Home loan or housing loan is one of the most popular products offered by banks and NBFCs to customers. Home loan is also the largest selling banking product and the one that ensures the longest banking relationship with the lender. Owning a home of your own is generally an obvious as well as a major decision in a person’s life. However, the cost of construction or purchase of property is quite high and this is where home loans play a major, almost indispensable role for majority of home buyers. Home or housing loans are advances made to borrowers who require funds to purchase houses/flats/land.
They can also be availed of for construction, extension and renovation of houses. Lenders can be banking or non-banking financial institutions. A home loan or housing loan is an amount borrowed by individuals for a fixed tenure from financial institutions to buy, construct, repair or renovate a residential property. Lenders charge an interest on the amount borrowed, which has to be paid by the borrowers along with the principal amount.
Depending upon the type of property being purchased and the quantum of loan being availed, home loans can be classified into the following different types. In India, banks and NBFCs generally offer home loans under any one of the following listed variants of housing loans
Home Purchase Loans
As the name itself indicates, home purchase loans are specifically given for purchase of flats or homes. These are the most popular type of home loan and are availed by most home loan borrowers. Almost all banks and Non-Banking Financial Corporations offer home purchase loans.
Plot loans are loans offered by banks for purchase of land or plot. These loans are not necessarily offered by all banks or NBFCs.
Home Loan for Construction
Home loan for construction is offered to customers who want cash to construct their own house on an existing piece of land. The catch is that the land for construction should have been bought within a year of availing the loan for the cost of land to be counted as part of this loan. In case the land was bought earlier than one year, then the cost of land is excluded from the loan amount. The formalities for construction loan are slightly different than those for regular home loans. The loan applicant needs to give a lump-sum construction cost estimate to the lending entity and thereafter the lender evaluates and decides to sanction or reject the loan.
Home Extension/Renovation Loans
Home loans for extension or renovation of home are offered to those home loan borrowers who already have a house but are looking for further construction or renovation on their existing piece of property. For example, addition of an extra room or renovating a staircase etc.
NRI Home Loan
NRI Home Loans are specially designed for Non-Resident Indians (NRI) who wish to purchase a residential property in India. The requirements and procedure of availing this loan is different from the regular home loans.
Home Conversion Loan
If you have already taken a home loan for purchasing a house, but wish to shift to another house, then you can opt for a home conversion loan. It will help you in transferring the current loan to your new house.
Balance Transfer Home Loan
Individuals can use the balance transfer option to transfer their home loan from one bank to another. Most people choose this option to avail better interest rates.
Stamp Duty Loans
Stamp Duty Loans are offered by banks to cover the stamp duty charges, which is incurred while purchasing a property.
Existing homeowners who want to buy a new house can apply for a Bridged Loan, which will fund the new house. Generally, the tenure of this loan is below 2 years and it requires the borrowers to mortgage the new property with the lender until the loan is repaid.
Home Loans offers the best features and most competitive pricing to the widest range of borrowers seeking to buy their dream home. While every home loan is a very personalized need of borrowers. Home Loans makes the best effort to understand the requirement and provide them with the most customized home loans. Some salient features are presented below:
- Home Loans are secured advances.
- This means that home loans are offered in turn for a security deposited by the loan borrower. Collateral is usually the property that is being funded. Existing property can also be put up as security.
- Interest rates are flexible being either Fixed, Floating or a combination of fixed and floating. The Indian government has come up with the new marginal cost of funds based lending rate or MCLR which is to be used by banks to decide the rate of interest at which they can lend money to a home loan applicant. Earlier base rate used to be the rate based on which banks used to decide their lending rate. MCLR is a more flexible rate which takes into account a lot of factors like funding composition and strategies. MCLR will be reset by banks after every specific interval of time. For example, if a bank decides to reset their MCLR annually then your home loan rate will get reset after every one year.
- Home loan interest rates are lower when compared to unsecured personal advances. Unsecured personal loans have a higher risk ratio associated to them since the bank does not have any security deposit to fall back on in case of a loan default. Hence, these loans are charged a higher rate of interest as compared to home loans which expect the borrower to deposit some kind of collateral as security.
- The advance can be used to fund property for residential or investment purposes.
- Whether you need a house to stay in or for investment purposes, home loan can be availed from a bank of your choice.
- Amounts offered are higher than under other types of loans; up to 85% of the property value.
- Considering the cost of buying property as compared to any other commodity, the loan amount offered and sanctioned is substantial as compared to other types of loans. Hence, the loan tenures offered for home loans are also longer than those for other types of loans.
- Repayments are made in EMIs (Equated Monthly Installments).
- Since, the amounts sanctioned towards home loans are usually huge and the tenure also is long, the repayment of home loans is done in equal monthly installments.
- Pre-payments are allowed, to reduce liability.
- Pre-payment of home loan is allowed by all banks, private and public. Earlier, some banks used to charge pre-payment fees for earlier than stipulated repayment of home loan amount. However, these days most public and private banks let borrowers pay off their home loan as and when convenient. Most banks have stopped charging any pre-payment charges for the same.
- They are long-term in nature; tenors usually vary between 5 – 30 years
- Since the loan quantum for home loans is generally greater than all other types of loans, the repayment period also is longer than that for any other loan type.
- Non-interest charges include processing fees, pre-payment charges, inspection fees, documentation fees etc. Apart from the interest charged on home loan amount, there also are various charges that are levied while the loan sanction process is underway. These charges are communicated to loan applicants at the time of application.
- Co-applicants/joint-applicants are allowed.
- Home loans allow for joint loan applications. Since the loan quantum is high and the tax benefit also is good, banks allow for co-application or joint application of home loans.
- They qualify for tax benefits as per provisions of the IT Act, 1961 and hence, make for a good investment option.
The income tax authorities offer certain benefits and exemptions to individuals who have taken a housing loan from specified financial institutions.Section 24 of the Income Tax Act
Interest paid on capital borrowed for the acquisition, construction, repair, renewal or reconstruction of property is entitled to a deduction. Rs 2,00,000 is the maximum amount eligible for deduction in the case of self-occupied property and for rented out property there is no limit of amount of deduction.Section 80C of the Income Tax Act
You can get a maximum Rs.1,50,000 deduction from the Income, on repayment of principal during a financial year. Stamp duty, registration fee or other such expenses paid for the purpose of transfer of such house property to the assessee is also considered under this amount
Home loans are secured advances and therefore the eligibility criteria for these loans is laid out differently by different banks. Here are some of the most important factors that feed into determining home loan eligibility criteria for almost all banks in India.
- Age:The minimum age at the time of application should be 21 years. Repayments have to be completed before the age of 60 or 65.
- Employment:Ability to service interest charges, as reflected in the borrower’s earning capacity, is important. Borrowers should:
- Be salaried employees or self-employed persons (professional/non-professional)
- Have been in employment/business for at least 3 years of which current employment should account for at least 1 year.
- Income:A minimum income varying between Rs.5 – 7 lakhs would be required. This depends on the nature of employment i.e. salaried or self-employed.
- Residence:At least one year of stay at the current residence is required to display stability with respect to employment as well as financial. This is an indirect indicator but is taken into account by almost all banks while calculating home loan eligibility.
- Credit Rating:A good credit score is required (a score of 750-900 from CIBIL is considered good). Besides this, a healthy financial background is vital for approval and to determine the interest rate and loan amount.
- Parallel debt channels: While sanctioning home loan to customers, banks also look into the current credit standing of the loan applicant. If a borrower has other home loans, personal loans or car loans in-progress then the lending entity calculates the loan quantum eligibility accordingly. Banks do this to make sure that the loan applicant is able to pay the minimum monthly installment towards his/her home loan.
Documents to be submitted differ according to the eligibility requirements. The following, however, are commonly requested for from all the applicants:
- The application form which has to be signed and affixed with the specified number and size of photographs.Proof of identity (Copy of Passport/Voter ID/PAN Card/Driving License).
- Proof of address (Copy of latest Electricity Bill/Telephone Bill/Property Tax Receipt/Voter ID/Passport).Last 6 months’ Pass Book/Bank Account Statement.
- Business proof in case of non-salaried individuals.
- Statement of Personal assets and liabilities.
- Identification of signatures from present bankers.
Documents Requested from Guarantors:
- Identity and address proof.
- 2 passport sized photos.
- Proof of business.
- Statement of Personal assets and liabilities.
- Identification of signatures from his/her present bankers
Additional Documents Requested from Salaried Applicants:
- Salary certificate from the employer (original).
- Copy of ITR or Form 16 for last 2 years.
Additional Documents Requested from Non-Salaried/Self-Employed/Professionals/Other IT Assesses:
- Copy of challans proving that Advance Income Tax has been paid.
- Copy of ITR/Assessment Orders of 3 years.
FinFico.com is Tamilnadu’s leading portal for financial services where different home loan offers from various banks can be compared at one place and applied for without having to visit any lending institution. Here’s what users can do:
- Define loan parameters to receive free quotes, instantaneously, in an easy-to-understand manner.
- Compare offers to identify the right lender to deal with.
- Make real-time home loan comparisons to find the lowest rates in the market. At FinFico.com, interest rates are constantly monitored and updated to reflect the latest changes made by financiers.
- Avail exclusive discounts and deals for huge savings through FinFico.com’s active collaboration with leading financial institutions and banks.
- Check home loan eligibility online using FinFico.com’s home loan eligibility calculator and get immediate e-approvals.
- Determine repayment amount as well as schedule using FinFico.com’s home loan EMI calculator.
- Browse user reviews to gain insights on service provided by various institutions.
- Receive end to end guidance from a dedicated customer care team for smoother processing leading to quick disbursal of money.
- Get regular status updates via emails and SMS for easy processing of your home loan.
How to Apply for Home Loan on FinFico.com?
Step 1 – As the first step, the applicant of the fill up the home loan eligibility form that is available online. This must contain all the data required to process the home loan application.
After submission, the home loan tool checks automatically for the applicant’s eligibility and displays personalized home loan eligible options.
Step 2 – As the second step, the user can choose to compare different home loan options offered on the page and then apply for the one that suits him/her the best.
Step 3 – The final step in this process is receiving the immediate e-approval from FinFico.com after successfully submitting the home loan application online.
There is no particular right time for making your home loan application. As soon as you have figured out your budget and zeroed down on the property that you want to buy, you should apply for home finance.
Yes, mostly. Although a lot of loan processing work has been shifted to online platforms, still a loan applicant is required to visit the lending bank branch at least once to formally close the loan processing formalities. Many private banks have started sending their representatives to borrowers’ place to get documents and forms signed and verified.
No. Generally, banks only lend 80% of the cost of your property. The rest 20% is to be borne by the loan borrower. However, to ease out the process for customers, most banks have broken up this ration into 10-80-10 so that at the time of availing the loan, customers are only required to pay 10% of the total cost and the rest is paid by the bank
Repayment of loan starts after the entire home loan is disbursed to the borrower. In case of under-construction properties banks allow payment of the partially disbursed amount. Towards this partially disbursed loan amount, customers are free to either repay the principal and interest amount both or just the interest amount or none at all.
Yes. All banks allow pre-payment of home loans. Some banks charge a pre-payment fee for that while others do not.
Current home loan borrowers who have a running home loan account can choose to continue with base rate or switch to MCLR. New home loan borrowers need to avail the new MCLR rates which are subject to change every set interval of time as mandated by the RBI.
Your home loan will get sanctioned as soon as all the required documents are submitted and verified successfully. This may take anywhere between 10 to 30 days.
Yes. Home loans are a great instrument to avail tax benefit. This is offered to both the interest and principal components of home finance. Under section 24(1) interest repayment of Rs.1,50,000 is eligible for exemption and on the same housing loan a principal amount of Rs.1,00,000 is eligible for exemption from tax.
Any kind of property is considered an asset and hence buying a property is considered as a wise decision. Also, real estate prices have been appreciating on an annual basis. If you are confident that your income is sufficient to cover you for a long term liability like home loan then you can surely avail one to buy a property
EMI stands for Equated Monthly Installments. An EMI is made up of two components, principal and interest. Any loan availed by a borrower is repaid in EMIs over the loan tenure.
Since home loan is a huge loan amount and the tenure also is long, hence, almost all banks ask borrowers to furnish some collateral as security against the loan. This include the papers of property for which loan is being sought, some other property papers, any fixed deposit schemes or insurance schemes etc. that are on the loan borrower’s name.
Yes. You can apply jointly in your and your spouse’s name. Both of your incomes will be considered for determination of loan quantum.
Generally, all banks ask for proof of address, proof of identity, bank account statements and salary details from home loan borrowers. This list may differ a bit from one bank to another.
Home loan EMI payments can be made to the bank either by using offline channels like cheque, demand draft and cash or by availing the net banking facility that all banks offer to their home loan customers. Post dated cheques and Standing Instructions are another popular way to make EMI payments.
Any property document that you submit as security collateral is returned to you only once the entire home loan amount is repaid and the home loan on your name is closed.
Yes. Home loans are offered under various sub-heads. Housing finance for renovation of property or construction of house is also offered by all major banks in the country.
Yes. Most banks allow switching between fixed and floating rates. However, customers may be charged a particular fee for the same.
If you only look at rates of interest while choosing a home loan, you are doing it wrong. Learn how to apply for a home loan:
- Processing Fee:The processing fee is a part of the home loan. If the processing fee is higher, the loan gets expensive. The idea is to avail a home loan with zero processing fee.
- Payback: Some of the banks or lenders might not offer an option for pre-payment. Others might charge penalties for pre-payment. It is advisable that you go for a home loan that offers pre-payment and have low charges associated with it.
- Tenure: You will be paying lower equated monthly instalments if the tenure is longer. However, do remember that you will be paying a larger amount effectively if the tenure is too long.
- Waiting Period:Most home loans come with waiting period. It is good to choose a home loan that is associated with shorter waiting period so that you can save on the interest.
Reasons for Home Loan Rejection
- Builder not approved by the bank offering the loan
- Builder has been approved but not the property
- Rejections related to valuation
- Defaulter tenants earlier
- Issues with the credit history
Instability with employment
How to Avoid Home Loan Rejection?
It is clear that there can be several reasons for rejection a home loan. Maintaining a good credit score or earning a good salary is not always enough to get a home loan. The reasons mentioned above can also lead to home loan rejections. Thus, the best way to avail a home loan without any problem is by doing proper research about the property and builder. A property that has disputes or a builder that is not approved by the bank can also lead to rejection of a home loan.