Among the many aspirations of today’s working class, the one which ranks on top would be a home of their own. However, most of us cannot afford one either due to high real estate prices or lack of surplus cash. A home loan takes you one step closer to your dream destination- a home of your own, to either start a new family, shift to a bigger house or plan your retirement getaway.
Home Loan is the sum of money borrowed from a bank or a financial institution to purchase or construct a house. It is a secured loan where the property is mortgaged to the lender as a security till the repayment of the loan. The bank or financial institution holds the title or deed of the property till the loan has been paid back with the interest due for it.
There are different types of home loan available in the market to cater a borrower’s different needs:
A Loan Against Property (LAP) as the name suggests is a loan taken by the borrower from a lender by mortgaging an existing property that can be residential or commercial in nature. It is a secured loan where the borrower gives a guarantee by using his property as security. The loan amount sanctioned by the lender is based on certain percentage of the property's market value, which is usually around 40% - 60%. The interest rates for loan against property range between 12%-16%.
Lenders generally offer loan amount up to 80-85% of the value of the property. The amount that is financed typically depends on the status of the borrower (resident/non-resident), type of home loan (renovation, property purchase, property extension) and the lender.
The repayment tenure takes into consideration the repayment ability of the borrower based on their income and existing EMIs. The duration for which a home loan can be taken ranges from 5-30 years.
Lenders offer either fixed or floating interest rate:
Fixed Interest Rate is fixed for the entire tenure of the loan and a fixed EMI is paid for the entire duration of the loan.
Floating Interest Rate means that your interest rate varies during the loan tenure depending on changing market conditions.
Interest rates can also be partly fixed or partly floating, suiting the needs of the borrower.
For a Home Loan, basic registration charges, transfer charges and stamp duty costs are added to the cost of the home. Some other charges include:
Processing charge or booking fee – paid to the lender when you apply for the loan. It could be fixed or a percentage of the loan amount.
Pre-payment penalty – if the loan is repaid before the agreed duration, some lenders may charge a penalty, up to 2% of the amount pre-paid.
Miscellaneous costs – there could be a documentation or legal fee, also known as ‘application fee’.
Loan eligibility criteria varies from one lender to another. However a few key requirements are:
Click here to check your home loan eligibility.
The documents to be submitted when applying for a home loan varies from lender to lender. However, the common documents required by most lenders include:
Documents for Salaried Individuals:
Documents for Self-Employed:
Both the loan principal amount and the interest paid towards repayment of loan provide tax benefits under Section 80C and Section 24 of the IT Act respectively. However, please check with your accountant to know more about these benefits.
Lenders look at several factors while determining your home loan application:
CIBIL Score and Report: It is one of the most important factors when it comes to your loan approval. A high CIBIL Score is an assurance for lenders that you are a responsible borrower with a good track record of making timely repayments.
Employment Status: Apart from a good credit history, lenders check for your steady income and employment status.
Clean Title to the House/Property: Any legal or property issue related to your home/land might deter lenders to decide in your favor. Hence, always take legal advice before finalizing a property.
Location of the House: Sometimes lenders also take into consideration the location of the house before approving your home loan application.
Click here to check your free CIBIL Score and Report and ensure that your credit history and personal details are in order so as to avoid rejection from the lender.
|DOCUMENTS REQUIRED||PERSONAL LOAN||CREDIT CARD||AUTO LOAN||HOME LOAN|
|Latest Credit Score & CIR*||✓||✓||✓||✓|
|KYC docs (identity, signature & address proof)||✓||✓||✓||✓|
|Income Statement (such as salary slip)||✓||✓||✓||✓|
|Last 3 years IT return|| ✓|
(for self-employed only)
(for self-employed only)
* This is an indicative list and may differ from lender to lender.