One of the most important financial decisions which a person takes in his/her life is owning a house. This new milepost can be achieved easily with the help of a home loan. There are various lenders available in the market who offer home loans to the people who need money to buy a home. Buying a home is the most the satisfying experience so before a borrower takes a decision to take a home loan here is what all you need to know:-
What is a home loan?
The home loan is also known as a mortgage loan, which is a secured loan under which a borrower has to pledge any of their assets as collateral. The bank lends money at a certain interest rate which has to be paid in the form of EMI for a selected period of tenure. The borrower can take a loan to build or buy a residential or a commercial property, sometimes a loan is also taken for the renovation of home.
Types of home loan
Different lenders offer various types of home loans but these are the general types of home loan available across lenders:-
- Purchase of Land
This type of loan can be availed by those who want to purchase land for a residential or commercial purpose. Some lenders give up to 85 percent of the cost of the land.
- Home Purchase
This is the most popular type of loan and most availed loan in the country. This loan is availed by those who want to purchase a new home or a pre-owned home. Most of the lenders offer this type of a loan at an interest rate which ranges between 9.85 percent and 11.25 percent. New home buyers can also opt for USDA home loans if they are eligible, this type of loan is designed to assist those in the low to moderate income bracket to buy a house with excellent interest rates compared to other loans.
- Construction of a House
When an individual already has a land and wants to construct a house as per their needs then this is the loan which one should opt for. However, this type of loan is approved after taking into consideration the cost of a plot. For the cost of the land to be included into the loan amount, the plot must have been bought within a year.
- House Expansion or Extension Loans
Some lenders offer house expansion or extension loans for the people who want to add an extra floor in their house or add a garage to the house.
- Home Conversion Loans
If an individual already has a home loan which he/she availed to purchase a house but now they want to move into a new house for them banks offer home conversion loans. This the old loan can be transferred into a new loan and the lender need not pay the old loan amount.
- Loans for Home Improvement
For the renovation of a home, which includes external as well as internal repairing, loans for home improvement are offered by the banks. Vijaya Bank and ICICI specialise in such kinds of loans.
- Balance Transfer Home Loans
In case an individual wants to transfer their home loan from one bank to another bank account for several reasons like customer service, a lower rate of interest, then they should opt for balance transfer home loans. Therefore, home loan balance transfer is also an option.
- NRI Home Loans
NRI home loans are custom made for Non-Resident Indians (NRI) to buy a property in India. However, the application procedure for this loan is different from other types of loan.
- Bridged Loans
Bridge loans are short term loans which are generally taken for 3 weeks to 3 years by those who plan to buy a new property until a borrower finds a buyer for their old property.
- Stamp Duty Loans
These loans are taken to pay the stamp duty charges which are to be paid during the purchase of a property.
Loan amount
Most of the lenders provide a house loan for 75%-90% of the cost of the property. For example: if the cost of the property is Rs 40 lakh and your lenders provide 80% as a loan amount then you will get a loan of Rs 32 lakh, the remaining amount has to be paid by you, which also involves other costs.
EMI and EMI calculations
The home loan has to be repaid by the borrower to a lender, the repayment is done in a form of EMI. Every month the borrower pays a fixed sum of money to the money which involves the interest amount as well as the principal amount. EMI amount is selected by the borrower according to his/her needs. For EMI calculation, EMI calculators should be used as they give an accurate result.
Tenure
A borrower can avail a home loan for a maximum of 30 years. However, the shorter the tenure is better as one can get debt-free early.
Eligibility criteria
Eligibility criteria for every lender are different, though this criterion which most of the lenders follow:-
| Particulars | Criteria |
| Age | 21 to 65 years |
| Income | Rs 10,000 per month (Salaried), Rs 2 lakh per annum (self-employed) |
| CIBIL Score | Above 650 |
| Tenure | Maximum up to 30 years |
Documents required for a home loan
Identity proof- Driving license, passport, Aadhaar card, PAN card
Address proof- latest utility bills, Driving license, passport, Aadhaar card, PAN card
Income documents- Banks statements, salary slips, ITR details
Property documents- title deed, agreement to sell, own contribution receipt
Default
If a borrower defaults to pay a home loan, then a notice is sent if payment is not done even after that then the lender auctions the asset which is pledged as a security.
Conclusion: The process makes you look tedious to you at first, but selecting the right lender can help reach the new milepost with a home loan easily.