What is the eligibility for home loan?
Broadly speaking, anyone aged between 23 and 65 years and is not retired is eligible. The following criteria are also important because they determine your potential to repay the loan: Purpose of the loan, your income assets and liabilities, your spouse’s income in case you’re applying for a joint loan educational qualifications, professional experience, credit score (the prospect of getting a loan increases with a good credit score), residential status and number of dependents. Most of the financial institutions determine your potential to repay based on the above parameters.
What are the different types of home loan?
There are various types of home loans depending upon your specific requirement. Some of the key ones are as follows:
- Land purchase loans: These loans are granted to individuals for the purchase of land on which they intend to build a house.
- Home purchase loans: These are the most common type of home loans that is granted to individuals and they are granted for the purchase of an apartment.
- Home construction loan: This type of loan is granted to individuals for the construction of a house on a plot of land that is already owned by the applicant.
- Home Expansion/Extension Loan: This loan is specifically granted to individuals who want to expand their current home to include a new construction such as an additional floor, room, bathroom, etc.
- Home Improvement Loan: Existing home owners who lack sufficient funds to renovate their existing home can apply for this loan to upgrade their home with a new paint job, electrical wiring, water proofing, etc.
- Home conversion loans: Using this type of home loan, an existing home owner can add to their existing loan so that they can purchase a new house. This type of loan is only applicable to existing home owners.
- NRI Home Loans: These home loans are specifically designed to provide non-resident Indians with financing so that they can purchase a home in India.
What do banks consider when granting a home loan?
Once repayment capacity determines your eligibility to apply for home loan, lenders consider the following factors:
- Income level of the applicant
- Age of the applicant
- Qualification (stability and occupation continuity)
- Resident status (maximum limit for an Indian resident differs from that of a non-resident)
- Spouse's income (household income is taken into account when there is a co-applicant)
- No. of dependants (it is a measure of repayment capacity)
- Credit history and score (past repayment track record)
- Status of existing loans.
Can I avail home finance for renovation or construction of house ?
Yes. Home loans are offered under various sub-heads. Renovation of property or construction of house is also offered by all major banks in the country and you can do it with the help of home loan easily.
What kind of property documents required at the time of housing loan application?
Every bank has its own set of mandatory documents to process the loan but this is a generic list:-
- New home loan in approved projects: Copy of the allotment letter/buyer agreement Receipt(s) of payment(s) made to the developer.
- For a loan for a resale home : Draft copy of sale agreement (in case of purchase transaction), property sale agreement along with entire previous chain of sale agreements, receipt/(s) of initial payment/(s) made to the seller, share certificate, occupancy certificate / approved plan copy.
- For balance transfer : A letter on the letterhead of the existing lender, stating the list of property documents held by them, latest outstanding balance letter from your existing financial institution on their letter head, photocopy of the property documents (including own contribution proof).
- Loan for constructing your own home : Title deeds of the plot, proof of no encumbrances on the property, copy of the plans approved by the local authorities, construction estimate by an architect/ civil engineer.
- For self-construction : Approved plans and clearance certificates along with estimates, allotment letters, photocopies of title deeds, encumbrance certificate, agreement to sell.
Is there any tax benefit on getting a home loan?
The tax benefit on home loans is given both on repayment of the principal amount and on interest paid:
- Repayment of the principal amount - Under Income Tax Section 80C with a maximum tax deduction of Rs. 150,000.
- Repayment of the interest rate on home loan- Under Income Tax Section 24, with a maximum deduction limit of Rs. 200,000.
What are the key parameters to consider while looking for a home loan in India?
Firstly, you will have to decide whether you’re planning on purchasing a ready for possession house or a plot and construct a house later. Then you have to consider your loan eligibility amount, interest rate, EMI processing fee, pre-closure fees and pre-payment fees.
What are the tenure options for home loan?
A home loan can be taken for any time period between 5 and 30 years. The tenure varies as per the lender and eligibility of the customer. It is important to remember that your eligibility ends after the age of 65, or when you retire – whichever comes first.
Can I apply for a housing loan with a co-applicant?
Yes, you can apply for a loan with a co-applicant. All you have to do is specify it in the application form, having a co-applicant increases your chances of availing an increased loan amount, depending on his/her profile, income and obligations.
How long does it take to get my housing loan application processed and the loan sanctioned?
The entire process could take anywhere between 7-10 days for processing a home loan application if all the necessary documents are in order. Additionally, it may take a week or two for the bank to inspect the property papers and make the disbursement. The faster you complete documentation, the faster your application moves.
Do I need to take an insurance for my property?
Yes, you will have to insure the property against fire and other hazards, as required by the bank during the loan tenure.
Can I avail loan to buy a property in other city?
Yes, banks provide loan to purchase property in other cities after validating the property documents.
Are there any additional charges to be kept in mind while purchasing a house?
Yes, there are some charges over and above the cost of home. These are mainly:-
- Transfer, registration and stamp duty charges:- Paid in the court during transfer of name from seller to yourself.
- Processing charges:- These are usually paid to the lender when a loan is applied for. This could either be a fixed amount or it could be an amount that is a percentage of the loan amount.
- Pre-payment penalty:- This is applied if the loan has been paid back in full before the end of the duration that was previously agreed upon.
When should I consider home loan transfer?
You should consider home loan transfer when:
- The interest rate of your loan is higher than current market rates;
- Your loan has a floating rate of interest and you want to reduce risk by opting for a fixed rate of interest; and
- You want to lower your EMIs.
What is Pre-EMI Interest?
When banks sanction you a home loan, the EMI payments may not start immediately. In such a situation, the bank is liable to charge a Pre-EMI interest on your loan. This interest is payable monthly from the time the loan is disbursed till the time the EMI payments start off. The Pre-EMI interest amount is lower than the home loan EMI as the principal payment portion is excluded for Pre-EMI interest payments.
What is Home loan pre-approval?
Home loan pre-approval is a facility provided by banks and NBFCs to their customers, which allow those interested in purchasing a house with the particulars regarding their eligibility even before they have decided on a property to purchase.
How long is the home loan pre-approval valid?
The pre-approved home loan offer is valid for only a limited period, which varies from one bank to another as per the lender’s internal rules and regulations. However, these pre-approvals are usually valid for no more than 3 months.
How large a loan can I avail of?
Banks or financial institutions can lend up to 75%-90% of the cost of the property depending upon the market value of the property. You are expected to pay 10%-25% of the amount as a margin money for the home.
What are the physical events of Home Loan?
The physical events involved are:-
- The valuation of the property
- For higher loan amount, a personal discussion with the bankers to understand your financial position for the purpose of repayment of loan
- Residential and office verification.