changing market conditions. Therefore, home loans on floating rate are connected to a base rate and a floating aspect.

What is meant by fixed rate home loan?

In a fixed rate home loan, there is no element of change as market conditions or varying prices does not have an effect on the interest rate.

Is it possible to switch from a floating rate home loan to a fixed rate?

Yes, it is possible to switch from floating rate home loan to fixed rate by applying for the same to your bank or financial company.

What is the tax benefit available on home loans?

Under section 80C of the Income Tax Act, 1961, you can avail a maximum deduction of Rs. 1,50,000 for the principal amount repayment. Under Section 24, you can get deductions of Rs. 2,00,000 for the interest repayment. Section 80EE provides tax benefits to first-time homeowners for the maximum loan amount of Rs. 25,00,000 and the valuation of residence should not cross Rs. 45,00,000.

What is meant by top-up loan?

If you already have a home loan and want to borrow an additional amount from the bank or finance company for any reason, you can apply for a top-up home loan.

Which are the best home loan providers in India?

Some top home loan providers in India are SBI, HDFC, Indiabulls, Housing Finance Limited, L&T Finance Limited, PNB Housing Finance Limited etc.