A quick guide to home loans in India

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Since time immemorial, buying or owning a home has been a lifelong dream for most Indians, and housing loans have been a handy respite to bridge the gap between dreams and reality for prospective buyers.

But each buyer is different with different plans of what they want to do with their newly bought haven of dreams. For instance, some may want to buy a piece of land and build their home from scratch, some may want to buy a flat that is already under construction, some may want a ready-made home to move in immediately, and many more. And to cater to these very needs, banks have devised various home loans so that nobody walks out without a solution.

What should I remember before applying?

There are several things you need to know, but here are some crucial ones 

Keep a good credit score:

Your credit history is the first thing that banks will check when you apply for a loan. Any score between 300 and 900 or above 750 is an ideal score. Ensure you clear your dues on time to maintain a good score. A bad score may result in high-interest rates or rejection of your application.

Compare all rates in the market: 

It’s always prudent to compare all your options with the lowest rates and benefits for the type of loan you’re looking for.

Take into account all costs:

Before applying, do check all the costs involved: processing fees, late payment fees and penalties, so that you’re not blindsided when you apply for one.

Evaluate your repayment ability: 

The importance of checking your repayment ability cannot be emphasised enough. Take the help of the Fi EMI calculator available online to check your loan EMIs so that you can keep aside some amount in advance.

Tell me about the home loans out there

Let’s dive into the details.

Home purchase loans

The most obvious one, this is meant for buying a flat, row houses or bungalows. You can also take a loan under this scheme to build your house from scratch if you already own a piece of land. Usually, the maximum loan amount that banks offer is 90% of the market value of the property.

What are the home loan eligibility criteria?

This can be depicted in the table below

Factor

Salaried

Non-salaried

Age

18 - 65 years

18 - 65 years

Credit score

750 or above

750 or above

Employment

Minimum 2 years of experience

Minimum 5 years of experience

What are the documents required?

  • Age proof
  • Address proof
  • Income proof
  • Identity proof
  • Existing loan documents (if any)
  • Property documents
  • Home construction loan

If you already own a piece of land and you want to design the house according to your preferences, then this scheme can be helpful. One important point to note is that the cost of the plot is also considered during the approval process and the loan amount is decided based on a rough estimate of the construction cost. It can also be taken to complete the construction of an unfinished house.

What’s the eligibility criteria for a  home construction loan?

Factor

Salaried

Non-salaried

Age

18 - 65 years

18 - 65 years

Credit score

750 or above

750 or above

Employment

Minimum 1 year experience with current employer

Can be taken for both professionals and non-professionals

What are the documents required?

  • Age proof
  • Address proof
  • Income proof
  • Identity proof
  • Existing loan documents (if any)
  • Property documents
  • Home Improvement Loans

Looking to get the flooring changed? Or the bathroom tiles have broken and need new ones? Fret not. There are specialised loans given for this very reason. These are very popular because the loan interest rates are low.

What’s the criteria for a home improvement loan?

Age

18-65 years

Work status

Salaried and non-salaried professionals

What are the documents required?

  • Age proof
  • Address proof
  • Income proof
  • Identity proof
  • Estimated renovation cost
  • Property title deed
  • Home extension loan

If you’re looking to create more space by adding an extra room or a new balcony to your existing home, then you can avail this type of loan.

Who can avail of a  home extension loan?

Age

18-65 years

Work status

Salaried and non-salaried professionals

What are the documents required?

  • Age proof
  • Address proof
  • Income proof
  • Identity proof
  • Property extension documents
  • Property title deed
  • Land purchase loans

As the name suggests, this loan is used for purchasing land that can be used to build a home or for other investment purposes.

The only eligibility criterion for this is that you should not be more than 70 years at the time of loan maturity.

Below is a table of all the documents required to get approval.

Salaried

Non-salaried/Professionals

Filled out application form with photograph

Filled out application form with photograph

Age proof

Age proof

Educational qualifications

Educational qualifications

Latest salary slips

Proof of business existence along with profile

Residence proof

Residence proof

Form 16 (for the last 2 years)

Last 3 years I-T returns with P&L account and Balance sheet signed by a chartered accountant

6-months bank statement

12-months bank statement

Copy of title documents

Copy of title documents

Processing fee confirmation

Processing fee confirmation

NRI home loans

For Indians residing abroad and looking to purchase a home in India or renovate an existing home and don’t have the means to do so, this loan scheme is here to help you. Keep in mind that the loan tenure for this scheme can go up to a maximum of 30 years, and the lending rate can be kept fixed or floating.

What are the eligibility criteria?

Age

18-60 years

Work status

Salaried and non-salaried professionals with minimum 2 years of experience with current employer

What are the documents required?

  • Valid work permit proof
  • Passport and work visa copy
  • Copy of employment contract
  • Last 3 months salary slip
  • Last six months salary account statement
  • General power of attorney
  • Property papers
  • Previous year ITRs except for NRIs living in the middle east or merchant navy employees
  • Balance transfer loans

If the lending rates drop and your current lender doesn’t provide you with the benefit (unless you’ve opted for fixed-rate instead of floating), you can transfer the loan to those who can offer lower loan interest rates. This scheme is most profitable during the initial loan tenure when the loan EMIs are the highest.

What are the balance transfer eligibility criteria?

Age

18-65 years

Work status

Salaried and non-salaried professionals with proof of timely payments of home loan interest with the previous lender

What are the documents required?

  • Age proof
  • Address proof
  • Income proof
  • Bank statements showing repayment of current loan
  • Property related documents
  • Loan statement and property documents in possession of the current lender

What are the prevailing home loan interest rates?

Banks' average lending rate hovers between 6.5% to 12%. Different lenders provide different rates for several reasons like inflation, repo rate changes and other economic factors.

However, borrowers are given the option to choose either a fixed rate or a floating rate at the time of taking a loan. In the case of the former, the lending rate will not be affected by the market fluctuations as it will remain fixed during the loan tenure, and in the latter, the rates may change due to market conditions which may or may not be beneficial to the borrower.

Additionally, some banks also give special privileges to women borrowers, senior citizens or bank staff by providing a 0.05% concession on the home loan interest rate and various other facilities.

And lastly, how do I apply for a loan?

Phew, getting a loan is just the initial step of homeownership, this step can also show a bit of the true cost of owning a home. Initially, the process of taking a home loan was cumbersome, with loads of paperwork, signatures, and frequent visits to the bank. But with technology taking over, the process has become smoother, friendlier and time-saving.

The bank will check your credit history and request documents, most of which have been mentioned above, check your eligibility and approve or reject your request.So be mindful of your financial status. It’s always better to check your home loan eligibility before deciding since you’re going in for a commitment that will last years.

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