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About Home Loan

Home loan is a loan offered by a bank or financial institution (lender) for the purpose of buying a residential property. Here, the lender holds the right to the property until the loan is paid back in full along with interest.


For how long can I avail a home loan?

Home loans are long term in nature with a minimum tenure of 5 years and a maximum tenure of 30 years. The tenure can be modified as per your needs in discussions with the lender.

Am I eligible for a home loan?

Self employed, salaried individuals/professionals with a consistent source of income can apply for home loans. Generally the loan is offered to individuals over the age of 21 years and under the age of 65 years when the loan ends or at the time of superannuation. Different lenders will have varying metrics to evaluate eligibility

What are some of the key factors that banks consider?

Repayment capacity determines your eligibility

• Income

• Age  of the applicant

• Resident status (maximum limit for an Indian resident differs from that of a non-resident)

• Qualification (stability and occupation continuity)

• Spouse's income (household income is taken into account when there is a co-applicant)

• No. of dependants (it is a measure of repayment capacity)

• Credit history and score (past repayment track record)

What is the rate of interest?

Lenders offer Fixed and floating rate of interest. Fixed rates remain the same during the term of the loan whereas floating rates change in line with the base rate of the organization.

Can I change my rate type during the term?

 Yes, some lenders allow changing the rate type during the loan term. At times extra fees is charged for making this change.

Can I prepay my home loan?

Yes, one can repay the loan amount before completion of the loan tenure by making a lump sum payment towards paying off the loan. In such cases, the bank may decide to apply some penalties in the range 2-5% of the principal amount outstanding. Some banks and NMFC (non-banking financial companies) do not charge any penalty on making prepayment of a home loan.

What are the charges above standard interest for availing home loans?

Processing Fee- This fee is charged before sanction of a home loan and is taken to cover for expenses to evaluate your home loan eligibility

Commitment Fee- It is important to avail the loan within a stipulated time period after it is processed and sanctioned else some financial institutions may levy a commitment fee. By paying the commitment fee, you are assured that you can access the loan at the interest rate and for the tenure that was initially agreed on.   

Pre-payment Charges- Lenders may charge a penalty if the complete loan amount is paid before completion of the stipulated time. The penalty amount could be a maximum of 5% of the loan amount that is being pre-paid.

Miscellaneous charges- Documentation, stamp duty, credit bureau report issuance charges and consultant charges are generally considered as miscellaneous charges by few lenders.

What documents should I keep ready?

 Some common documents needed are:-

 Loan application form

Passport size photographs

Identity proof – PAN card/Passport/ DL/ Voters ID

Residence proof- telephone or electricity bill/ passport/ voter ID / property tax receipt

Bank statement for at least past 6 months and salary certificates/ latest acknowledged ITR  

Copy of plan approved for the proposed construction/extension

Cost estimation/ valuation report from Bank's (or finance company)  authorised surveyor/evaluator.

Allotment letter of housing board/ NOC of the society/Builder etc. as well as any other land use certificate/other  

Are there any tax benefits of home loans?

 There are two sets of tax benefits on home loans

Tax exemption on repayment of the home loan principal component: This is the deduction allowed under Tax Section 80C with a maximum annual tax deduction of Rs, 150,000 under the section.

Tax benefit on the interest rate for home loan- Under Section 24 of the Income Tax Act, one can avail the tax benefit on the amount of interest paid on a home loan to the maximum limit of Rs. 2 lakhs for a self occupied property.  

What is a top up loan?

 In case you have an existing home loan and have made repayments towards the existing home loan, you may get the option of borrowing an additional loan equal to the amount you have paid off on your current home loan. This is termed as a top up loan. Such loans require little or no paperwork to process this loan and the money can be used for a range of expenses.   

Can I have a co-applicant when I sign up for a home loan?

 Yes. You can have a family member like your spouse or your parents co-sign with your when you apply for a home loan. It is mandatory if you and your co-applicant are interested in becoming joint owners of the property that you intend to purchase.

Is having a good credit record important in case of a home loan?

Lenders certainly review your credit record through agencies like CIBIL, given the nature of loans and long tenure. Timely repayment of existing loans, bills etc are key to a healthy credit score

I have low credit score. Can I still apply for a home loan?

One can improve chances by getting a co-borrower. The co-borrower needs to be a family member like your spouse or parents. Ideally, you should choose a co-borrower who has a regular source of income and good credit history to bolter your chances of a successful application.

What is the margin on a home loan?

This is the part of property cost that is borne by you. Typically banks fund up to 85% of property cost, rest has to be borne by you

What costs are not covered by a home loan?

 Some of the expenses in this regard include the initial down payment/margin, stamp duty costs, registration costs, transfer charges among others. 



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