[ecis2016.org] If you are planning to purchase a house, read on to know all about home loan, and their features and benefits.
Home loans are secured loans obtained to purchase real estate by pledging the property as collateral. With home loans, you can secure high-value funding at an affordable interest rate and for a long period of time. The loan is repaid through monthly payments. The borrower receives back the property title after repayment. Home loans provide financing so you can buy your dream home. In general, lenders cover 75-90% of the cost of a home, and you must make an initial payment (down payment) equal to the remainder. Loans for home ownership provide ample funds with low-interest rates and long repayment terms.
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Types of Home Loans in India
Home Housing Loan
A home loan of this type is the most common type of home loan. Many housing finance companies, public banks, and private banks offer housing loans, which allow you to borrow money to buy the house of your choice and repay the loan in monthly instalments.
Home Construction Loan
If you already own a plot of land and want to build a house on it, this is the right loan type for you.
Home Extension Loan
Imagine you already own a house where you would like to add another room or another floor to accommodate your growing family. A home extension loan can help you with this.
Home Improvement Loan
If the house’s existing system needs to be repaired or renovated, such as painting the interior or exterior, upgrading the electrical system, waterproofing the ceiling, etc., a home improvement loan can help.
Home Loan Balance Transfer
You can transfer the outstanding balance of your home loan to a different lender who offers a lower interest rate and better service if the current interest rate is overwhelming or you are unhappy with your current lender’s service. Upon transfer, you can check out the possibility of a top-up loan on your existing loan.
Composite Home Loan
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A home loan of this type provides financing for both the land on which you would like to build a house and for the construction, all within one loan.
What are Home Loan interest rates?
The average home loan interest rate in India is between 6.5% and 12% as of March 2021. Different lenders have different rates, as well as the repo rate set by the RBI, inflation, economic activity, and many other factors.
The interest rate on some banks’ home loans is also reduced by 0.05% for women, bank staff, and senior citizens.
In addition, a home loan interest rate can either be fixed or floating. The rate on a fixed-rate home loan remains unchanged for a specified period. Fixed-rate loans are not affected by market fluctuations.
Home loans with floating rates have an interest rate that changes depending on market conditions. Borrowers may or may not benefit from this.
Home Loan: Eligibility
Banks have a list of eligibility requirements for home loans. To understand a person’s repayment habits, banks look at their credit history first. It is preferred to have a credit score of 750 or higher. Other factors to consider are:
- Age
- Employment type
- Minimum annual salary
- Collateral security
- Margin requirements
- Assets, liabilities, stability, and continuity of occupation
- Residency status (Resident Indian/ Non-Resident Indian)
Documents required for Home Loan
| Agriculturists | Salaried Customers | Businessmen/Non-Salaried Professionals |
| A photograph is required with the application form | A photograph is required with the application form | A photograph is required with the application form |
| Documentation of identification and residence | Documentation of identification and residence | Documentation of identification and residence |
| Statements of your last six months’ bank accounts | Statements of your last six months’ bank accounts | Statements of your last six months’ bank accounts |
| Processing fee cheque | Processing fee cheque | Processing fee cheque |
| Copies of title documents for agricultural land that show the landholding | Latest Salary Slip | Documentation of educational qualifications and business experience |
| Documents showing the crops cultivated on agricultural land | Form 16 | Business profile and tax returns for the last 3 years (personal and business) |
| A list of loans taken out in the last two years | Balance Sheet and Profit/Loss for the past 3 years |
Procedure for applying for Home Loan
Thanks to the advent of technology, getting a home loan has become easier than ever. A person can go to the bank branch directly or apply online.
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The bank collects the required documents from you upon application. The application is processed, including checking your CIBIL score, the value of your asset, calculating your eligibility based on your income and liabilities, and more.
A bank’s decision to approve or reject a loan is based on its evaluation and verification of all the documents.
Benefits of Home Loan
Lower interest rate
Compared to any other type of loan, the interest rate on a home loan is much lower. You may be able to get a top-up on the existing home loan at a lower interest rate than a personal loan in case of a cash crunch.
No prepayment penalty
Floating-rate home loans enable you to pay off the loan whenever you have an extra sum of money available without paying a prepayment penalty. Consequently, you can pay off the loan much earlier than the loan’s stated term.
Balance transfer facility
One of the reasons you might transfer a home loan from one lender to another is the interest rate, service charges, customer service experience, and others.
Due diligence of property
If you go through a bank to buy a house, the bank will conduct extensive checks on the property from a legal perspective, as well as verify that all the documents are valid. By conducting this due diligence check, the bank will reduce your chances of being scammed. The bank’s approval of the property means that you and your house are safe.
Long repayment tenure
Home loans have longer repayment terms than other loans, as much as 25-30 years. The reason for this is that when buying a house, one will have to borrow a considerable amount. If the loan amount and interest are spread over a longer-term, the monthly EMIs will be lower, thereby reducing the borrower’s burden.
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