Get a Home loan and cherish the dream of owning your own Home!
The concept of saving money over the working years and ultimately building/buying
the 'dream home' is a concept of the past. Indians have warmed up to the concept
of borrowing money to own a dwelling well before getting into retirement. The younger
ones have been more aggressive looking for bargains and investing in properties
which they upgrade as they progress in their career. Housing finance is a boon for
the individuals investor who wish to own residential property. In India there are
Housing finance companies and Banks who provide financial assistance to customers
for constructing houses and /or buying houses or flats.
- Who offers home loans?
- Who is eligible for these loans?
- What are the types of home loans available?
- Documents required for the Loan
- What is the loan Approval Process time frame?
- What is the kind of collateral or security that is asked for, by the
- What are the various stages of the loan process?
- When can I apply for a loan?
- Will banks help me search for the right home?
- When does the disbursement of the loan take place?
- What is the maximum amount which I can borrow?
- What is the loan period?
- How much loan is offered?
- What are the interest rates offered on a Home Loan?
- What is a Fixed Interest Rate Loan?
- What is a Floating Interest Rate Loan?
- What is the EMI?
- Can I repay my loan ahead of schedule?
- What are the additional expenses while availing a loan?
- What is the time taken to process the loan?
- What are the tax benefits for those availing home loans in India?
- Do I have to insure the home loan?
1. Who offers home loans?
Housing Finance companies like HDFC, Birla Home Finance Ltd, Canfin Homes, LIC Housing
Finance Private Banks like ICICI, Federal Bank, Axis Bank Nationalized Banks like
SBI, Indian Bank, Union Bank of India, Indian Overseas Bank
2. Who is eligible for these loans?
Some of the basic criteria which banks' looks at while issuing housing loans to
individuals are employment, income, other liabilities, repayment capacity, and credit
standing. Any person who has completed 18 years age is eligible for applying for
Home loan. The upper age limit is generally around 70 years. Persons employed with
the government, Public Sector and Private sector companies, self-employed, businessmen,
professionals etc are all eligible for availing housing loans. Even professionals
in Arts and sports are eligible for loans. Every bank has got its own rules and
regulations when it comes to the eligibility criteria for its buyers
3. What are the types of home loans available?
There are a variety of home loans available
- a. Home Purchase Loans: This is the basic home loan for the purchase
of a new home.
- b. Home Improvement Loans: These loans are given for implementing
repair works and renovations in a home that has already been purchased by you
- c. Home Construction Loans: This loan is available for the construction
of a new home.
- d. Home Extension Loans: This is given for expanding or extending
an existing home. For example addition of an extra room
- e. Land Purchase Loans: This loan is available for purchase of
land for home construction
- f. Balance Transfer Loans: Balance transfer loans help you to pay
off an existing home loan and avail the option of a loan with a lower rate of interest.
4. What are the documents required for the Loan?
Typically the documents can be classified as
- Documents relating to the property to be purchased
- Documents proving ownership of the property to the current
owner. This may include Possession Certificate, Title deed, all prior deeds regarding
the property. In case of multiple properties combined ownership documents on all
the properties mentioned.
- Encumbrance certificate from the date on the title of the ownership
- Approved plan and sketch.
- Location sketch.
- Construction schedule.
- Documents relating to the borrower
- Filled in Application form
- Salary certificate from the employer
- Proof of employment with current and previous organizations.
- Income Tax returns receipts for last 3 years
- Identity Proof
- Address proof
- PAN Card
- Bank statement for the last 6 months
5. What is the loan Approval Process time frame?
Once all the necessary documents have been submitted by the borrower and checked
by the bank, the loan can be sanctioned in as little as 2 days.
6. What is the kind of collateral or security that is asked for, by the banks?
Most banks seek to take exclusive charge of the property to be financed, as the
security for the loan. A borrower will be asked to deposit the title of the deed
or some such collateral or security that might be necessitated by the bank. Moreover,
it must be understood that the title to the property must be encumbrance free, clear,
7. What are the various stages of the loan process?
There are three mains stages involved in taking loans. The first stage is the application
stage, wherein, you submit a completely filled application, attached with the necessary
documents. The second stage is the sanction of the loan, wherein, a particular loan
amount is sanctioned. This amount is based on the valuation of the collateral that
you have offered to the bank and also your repayment capabilities. The third and
final stage is the disbursement of the loan amount, wherein, the amount is transferred
to the borrower.
8. When can I apply for a loan?
You can either apply for a loan before you find the ideal property for you needs
and even before the selection of the property has been done by you. On the other
hand, you can first choose the home of your choice and then go for a home loan.
9. Will banks help me search for the right home?
A number of banks have a home search division, which provides assistance to borrowers
to search for a home. Banks have a huge database of properties, through which they
can offer their clients something that suits their needs and requirements best.
If you take a home loan from the banks offering such facilities then these banks
usually don't charge any fees for the search process.
10. When does the disbursement of the loan take place?
The disbursement of the loan usually takes place after you select a particular property
and only after all the legal documents have been submitted and the collateral has
been deposited by you. Moreover, it is only after the legal and technical clearance
of the property that the loan amount will be disbursed.
11. What is the maximum amount which I can borrow?
Home loans are generally provided for in the range of 75%-85% of the asset value.
The amount of loan varies from institution to institution and it may vary from Rs.1
lakh to Rs.1 crore. The repayment capacity of a borrower decides the loan amount
that is applied for. A person's repayment capability depends on various factors
like income, age, qualification, income of spouse, liabilities, dependants, savings
history, continuity of occupation, etc.
12. What is the loan period?
The borrower can select the tenure and the bank usually offers a loan tenure that
the borrower is comfortable with. This could range up to a period of 25 years. The
loan term cannot be extended beyond this period.
13. How much loan is offered?
The loan amount offered depends on two factors, a) Value of the proposed property
b) The repayment capacity of the applicant. Value of the property is determined
by the bank's approved valuer. A person's repayment capability depends on various
factors like income, age, qualification, income of spouse, liabilities, dependants,
savings history, continuity of occupation, etc.
14. What are the interest rates offered on a Home Loan?
From an interest rate point of view there are three types of loans being offered
ie.. fixed interest, floating interest and a combination of fixed and floating.
In all cases the interest calculation is done on a reducing balance basis.
TIPS: All interest rates are negotiable. Banks use discretion to
lower upto 0.5% from their rack rates. They generally allow this in case of their
HNI's and also in many cases the relationship. You could get this if you bargain
15. What is a Fixed Interest Rate Loan?
Fixed Interest rate - On a fixed interest loan the interest rate remains fixed for
the tenure of the loan. The advantage is that the EMI's and the tenure of the loan
are fixed and predictable during the tenure of the loan. TIPS :
- Many private banks offer combination Interest Rate loans in
the garb of Fixed Interest Rate loans. Check if a fixed interest rate is applicable
over the tenure of the loan.
- Fixed Interest rate is preferred if the general interest rates
in the market are close to their historical lows and the outlook is that interest
rates may rise in the future.
16. What is a Floating Interest Rate Loan?
Floating interest rate – This means the interest rate on the loan is not fixed
but is pegged to a market rate like MIBOR (Mumbai Inter-bank offer rate). Be wary
of banks who peg this floating rate to an internal rate like the bank's own Prime
Lending Rate). The interest rate on the home loan is revised every 3 or 6 months
depending on the movement of the interest rate it is pegged to. Banks adjust your
EMI's and /or the tenure of your loan when they revise the interest rates periodically.
- In the case of some of the banks you may have to demand the
bank to revise your EMI's when the market rates come down because in practice the
banks help themselves with higher EMI's when rates go up but the act in involuntary
when rates come down. So watch what you pay.
- Floating Interest rate is preferred if the general interest
rates in the market are close to their historical highs and the outlook is that
interest rates may fall in the future.
17. What is the EMI?
EMI or Equated Monthly Installments refers to the fixed sum of money that you will
be paying to the housing finance company every month. The EMI comprises both interest
and principal repayment. The size of the EMI depends on the quantum of loan, interest
rate applicable and the term of the loan.
18. Can I repay my loan ahead of schedule?
Yes, you can pay your loan ahead of schedule. However, it must be noted that housing
finance companies charge a fee for early redemption of loan. This fee can vary between
1-2% of the loan amount being prepaid.
19. What are the additional expenses while availing a loan?
Banks may charge various kinds of fees including processing charges, registration
charge for the loan agreement etc Normally Banks charge 0.5 % of the loan as processing
charge. Rs.10, 000 is the maximum. It can vary from banks to bank.
TIPS: Processing fees is negotiable. So feel free to bargain.
20. What is the time taken to process the loan?
The loan is being approved within 2 days to one month time from the day of applying
the loan. The process involves submission of the documents sought by the bank, which
is then checked by the bank staff or external agencies deputed by the bank. On clearance
of the documents which may require physical verification of information stated in
the documents the bank approves the loan based on the applicant's eligibility. The
applicant has to accept the terms of the bank upon which the loan is disbursed.
Disbursement may be in stages in the case of construction of house or buying of
a yet to be built apartment.
21. What are the tax benefits for those availing home loans in India?
Under the current personal Income Tax Laws those availing home loans can get exemption
of Rs.100000 under Sec 80 C on interest repayment on the loan and upto Rs.1,50,000
on principal repayment. For further details on this please go to this link.
22. Do I have to insure the home loan?
Some banks insist on the borrower insuring the home loan to the level of outstanding
principal. The logic is that in case of an eventuality the bank can recover the
outstanding principal at the earliest. Though the bank is in custody of the title
deeds during the tenure of the loan and also the option to sell off the property
to recover is always available to the bank, they find it simpler if the loan is
insured. It makes sense to the borrower as well since his/her dependents need not
worry about this liability in case of an eventuality.
Prompt repayments help buyers get all the benefits and privileges. Always repay
on time and keep your credit history good. It helps when availing loans in the future.
Defaults make the loans a liability. Banks have the authority and right to initiate
legal actions against those who make consistent defaults in their repayments.