What is home Loan? How to get it in India.

Having own home is everyone’s dream. Home loan helps to turn this dream into reality. In this article, we will know all about home loan. People are borrowing home loan to buy a house, construct a house and for many other activity related to house.

What is Home Loan?

It means loan for the house. Obviously, this is a type of loan, which is taken for the construction or purchase of a house. Home loan is also available for home improvement or repairs. Also to buy a land or plot to build a house.

Banks or financial institutions issue home loans. Home loans can be availed for a maximum tenure of up to 30 years. Later it has to be returned with interest. You can return it in installments. You can also return the lump sum after a certain period as per your convenience.

Types of Home Loan

House loans can be availed for a wide range of house related needs. The following types of home loans are prevalent in India.

1. Loan for house purchasing
2. Loan for construction a house
3. Loan for purchase land or a plot
4. Loan For repair or modification in a house.
5. Home Extension loan, Loan to add something new to the house.
6. Top up Home Loan only on old loan, adding additional loan.
7. Bridge House Loan Small loan for falling amount for new house.
8. Composite home loan, Loan to buy land and build a house together.
9. Joint home loan Shared loan to more than one person.
10. NRI house loan Loans, for Indians settled abroad

Now let us know a little detail about all these home loans one by one.

1. Home Loan to Purchase a house.

You can take a home loan to buy a pre-constructed house or flat. The house can also be taken from an individual, or from a builder or developer or even from government housing construction agencies. This is the most popular type of home loan. You buy a house by taking money from the bank and later pay it off with interest.

2. Home loan to construct a house

If you do not want to take a ready-made house, but want to build a house of your own kind, then a home loan is also available for this. This is called home construction loan. Since the house is not yet built, the quantum of this house loan is decided according to the estimated cost of construction of the house.

3. Loan to purchase land or plot

Yes, even if you are not thinking of buying or building a house now, then you can buy land for it and put it with you. Banks also give home loans to buy such land. And it is not necessary that you should build a house on it later. You can also buy it as an investment and later sell it at a good price. This is called land purchase loan.

4. Loan For repair or modification in a house.

You are looking to get a new improvement done in your old house itself. For example, if you want to build a bathroom, a kitchen or a garage or a room, you can also take a house loan for that. This is called a home extension loan. Similarly, if you want to get any part of your house repaired, then a home improvement loan is also available for that.

5. Top up Home Loan only on old loan, adding additional loan.

You have already taken a home loan, but later you understand the need for some additional loan, then you can also extend some additional loan. This is called top up house loan. Top up loan, you can take for home renovation or extension of the house. Apart from these, you can also top up your home loan for any domestic work. For example for child’s education.

6. Bridge loan Small loan for falling amount for new house.

If you want to get a new house before selling your old house, then banks also provide bridge loan for this. Based on your old house, the bank releases some amount as a loan to meet the down payment and initial expenses for the new house. When the old house is sold, you pay the cost of the new house. And return the bridge loan received from the bank with interest and other expenses. Bridge loans are available for a short period of time and the interest rate is much higher than that of a normal home loan.

7. Composite loan, Loan to buy land and build a house together.

In a composite home loan, you are issued a loan for two types of home related work simultaneously. Like you have to buy some land and also need money to build a house. So the bank issues a lump sum loan for both the works. It is called composite loan because it is used for multiple purposes at the same time.

8. Joint home loan Shared loan to more than one person.

When two or more people take a house loan together, it is called  joint home loan. You can take a joint home loan only with your husband, wife, parents or son or daughter. That is, it is mandatory to have a marriage or blood relation between the two.

9. Home Loan Balance Transfer

You can also transfer your home loan to another bank if you are not happy with the terms of your previous home loan or the interest rate or lending institution. Most of the banks offer home loan transfer facility. Once the loan is transferred, you will have to pay the loan installments as per the interest rate and rules of the new bank. However, the new bank will also charge some charges for loan transfer.

10. NRI home loan Loans, for Indians settled abroad

House loans are also given by banks to citizens living abroad to buy and build property in India. For this, the applicant must have one of the following status-

• Non Resident Indian| Non Resident Indian (NRI)
• Person of Indian Origin | Person of Indian origin (PIO)
• Overseas Citizen of India| Overseas Citizen of India (OCI)
• One has to produce suitable passport, visa, employer identity card, work permit, foreign residence certificate, etc. as proof of one’s own NRI.

Note: Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, Bhutan cannot apply for NRI home loan.

These were the types made according to the purpose of the house loan. There are also two differences according to the interest rate of the home loan. We have also given information about them in the next paragraph.

Fixed Home Loan and Floating Rate Home Loan. According to the variability in the interest rate that is linked with the home loan installments, there are two types of house loans.

1. Fixed rate home loan.

In this, the interest rate of your loan remains the same at all times. Whatever the interest rate is at the time of house loan issuance, you have to pay the same interest rate till the entire home loan is repaid. In the market, it is not affected by the fluctuating interest rates.

The advantage of a fixed rate home loan is that you do not have to pay much interest when the interest rate increases in the market and the disadvantage is that you cannot get the benefit of a cheaper rate of interest when the interest rate decreases in the market.

However, there are only a few banks that offer house loans at a fixed rate for the entire tenure. Most banks change the home loan interest rates over a fixed period (3 to 5 years).

2. Floating Rate Home Loan.

The interest rate of this type of home loan is not always the same or fixed. These keep on changing according to the fluctuations in the interest rates in the market. When the interest rate increases in the market, then you will also have to pay your installments with the increased interest rate. Similarly, when the interest rates are low in the market, you will also have to pay your house loan installments with a lower interest rate.

The advantage of a floating rate home loan is that you will also have to pay a lower rate of interest when the interest rate drops in the market. Interest rates have come down in the last few years. However, you may be at a loss when the interest rates in the market rise, as you will also have to pay your home loan installment with higher interest.

Experts recommend preferring a home loan with a floating rate.

These days if you are planning to buy a house by taking a loan, then it is important to know about your house loan interest plan. These plans decide what your interest rate will be. The bank offers 3 types of interest plans. These are fixed interest, floating interest and flexi interest plans. It is very important for you to know about them before choosing any of these plans. We are telling you about these plans.

1. Fixed interest plan

In this the interest rate of your loan remains fixed. In this, you get a home loan from the bank at a fixed rate. If for any reason there is a change in the interest rate due to fluctuations in the market or reduction in the repo rate by the RBI, then the bank does not make any change in the interest given. This does not change the EMI of your loan.

The biggest advantage of this is that it does not affect you when the interest rate increases in future because the interest rate on the loan taken by you does not increase. However, it also has its disadvantages because if there is a cut in the interest rate in the future, then you do not get the benefit.

2. Floating interest plan

In a floating home loan plan, the interest is linked to the base rate of the bank. Because of this, a change in the base rate causes the interest rate to increase or decrease. The rate of interest in a floating house loan plan is lower than that of a fixed home plan. However, if the RBI increases the repo rate, the banks increase the interest rates. In this situation, a person taking a home loan on a floating rate may have to pay a higher EMI.

3. Flexi Interest Plan

This plan is a combination of floating and fixed plans. The most important thing in this is that the customer can get his plan fixed in fixed or floating in the middle of the loan tenure as per his need. The loan taken under this plan is charged at a fixed interest rate for a few years, after which it becomes floating. While choosing this plan, customers opt for both fixed and floating plans. Even if interest rates increase in the future, it does not affect the EMI.

If you take a fixed plan when interest rates increase in future, then it does not burden you. If the interest rates are low and you have a fixed rate loan, then converting to floating can avail cheaper interest. Let us tell you that the facility of changing the plan is available to the customer only once in the entire loan tenure.

Documents required for taking home loan

Generally, almost identical documents are required to be produced for all the banks. Here we are giving a list of the necessary documents given on the website of SBI, according to this; complete your paperwork for home loan.

• Documents required for all types of applicants
• Employer identity card
• Loan Application- Fill your loan application form and attach three passport size photographs with it.
• Identity Proof- PAN, Passport, Driving License, Voter Card. One of these ID cards.
• Residence certificate- copy of telephone bill, electricity bill, water bill, gas pipeline bill; Copy of Passport, Driving License or Aadhar Card. any one of these.
• Property Papers
• Approval for construction (if applicable in your case)
• Registered agreement for sale (for Maharashtra only), letter of allotment or stamped agreement for sale
• Possession Certificate (Only for Maharashtra)
• Share certificate (for Maharashtra only); Maintenance Bill, Electricity Bill, Property Tax Receipt
• Approved Plan Copy (Xerox Blueprint) and Builder’s Registered Development Agreement, Conveyance Deed (For New Property)
• Payment receipts or bank account statement showing all payments made to the builder or seller.
• Account statement
• Bank account statements of all the bank accounts with the applicant for the last six months
• Loan statement for the last one year if you have already taken any loan from any other bank or lenders
• Income proof of salaried applicant, co-applicant, guarantor
• Salary slip or salary certificate for the last three months
• Copy of Form 16 for last two years or copy of IT Returns for last two financial years
• Income proof of non-salaried applicants, co-applicants, guarantors
• Business address proof
• IT Returns of last three years
• Balance Sheet and Profit and Loss Account for the last three years
• Business license details
• TDS Certificate (Form 16A, if applicable)
• Qualification certificate for CA, Doctor and other professionals

How to get a home loan in India

If you would like to take a house loan, than you should considered many things before applying it, these things are as below.

Step 1: Self-Assessment

Cost of Property – Cost of the house

Own Contribution – Banks give loans only up to 70 to 80 percent of the cost of the house, while you have to arrange up to 20-30% on your own.

EMI Affordability – Can you pay the loan installments? The EMI of the loan should never exceed 45% of your monthly income.

Loan Period – The loan period should be as short as possible so that you have to pay the least interest.

Step 2: Choose the Right Bank or Financial Institution:

 Choosing the right bank or Housing Financing Company (HFC) is an important part of the loan process. Before applying for a home loan, you have to keep some things in mind like:-

1. Interest Rate
2. EMI
3. Loan Period
4. Interest Type – Fixed or Floating
5. Processing Fees
6. Loan Prepayment Terms
7. Penalty for Late Payment
8. Loan Agreement
9. Loan Approval Process
10. Tax Benefits
11. Home Loan Transfer Process

The interest rates of banks keep on changing from time to time. So see if you are taking floating or fixed interest rate. We already explain these, in this article.

Step 3: Preparation of Documents:

The third step comes to prepare the documents for taking home loan. Before taking a loan, you need to keep some documents ready.

• Identity proof
• Age proof
• Address proof
• Proof of educational qualifications
• Employment details
• Income proof for which you may have to show Income Tax Returns of the last three years.
• Details about the property
• Bank statements and many others.

Step 4: Apply For Home Loan:

To apply for home loan, you have to go to the nearest branch of the bank from which you want to take the loan and meet the loan department of the bank who will help you in getting the loan passed. First you have to fill a form and submit it along with all the documents. While submitting the home loan application, you will have to pay the processing fee which can vary from 0.25% to 2% in different banks.

Step 5: Evaluation and Verification:

The bank will verify all the documents submitted by you and if needed, the bank may also ask for some more documents from you to be completely satisfied. This process may take a few days to complete. After being completely satisfied with the documents, the bank starts a field investigation process to confirm that all the facts given in the application form about the address and office are correct.

After this the bank estimates your loan repayment ability. If the bank feels that you are unable to pay the loan and interest cost on time, the bank will reject your home loan application. And if the bank finds everything right, then your home loan will be approved.

Step 6: Property Valuation and Verification:

Through the lawyer, the independent legal inquiry of the property will be done and the lawyer will issue the title certificate or legal verification report to the bank. The bank will then calculate the market value of the property so that the loan amount can be decided.

Step 7: Home Loan Sanction:

 After all the investigations are completed, the bank approves the home loan. An acceptance letter is issued to the borrower and the home loan agreement is signed. Once the home loan agreement is signed, the bank releases the loan amount.

FAQ on home Loan

If you are looking for a business loan we have categorized these in the, business loan category.