Everyone wishes to have their own home one day. But buying a house is a huge financial investment and many people can’t afford it in one go. For them, getting a home loan is the best way to fulfill their dream of owning a house. However, getting a loan or even applying for it is a big task. It involves a lot of documentation, a lot of planning, and a lot of patience. In the initial stage, you have to meet a certain credit score, give proof of your employment or regular income, give a processing fee, etc. In this article, we will give all the details about home loans.
What is a home loan?
A home loan is a mortgage provided by banks, mortgage companies, or other financial institutions for home purchases. A home loan is generally given for primary, secondary, or investment residences. Through home loans, people can borrow a significant amount and pay it back via monthly EMIs at a certain rate of interest. A percentage of the property’s amount, say 75% to 90% can be taken as a loan. The rest has to be paid as a down payment. Home mortgage lenders retain title to properties until the loan is repaid, and then the title is transferred to the borrower. If the borrower fails to make the payments, then the lender has the right to seize the property and sell it in the open market.
Planning to get a home loan? Here are the types of home loans you can choose from
Property loan, as the name suggests, is for people who want to buy a property, either for investment purposes or to build their own house. The LTV ratio and the repayment tenure that the lenders offer for land loans are comparatively lower than the residential home loans.
Construction home loan
Building home loans are available to those who own a plot and need funds to build a residential property on it. Mostly all lenders offer the same rate of interest, LTV ratio, and the loan tenure period for construction home loans as they do for residential or regular home loans. However, there are some lenders or banks who might be offering lower tenures for construction home loans.
Rural housing loans
These are home loans only, but for people in rural areas. These loans are designed to cater to the needs of applicants from rural places in India and meet their needs.
Affordable housing loans
These loans are specifically intended for people who come from lower-income families.
Home renovation/improvement loan
When you have a house, you also need to repair/renovate it from time to time. And it costs a lot of money. But don’t worry, you can get a loan for that also. A home renovation/improvement loan is offered by banks for repair or renovation work in your existing house. This type of loan is generally provided for shorter tenures since the amount is not always a lot.
Bridge home loan
Home loan owners seeking to upgrade from their existing homes into new bigger and better locations can use a bridge home loan. There are times when loan applicants face a short-term liquidity crisis due to a gap between the sale of their current home and the purchase of their new home. However, the tenure for bridge home loans is quite less. Mostly it’s 2 years but for properties that are still under construction, repayment tenure can go up to 5 years too.
NRI home loan
The NRI home loans program offers loan facilities to NRIs, PIOs, and OCIs to help them build or purchase houses in India.
Special loans for government employees
If you are a government employee, you can avail special offers and concessional rates on your home loans.
Benefits of Home Loan
Apart from being huge financial support, there are a lot of benefits of home loans.
The tax benefit is one of the most important benefits of getting a home loan. You can claim a deduction on interest repayments. The maximum amount that can be claimed for principal repayments under section 80 C and interest repayments under section 24 B are Rs 1.5 lakh and Rs 2 lakh, respectively.
Lower interest rate
The rates for home loans are lower because of their secured nature, starting at just 6.65% per annum onwards.
Long repayment tenure
As a big-ticket loan, home loans come with a longer repayment term of up to 30 years, unlike other loans. You can choose the repayment period that best meets your repayment requirements.
Zero prepayment penalty
Floating rate home loans are not subject to any prepayment/foreclosure charges as per RBI’s new rules. Most lenders don’t charge prepayment charges on fixed-rate home loans if you pay off the loan with your own funds.
Availability of top-up home loan
Home loan borrowers can also choose top-up home loans. The borrower can use the loan proceeds for large-ticket expenses like home renovation, car purchase, personal travel, children’s higher education, medical expenses, etc. A top-up home loan does not have any restrictions on its use except when it is used for speculative purposes. In contrast to personal loans and loans against credit cards, top-up home loans have no limitations on their fund usage.
Lenders and all financial institutions check a lot of parameters when you apply for a loan. Credit reports are the first thing lenders evaluate to understand a borrower’s payment history and score. The majority of home loan lenders prefer credit scores of 750 or higher. Other factors a lender considers are:
* Average annual income
* Employment type
* Margin requirement
Here is a list of documents you need to have before applying for a home loan
* Identity and residential proof
* Past 6 months bank statement
* Processing fee cheque
* Recent salary slip
* Form 16
Home Loan EMI Calculator
Your EMIs depend on the total amount, rate of interest your lender is offering, and tenure. You can check your EMI amount with the help of a home loan EMI calculator.
How to Apply for a Best Home Loan Option in India?
With the advancement in technology, most lenders now offer online platforms where applicants can easily apply for a home loan, submit all the documents and get everything approved. However, many people still prefer to visit the bank and talk to the manager, and then apply for a home loan.
Once the documents are submitted, the bank or the lender will start the process of evaluation; they will check your credit report and other details to decide if you are eligible to get a loan or