Home Loan – Meaning, Types, Eligibility, and Features: The dream of buying a house is big and expensive. This dream is not easy to achieve. Home loans are the best option to help you save money.
Home loans can be used to buy a new home/flat or a piece of land to build the house. They can also be used to repair, renovate, expand, and remodel an existing house.
Home Loan – Definitions, Types, Eligibility and Features
Types Of Home Loans In India
1) Home Loan
This is the most commonly used type of home loan for buying a house. Many housing finance companies, banks and private banks offer housing loans. You can borrow money to purchase the house you choose and pay the loan back monthly.
The financing can cover as much as 80%-90% the market price of the house. The lender will retain the property until you fully repay the loan.
2) Home Construction Loan
This loan is suitable if you have a lot of land you wish to build a house on.
3) Home Extension Loan
Let’s say you own a home and want to expand it with additional rooms or a floor. A home extension loan is available to finance this purpose.
4) Home Improvement Loan
A home improvement loan is financing that can be used for renovations or repairs to the house, including painting, plumbing, upgrading electrical systems, waterproofing ceilings, and much more.
5) Home loan balance transfer
Your current home loan interest rates may be too high. Or you might not be satisfied with the service provided by your current lender. You can transfer the balance of your home loan to another lender, who will offer a lower interest rate as well as better service. After transferring your home loan, you can check for the possibility of a top up loan.
6) A Composite Home Loan
This loan is for financing the purchase of the land you wish to build your house on and the construction of that house.
The benefits of taking a home loan
1) Tax benefits
The greatest benefit of a home loan is your income tax deduction. This applies to principal and interest payments. The principal repayments can be up to Rs.1.5 million under the 80C. You can also claim interest repayments up to Rs.250,000 under the 24B. There are also special deductions of up to Rs.26,000 for interest repayments made in extraordinary circumstances under the 80EE and 80EEA. Stamp duty expenses up to Rs.1.5 lacs under the 80C.
2) Lower interest rate
The interest rate for a home loan is significantly lower than other types of loans. A home loan can be used to supplement your personal loan, if you find yourself in a financial crisis.
Banks will do extensive legal checks to verify that you are able to buy a house.
You will be less likely to get scammed if you do your due diligence. If the bank approves the property that means your house and you are safe.
4) Long repayment tenure
Home loans offer a longer repayment period than any other loan, with a maximum of 25-30 year. This is because of the substantial loan amount needed to purchase a home.
Spreading the loan amount and interest over a longer period will reduce monthly EMIs, thereby reducing the borrower’s burden.
5) No prepayment penalty
A floating-rate home loan allows you to make prepayments whenever you have money available. You don’t have to pay any prepayment penalties. This will make it possible to close your home loan sooner than the term.
6) Balance transfer facility
For many reasons, you can transfer your home loan from one lender into another, including the interest rate and service charges.
Home loan interest rates
In India, home loan interest rates range from 6.5% up to 12.00% as of March 2021. Rates vary between lenders, RBI-prescribed reposo rate, inflation and economic activities.
A few banks also offer women and bank employees a special advantage by granting 0.05% concessions on the interest rates for home loans.
You can choose to have your home loan interest rates fixed or floating. The fixed-rate home loan interest rate is set by the bank for the specified time period. This home loan is unaffected by market fluctuations.
For floating-rate home loan, the interest rate is subject to market fluctuations. It might be beneficial to the borrower.
The eligibility criteria for home loan loans are set by banks. Banks will first examine a person’s credit history in order to determine their repayment patterns. A credit score of 750 or higher is preferred. Other important factors to be considered are:
- Types of Employment
- Minimum Annual Salary
- Collateral Security
- Margin Requirements
- Assets, liabilities; stability and continuity of occupation
- Residency status (Resident Indian/ Non-Resident Indian)
Along with your completed loan application, the following documents will be required.
|Agriculturists||Salaried Customers||Businessmen/Non-Salaried Professionals|
|Apply form with photo||Apply form with photograph||Apply form with photograph|
|Identity and residence proof||Identity and residence proof||Identity and residence proof|
|Statements from the bank for the past 6 months||Statements from the bank for the past 6 months||Statements from the bank for the past 6 months|
|Checks for processing fees||Checks for processing fees||Checks for processing fees|
|Copies of Title Documents of Agricultural Land depicting Landholding||Recent Salary Slip||Educational Qualifications Certificate & Proof of Business|
|Copies of Title Documents of Agricultural Land depicting the crops being cultivated||Form 16||Business Profile and the 3 most recent income tax returns (self, business)|
|Statement of 2 previous years of loans received||Previous 3 Years Profit/Loss, and Balance Sheet|
Method of Applying
It is now easier than ever to get a loan for your home thanks to all the technology available. You can go to your bank branch and inquire about the options for a home loan or you can apply online.
After you submit your application, the bank collects all required documents. It will process your application.
After reviewing all documentation, the banks will decide whether or not to approve the loan.