A Home Loan is a secured loan used to buy a home by pledging the property as security. Home loans provide high-value capital at low-interest rates and for long periods. EMIs are used to repay them. The title to the property is returned to the borrower after repayment. If the borrower is unable to repay the loan, the lender has the legal right to recover the unpaid loan amount through the sale of the property in question. Read below to check the detailed information related to a Home Loan like Objectives, Types, Benefits, Eligibility Criteria, Required Documents, and much more.
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What is a Home Loan – Comprehensive Details
Most people’s greatest desires come true when they buy a house, and it’s an expensive investment. Borrowing money to buy a house is frequently the most significant financial decision you will take. Giving such a dream living demands a huge amount of effort on the purchasers’ behalf, and the only way to fit the home into their budget is to take out a home loan.
Types of a Home Loan
The various types of Home Loans are as follows:
- Home Purchase Loan: A home purchase loan is the most popular sort of home loan used to buy a house. Many housing financing businesses, public banks, and private banks offer housing loans, which allow you to borrow money to buy a home and pay it back in monthly installments. You can acquire financing for up to 80 percent to 90 percent of the house’s market value. The residence will be held by the lender until the loan is fully repaid.
- Home Improvement Loan: A home improvement loan is a loan that is used to repair or modify a home if the existing system is broken, such as painting the interior or exterior, plumbing, improving the electrical system, waterproofing the ceiling, and more.
- Home Construction Loan: A home construction loan is a loan used to construct a new home on the already existing land
- Land Purchase Loan: A loan used to acquire a parcel of land on which to build one’s own home.
- Joint Home Loan: A joint home loan is taken out by two or more persons, such as couples.
- Home Extension Loan: A home extension loan is used when you already own a home and want to expand it to build an additional floor, room, kitchen, bathroom, garage, etc
- Home Loan Balance Transfer: This allows you to switch lenders and transfer the balance of your outstanding loan to get better terms and lower interest rates. The current home loan interest rate may be overwhelming, or you may not be happy with your current lender’s service; you can transfer the outstanding balance to a different lender who offers a lower interest rate and better service. You can also investigate the possibility of a top-up loan on your existing loan once it has been transferred.
- Composite Home Loan: This sort of home loan combines financing for both the purchase of the piece of land on which you want to build a house and the construction of the house into a single loan.
- Top-Up House Loan: Top-up house loan allows you to borrow funds for any reason over and beyond the outstanding loan amount at cheap rates.
Objectives of a Home Loan
The main objective of a home loan is to purchase a new house, flat, or plot of land which will be used to build a house, as well as to renovate, extend, and repair an existing home.
Benefits of a Home Loan
Some of the key benefits of a Home Loan are as follows:
- Interest Rate Reduction: When compared to other loan kinds, the interest rate on a home loan is significantly cheaper. If you run out of money, you might be able to receive a cash advance on your existing house loan at a lower interest rate than a personal loan to remedy the problem.
- Tax Advantages: The most significant advantage of a house loan is the income tax deduction available for interest and principal repayments. You can claim up to Rs.1.5 lakh for principal repayments under section 80C, up to Rs.2 lakh for interest repayments under section 24B, up to Rs.2 lakh for interest repayment in unusual circumstances under sections 80EE and 80EEA, and up to Rs.1.5 lakh for stamp duty expenditures under section 80C.
- Long-Term Repayment Period: Home loans, unlike other types of loans, have a lengthier repayment period of up to 25-30 years. This is due to the large loan amount required to acquire a home. The monthly EMIs will be lower if the loan amount and interest rate are spread out over a longer period, easing the load on the borrower.
- Property Verification: When you buy a house through a bank, the bank will do extensive legal investigations on the property and ensure that all of the documents issued are valid. This proper research examination on the bank’s part will lower your chances of getting duped. If the property is approved by the bank, you and your home are safe.
- Balance-transfer service: You can move your house loan from one lender to another for a variety of reasons, including interest rates, service fees, and customer service.
- No prepayment penalty: When you take up a floating-rate home loan, you can make prepayments anytime you have a lump sum available without incurring any penalties. This will allow you to pay off your house loan far sooner than the agreed-upon term.
Home Loan Eligibility
Applicants who want to apply for a home loan must fulfill the eligibility criteria put forward by the bank. The eligibility criteria for applying for a home loan are as follows:
- The applicants who are the Residents of Indian, Non-Resident India (NRI), or Persons of Indian Origin (PIO) are all eligible to apply for a Home Loan
- The minimum age of the applicant must be 18 years and the maximum age of the applicant must be 70 years
- The applicant’s Net Annual Income must be at least Rs.5-6 lakh depending on the type of employment
While filling up the application form for a Home Loan, some important documents will be needed by the applicants, make sure to keep them handy. The documents required for a Home Loan are as follows:
|Identity Proof (anyone)
|PAN, Driving License, Voter ID, Valid Passport
|Residence Proof (any one)
|Copy of valid Passport/Aadhaar Card/Driving License, Copy of Electricity Bill/Water Bill/Telephone Bill
|Duly filled loan application form affixed with 3 passport size photographs Employer Identity CardBank account statements for all the bank accounts owned by the applicant for the last six months loan account statement for the previous 12 months if the applicant has any other ongoing loan from other banks/financial institutions
|Agreement of Sale (anyone): Registered Agreement of SaleStamped Agreement of SaleAllotment LetterOccupancy Certificate in case the property is a ready-to-move-in property copy (blueprint) of the Approved Plan and Registered Development agreement of the build conveyance Deed in case of a new property bank account statements indicating all payments made to the seller or builder
Income Proof Documents
|For Self-employed Applicant/Co-applicant:
|For Salaried Applicant/Co-applicant:
|Income Tax Returns for the last 3 years
|Copy of Form 16 or Income Tax Returns for the last two years
|Balance Sheet audited by a certified CA and Profit and Loss account for the previous 3 years
|Salary Slips for the last three months
|Certificate of Qualification (for Doctors/CA and other professionals)
|Business address proof
|Business License Details
Documents Required from all Non-Resident Indians (NRIs) Applicants
|Identity Proof (any one)
|Residence Proof (any one)
|Proof of residence demonstrating the applicant’s present overseas address
|Copy of the applicant’s/co-valid applicants’/guarantor’s passport and visa, attested
|Voter ID Card
|If the applicant or co-applicant is a Person of Indian Origin, the government of India will issue a PIO Card (PIO).
|Employer Identity Card
|Piped Gas bill
|If the candidate works in the Merchant Navy, they must present a copy of their Continuous Discharge Certificate (CDC)
|The attestation of the documents can be done by: Indian Embassy/Consulate Overseas Notary PublicFOs/Representative Offices Officials of Branch/Sourcing Units based in India
|The completed loan application form is duly filled with three passport size photographs of the applicant and co-applicants.
NRI Income Proof Documents
|For Self-employed Applicant/Co-applicant
|For Salaried Applicant/Co-applicant
|If the applicant or co-applicant is a self-employed professional or businessman, proof of income is required.
|Valid work permit
|Business address proof
|If the contract is in another language, it must be attested by the employer/consulate/embassy/Indian foreign office (in English).
|For the past two years, a qualified CA has audited the balance sheet and profit and loss accounts.
|Salary slips for the last 3 months
|Individual Tax Returns for the last two years — Not applicable to NRIs/PIOs in Middle Eastern nations.
|For the last six months, bank statements demonstrating salary credit are required.
|For the last six months, a bank statement of the individual’s as well as the business/abroad company’s accounts is required.
|a copy of the current employer’s ID card, as well as the most recent pay stub (original).
|A copy of the last assessment year’s tax return. Employees in the Merchant Navy and NRIs/PIOs in Middle Eastern nations are not eligible.
Calculator for EMI
An EMI calculator is a simple and useful tool that calculates the monthly payment due to the lender (bank) under the terms of a loan. The house loan calculator is simple to use because all you have to do is enter the principal loan amount (P), the loan period (N), and the interest rate (R).
Fees & Charges for Home Loan
The following fees may be assessed depending on the type of loan you are asking for:
- Processing Fees: This is a one-time, non-refundable cost that must be paid to the home loan provider once the loan has been approved. The processing fee varies depending on the bank and the loan program you’re interested in.
- Conversion Fees: When you wish to convert to a new loan scheme to lower the interest rate connected with your current plan, some banks charge a conversion fee.
- Prepayment Charges: A prepayment penalty is a cost you’ll have to pay the lender if you want to pay off your house loan before the term is up.
- Default Charges: If you fail to make your Equated Monthly Instalments (EMIs) or Pre-EMIs on time, you will be charged a penalty by your loan provider. Defaulting charges differ from one bank to the next
- Cheque Dishonour Fees: These fees are imposed when a loan provider discovers that a borrower’s cheque has been dishonored due to factors such as inadequate funds in the borrower’s account.
- Home Insurance: During the period of the loan, the premium should be paid directly to the insurance company to ensure that the policy remains active.
- Fees for an External Opinion: In some situations, you may want to seek the advice of an outside expert, such as a lawyer or a valuator, on the loan. This fee should be paid to the individual affected rather than the loan institution.
- A printed copy of Documents: If you need a photocopy of your home loan documents for any reason, you must pay a charge to the bank.
- Change in Loan Duration: If you want to change the term of your loan, some banks will charge you a small fee.
- Statutory/regulatory Charges: All charges linked with the Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), Memorandum of Entry and Deposit, and stamp duty are included in the fee. To learn more about these fees, go to www.cersai.org.in.
- Incidental Charges: These fees reimburse the costs incurred by the bank is attempting to collect debts from a borrower who has failed to pay his monthly payments on time.
Fixed-rate loans have an interest rate that remains constant during the term of the loan. On the other hand, depending on the RBI’s key policy rates, the interest rates on floating-rate loans may be altered from time to time. In the case of floating rate loans, the equivalent monthly installments can increase or decrease depending on the current RBI rates.
A co-applicant can be a member of your immediate family, such as your spouse, parents, or even your minor children. All co-owners of the property must also be co-applicants when applying for a loan. The co-applicant, on the other hand, does not have to be a co-owner.
Only until the loan provider has disbursed the complete home loan amount does the loan payback period begin. In most situations, however, you will be forced to pay the interest, also known as pre-EMI, on the partially released loan every month.