Purchasing a home of your own is one of the biggest milestones of life. It is after owning a home that you’d be considered well-settled and ready for other life objectives such as starting a family. But one of the biggest reasons why home ownership is considered so important is because it provides you with a financially stable status.
Amid the escalating real estate prices, owning a home of your own is a Herculean task and achieving it, in a way, shows that you are doing well on the financial front. However, the real estate prices in the country have increased to an extent where purchasing a home is only possible through a housing loan for most people.
Fortunately, financial institutions in India now offer many different types of home loans to meet the requirements of the customers better. If you are looking for a home loan, here is a list of some of the most popular options that you can consider-
1. LOAN FOR PURCHASING HOME
This is the most common type of housing loan which you can use for purchasing a new or resale home. Based on your eligibility, the lender can offer up to 75%-90% of the value of the property as a home loan. You will be required to arrange the remaining amount and pay the same as the down-payment for the purchase.
Once you have taken a home loan, you will then be required to make monthly EMI payments up to the entire tenure of the loan which is generally 15-20 years or even more. As you will be borrowing a significant amount for purchasing your dream home, give special attention to the interest charged by the lender. Smallest of changes in the interest rate could mean a difference of lakhs of rupees.
2. HOME CONSTRUCTION LOAN
Many of the families and individuals who own land prefer constructing their own home as per their preference over purchasing a ready possession home. They generally hire a contractor/developer or an architect for preparing the layout of their home and know the approximate cost of construction.
The estimate, along with the necessary documents, is submitted to the lender to get a home construction loan. If the documents are in order, and you fulfil the eligibility criteria, the lender will then approve your loan application, and you will get the required funds to begin construction. The lender will disburse the loan amount to you or directly to the contractor or developer.
3. PLOT AND HOME CONSTRUCTION LOAN
Another popular home loan types are plot and home construction loans. While a home construction loan is taken by individuals who already own land, the plot and home construction loan is for people who want to purchase land and construct their home on it. If you want to build a house of your own from scratch, this type of loan can be the right option for you.
With a plot and home construction loan, the loan amount is generally disbursed in small instalments based on the progress of the project. You will be required to keep the lender updated about the purchase and construction progress in order to get the next instalment disbursed. Just like a standard home loan, a lender will generally offer 75%-90% of the total cost of the project as the loan amount.
4. HOME IMPROVEMENT/RENOVATION LOAN
If you already own a property but want to beautify its interiors/exteriors or carry out major repair works, you can now get a loan for that as well. A large number of lenders in India now offer home improvement or home renovation loans at attractive interest rates so that you are not required to manage the entire cost of the project from your pockets at once.
With these home loan types, once your loan is approved, you are free to use the loan amount as you like it as long as you are using it to renovate or improve your home. As compared to other commercially available loan options, a home improvement loan generally proves cheaper and is easier to avail.
5. HOME EXTENSION LOAN
There are several instances in life that might require you to have additional space in your existing home. For instance, if you are planning to expand your family or invite your parents to stay with you, the lack of space can be a major problem. Moving to a bigger house might not be a practical or financially viable option for many.
In such cases, you can consider extending your existing property and maybe add a new floor or room to it. As this can be a very costly affair, you can consider getting a loan for the same. Most lenders offer home extension loan for up to 20 years to make sure that you can comfortably repay the loan through EMIs without stressing your finances.
Now that you have a basic idea about different types of home loans, there are also a few other essential things that you should know about.
ELIGIBILITY CRITERIA FOR HOME LOANS IN INDIA
No matter what type of home loan you select, your loan application will only be approved if you meet the eligibility criteria of the lender. While there can be minor differences in the eligibility requirements of different lenders, they are more or less the same. Some of the most important requirements are as follows-
- Minimum age of the applicant should be 21 years old
- Maximum age at the time of loan maturity is 70 years for self-employed applicants and 60 years for salaried applicants
- Minimum monthly income of Rs. 25,000
- Work experience of 2-3 years for salaried applicants
- Business experience of 3-5 years for self-employed
- CIBIL score of 650 and above
- Maximum loan amount of 75% to 90% of the cost of the property
If you are taking a loan for purchasing a home, the property you are interested in will also be evaluated by the lender. If the property is not approved by the lender, it is possible that your loan application might get rejected even if you do fulfil the eligibility requirements.
Documentation for Home Loans in India
Apart from the eligibility criteria, you will also be required to submit several documents to get the loan approved. The documentation requirements vary based on the lender you select and even the type of loan you need. Some of the standard documents you will need to apply for home loan types in India as follows-
- ID and address proof
- Income proof
- Bank statement of the last six months
- Property documents
- Proof of other income (if any)
Most of the lenders allow you to upload these documents online. However, you can also visit the nearest branch of the lender to submit the loan documents.
FEES AND OTHER CHARGES OF HOME LOANS
While most borrowers are only concerned about the interest rate of their home loan, there are a few other fees and charges that you should definitely know about. A few of these important additional charges are listed below-
- Loan Processing Fee
You will be required to pay a loan processing fee of 1%-2% of the loan amount to get your loan processed by the lender.
- Pre-Payment Charges
You also get to pre-pay different types of home loans in parts or in full before the actual tenure of the loan. However, there is a pre-payment penalty of up to 2% of the outstanding principal amount for using this facility. Some lenders do not charge any pre-payment fee if the loan is taken on a floating interest basis.
- Penalty on EMI Default
If you default on any EMI payment, you will be required to pay a penalty for the same. The penalty varies between lenders but can be up to 2% of the EMI amount for every default month. Some other common fees and charges are
- Pre-closure quote fee
- Charges for requesting a copy of repayment schedule or duplicate statement
- ECS failure or cheque return charges
- Swap charges
- NOC issuance charges
HOUSING LOAN TO FULFIL YOUR DREAM OF PURCHASING A HOME
As you can see, to meet the needs of all the different types of customers, financial institutions in India now offer many different types of loan products in India. With the home loan types explained above, it shouldn’t be difficult for you to select a home loan that best suits your requirements. But with so many financial institutions now offering home loans, how will you pick the best?
Consider factors such as the reputation of the lender, interest rate, fees and charges, maximum loan amount, loan duration, and eligibility requirements of the lender to make the decision. Make sure that you clearly understand all the terms and conditions of the loan before signing the loan documents to avoid any discrepancies in the future.
Also, note that if you have considerable work experience, stable business with decent annual turnover, or impressive CIBIL score, you can try and negotiate a better deal with the lender. Even a difference of 0.10% or 0.20% in the interest rate can help you save a lot of money throughout the loan tenure. So, use these factors to your advantage and get yourself the best home loan deal.
Source : Aditya Birla Capital
