Home Loan Detailed Guide

Home Loan Guide – 2022

By choosing a home loan, millions of Indians hope to realize their dreams of buying a home. The greatest approach to ensure that you own a house is by taking out a home loan. 

What is Home Loan?

A home loan is basically a form of financial support used to finance the purchase or construction of a house. The cost of buying a used property can presently be covered by a home loan, as well as by refinancing an existing home loan.

When a borrower requests a home loan, the bank follows a specific process that includes evaluating the borrower’s ability to repay the loan, the specifics and verification of the property in question, the borrower’s credit score, as well as the calculation of the loan amount to be sanctioned and the interest rate.

Top Banks and housing finance company’s home loan eligibility criteria

LenderInterest RateAgeTenure
Bank of India6.90% – 8.75% p.a.18-70 yrs.30 years
Union Bank of India6.90% – 8.85% p.a.18-75 yrs.30 years
State Bank of India6.65% – 7.65% p.a.18-70 yrs.30 years
PNB Housing Finance6.75% – 12.00% p.a.18-70 yrs.30 years
LIC Housing Finance6.90% – 8.40% p.a.18-60 yrs.30 years
Bank of Baroda6.90% – 8.40% p.a.21-70 yrs.30 years
Kotak Mahindra Bank7.00% p.a. onwards18-65  yrs.20 years
Tata Capital Housing Finance7.15% p.a. onwards24-65 yrs.30 years
Punjab National Bank6.95% – 8.35% p.a.18-70 yrs.30 years
ICICI Bank7.10% – 7.95% p.a.21-65 yrs.30 years
HDFC7.00% – 8.70% p.a.21-65 yrs.30 years
Axis Bank7.00% – 11.90% p.a.21-65 yrs.30 years
Bajaj Housing Finance6.65% – 14% p.a.23-70 yrs.20 years
IIFL Housing Finance Limited8.45% p.a. onwards. 18-75 yrs.20 years
Indiabulls Housing Finance Limited8.80% – 12.00% p.a.21-65 yrs.30 years
GIC Housing Finance Limited7.9% p.a. onwards21-60 yrs.30 years
Sundaram Home Finance7.85% p.a. onwards for salaried individuals8.35% p.a. onwards for self-employed individuals18-65 yrs.20 years
Aavas Financiers Limited8.50% p.a. onwards21-55 yrs.30 years
Dewan Housing Finance Limited (DHFL)8.75% p.a. onwards21-60 yrs. for salaried individuals21-70 yrs. for self-employed individuals30 years
Repco Home Finance7.70% p.a. onwards21-65 yrs.25 years
L&T Housing Finance Limited7.70% – 8.70% p.a.23-65 yrs.30 years

Documents Required For Home Loan

Businessmen/Non Salaried ProfessionalsAgriculturistsSalaried Individuals
Application form with photograph
Last 6 months bank statements
Processing fee cheque
Business Profile and Previous 3 years Income Tax returns (self and business)Copies of Title Documents of Agricultural Land depicting crops being cultivatedForm 16
Identity and Residence proof
Educational Qualifications Certificate and Proof of BusinessCopies of Title Documents of Agricultural Land depicting LandholdingLatest Salary Slip
Previous 3 years Profit/Loss and Balance SheetStatement of previous 2 years of loans availed

Home Loan Eligibility Criteria 

Banks maintain a list of requirements for home loan eligibility. A person’s credit history is the first thing a bank looks at to determine their repayment habits. A credit score of 750 or higher is typically preferable. The following are some other important aspects:

  • Age
  • Type of Employment
  • Minimum Annual Income
  • Collateral /Security
  • Margin Requirements
  • Assets, liabilities, stability, and continuity of occupation

Features of Home Loan

Some of the main features of Home Loan are:-

  • Lenders do not accept all forms of property.
  • Most completely constructed properties, like a home or a business outlet, are accepted by lenders.
  • The property should be a freehold one, meaning that the owner has the complete legal right to transfer ownership, and it should be of marketable value.
  • A home loan is categorized as a secured loan because the lender gives the loan amount in exchange for your property acting as collateral.
  • Larger home loan terms of up to 30 years are available, and they can be repaid in manageable monthly payments or EMIs.
  • You can customize a home loan as per your needs.

Types Of  Home Loan

An individual might select a home loan based on his/her needs and financial situation. The various kinds of home loan products offered in India are listed below:

  1. Bridge Loan

These are customized loans for people looking to sell their current house and purchase a new one. As the name implies, this loan fills the financial gap generated while buying a new house and finding a buyer for the existing house.

Because it’s a quick loan, interest rates are a little bit higher than normal home loan interest rates.

  1. Home Purchase Loans

Undoubtedly, the most common types of home loans in India are those used for real estate purchases. This kind of loan is used to purchase residential property, such as apartments, row houses, and bungalows.

  1. Land Purchase Loans

As the name implies, loans for land purchases are used to pay for the land where a person intends to build their home. Generally, lenders will cover between 85 and 90 percent of the cost; the remaining 15 percent must be covered by the applicant. 

  1. Home Extension Loan

Banks and Non-Banking Financial Corporations (NBFCs) / Housing Finance Corporations (HFCs) provide Home Extension Loans to those who want to expand or add additional space to their current residential house property. . 

  1. Home Construction Loans

The owner of land might apply for this form of new loan to cover the costs associated with buying a new house. Another purpose for the loan is to complete an unfinished house’s construction.

  1. NRI Home Loans

Non-Resident Indians (NRIs) can purchase real estate in India with the convenience of equivalent monthly installments, variable tenures, and cheap interest rates due to NRI home loans.

Benefits Of Home Loan

  1. Balance transfer facility

For several reasons, including the interest rate, service fees, level of customer care, and others, you can transfer your home loan from one lender to another.

  1. Long term of repayment

Home loans have a longer repayment period than other loans. This is because borrowing a significant loan amount is required to purchase a house.

The monthly EMIs will be lower if the loan amount and related interest are spread out over a longer term, easing the burden on the borrower.

  1. Tax Benefits

The ability to deduct income tax from your principal and interest is the main advantage of having a home loan. You are permitted to deduct up to Rs. 1.5 lakh for principal repayments under Section 80C, Rs. 2 lakh for interest repayments under Section 24B, Rs. 2 lakh for interest repayment under Special Circumstances under Sections 80EE and 80EEA, and Rs. 1.5 lakh for stamp duty expenses under Section 80C.

  1. Lower Interest Rate

In comparison to other loan options, the interest rate on a home loan is significantly lower. If you run into financial trouble, you might be able to top up your current home loan at a lower interest rate than a personal loan.

  1. Due diligence of property

When you buy a house through a bank loan, the bank will thoroughly investigate the property from a legal perspective and determine whether all the documents presented are genuine.

You will be less likely to be cheated as a result of the bank’s diligence assessment. You and your house are safe if the bank approves the property.

  1. No prepayment penalty

When you take up a floating-rate loan, you can pay off the loan early anytime when you have a lump sum amount available without incurring any prepayment penalties. This will enable you to pay off your home loan much before the agreed-upon loan term.

Home Loan Interest Rates

One of the most crucial aspects that every potential borrower takes into account before applying for a loan is the interest rate on a home loan. When deciding on the ideal home loan arrangement, one of the most crucial aspects is the interest rate that financial institutions are willing to offer. 

So, below is the comparison between Fixed Interest Rate and Floating Interest Rate

Fixed Interest RateFloating Interest Rate
Interest Rate is higherInterest Rate is lower
Fixed EMIsEMIs change as per interest rate or MCLR
Sense of securityGenerates savings
Lesser riskHigher risk
Suitable for short/medium term (3-10 years)Suitable for long term (20-30 years)
Budget planning possibleDifficult to budget or manage financials
Not affected by financial market conditionsAffected by changes in the financial market

Important factors to consider before applying for a home loan

If you don’t take into account all the factors involved in a home loan, it could be a huge burden. Before submitting an application, keep the following in mind :-

  1. Your borrowing capacity

Only because you earn more money you shouldn’t choose a higher loan amount. You should be completely aware of your borrowing capacity before submitting an application for a loan. But how precisely can one ascertain the loan amount for which they qualify? It’s not that difficult.

The first thing you need to do is keep track of all the expenses you have each month. These could consist of your normal household costs, travel, children’s fees, electricity bills, outstanding loans, and other expenses. The money you have left over after listing all of these costs is what you can use to pay the home loan’s EMI installments.

  1. Credit Score

Although you might not think much about your credit scores, they are the single most important factor in determining the interest rate you will likely receive. You must keep your credit score at or above 750 in order to qualify for a favorable home loan rate.

  1. Loan Tenure

Examine the loan term that has been offered to you to see if it is suitable for you. If you feel like you need more room, try negotiating a better loan agreement with the bank or lowering the overall loan amount you have requested.

  1. Terms and Conditions of the Loan

The loan terms and conditions you sign when applying for a home loan are legally binding and imply that you have read and agree to all of the terms and conditions provided by the bank. You might be surprised to learn that this is also one of the places where lenders frequently impose and enforce unfavorable conditions. 

Therefore, before signing a contract, read through all the provisions and sub clauses contained in the loan agreement to prevent falling into such rabbit holes.

Residency status (Resident Indian/ Non-Resident Indian)

Also Read – How to apply for Home Loan

Process of applying for a Home Loan

Thanks to the numerous mediums that are now available with the advancement of technology, obtaining a home loan has become simpler than it was before. To apply for a home loan, one can either go directly to the bank branch, ask about the available possibilities, or can do so online.

The bank requests the necessary documents from you when you apply. It starts processing your application, evaluating your CIBIL score, the asset’s value, determining your eligibility based on your income and debts, and more.

FAQ’s

How do lenders choose the amount of a home loan?

The applicant’s income, current loan EMIs/credit card bill payments (including the EMI of the proposed loan), and the market value of the property are taken into account by lenders when determining the amount of the home loan.

How does a co-applicant affect a home loan’s eligibility?

Because co-applicants share equal responsibility for loan repayment, adding a co-applicant lowers the credit risk for lenders. Therefore, including a co-applicant increases your home loan eligibility and approval prospects.

Is it necessary to have a co-applicant while requesting a home loan?

Each co-owner of the house must be a co-applicant of a home loan. However, unless they desire to expand their home loan eligibility, single homeowners are not required to add a co-applicant.

Can adding a guarantor increase my ability to obtain a home loan?

Because the guarantor shares equal responsibility for the repayment of the loan, adding a guarantee lowers the lender’s credit risk. As a result, many lenders demand that borrowers who have poor loan eligibility provide guarantors even after including co-applicants. Note that before approving a person to act as a loan guarantor, lenders will also assess that person’s credit history.

How many joint borrowers can there be on a home loan?

In the case of a home loan, a limit of six joint borrowers is set. However, in India, co-borrowers for a home loan can only be members of the same family, such as parents, siblings, and spouses. Furthermore, it is preferable to have a co-borrower with a strong credit history and high credit score rather than one with a low score.

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