Home Loan FAQs
A home loan is offered by various banks in India at a lowest interest rate. These loans allow you to repay them from 5 to 30 years. You can apply for home loan for different purposes such as for purchase, construction and extension of dwelling unit, for purchase of plot, for upgrading home, etc.
Be ready with following items before applying for Home Loan. You need to decide Home Loan Interest Type like you wish to go with fixed or floating, Amount that you want to borrow from bank, Home Loan Tenure and Necessary Documents etc.
What factors one need to consider before taking Home Loan?
Factors to consider before taking Home Loan-Home Loan Interest Rate: It is the most important factor among all. Compare home loan rates offered by different banks and choose the lowest interest rate.
Home Loan Interest Type: You have two options i.e. Floating or Fixed. In fixed rate home loan, it interest rate remains fixed for 2 years or 5 years, the rate is reset to the rate prevailing after that time period. As floating rate varies according to the fluctuations in interest rates prevailing in the market, you can take the advantage of lower interest rates, if you opt for Floating Rate option.
Home Loan processing fees: Processing fee for home loan charged by banks generally starts from Rs. 10,000 to upto 2% on home loan amount. If you want to get lowest fee, you need to compare home loan rates offered by different banks. Home Loan pre-closure charges - Whenever you have surplus money in your hand, you will definitely want to repay home loan partially/fully before time as you do not want to keep paying interest on that loan. Banks levy pre-payment or pre-closure charges for such cases in the range of 0% to 5%. So, check carefully if the low rate of interest you are getting comes with high prepayment or foreclosure charges. Note that some home loans cannot be repaid before time.
Loan approval process: Generally private sector banks take much less time to process the loan approval though they levy processing fee on higher side.
Choose a well:known Lender(Bank): It is very important for you to select a reliable lender (bank) so that you can get best service quality, and post sales service quality in particular and it also provides transparency and track record of benchmark rate movement. Hidden charges: You must go through the fine print of all the charges in detail before making the final choice of the lender as the loan providers levy a number of additional charges, such as the prepayment charges, foreclosure charge, etc.
How one can increase his/her amount eligible for Home Loan?
One can increase his/her amount eligible for Home Loan by following- By making his/her spouse a co-applicant. In this way, spouse's income will be added to his/her eligibility and eligible amount for home loan will increase.
By choosing longer tenure of home loan EMI i.e. 30 years, if available.
By adding your parents as co-applicants.
What are the different types of Home Loans?
Various types of Home Loans are-Home Purchase Loan: For the purpose of purchase of a house.
Home Construction Loan: For the purpose of self-construction of a residential home.
Land Purchase Loans/Plot Loans: For the purpose of purchase of a plot of land for construction or as an investment.
Home Extension Loan: For the purpose of add more space to your existing home.
Home Improvement Loan: For the purpose of internal or external repairs, waterproofing, electrical works, painting, roofing, plumbing, etc.
Residential Plot Loan: For the purchase of a residential plot of land in an urban area, and build your house subsequently.
Home Loan Transfer: Transfer of Home Loans from other Housing finance companies or Banks
What documents are required for Home Loan Application?
Documents required for Home Loan Application are-
- Duly filled and signed application form with photograph
- Identity Proof- Aadhar Card, PAN Card, Passport, Driving License, Voter id card, ID-card issued by Government
- Address Proof - Aadhar Card, Passport, Driving License, Voter id card, Electricity/ Telephone/ Post-Paid Mobile bill, Bank statement
- Age Proof - Passport, Birth Certificate, PAN card, Driving License, Voter id card, Employee ID card (only for PSU/ Government employees), School/ College leaving certificate
- Form 16
- Latest 6 months salary slips for salaried persons
- Bank Statement of last 6 months
- Income Tax Returns (ITR) of last 3 years
- Last 3 years CA Certified or Audited Balance Sheet and Profit & Loss Account
- Processing fee Cheque
- Copies of the title documents of the property and the approved plan
- For Construction/ Renovation case, cost estimate from the Architect
What documents are required by a Home Loan Guarantor?
Documents required for Guarantor-
- 2 passport-size photographs
- Identity Proof
- Address Proof
- Signature Identification from his/her banker
- Assets and liabilities Statement
What are the various types of interest rate offered on home loans?
Various types of interest rate offered on home loans are-Fixed Rate: Fixed rate of interest means the rate of interest remains unchanged for the entire duration of the loan. This means one does not benefit even if home loan interest rates drop in the market during the tenure of his/her loan.
Floating Rate: Floating rate of interest fluctuates with the market lending rate. This means one has the risk of paying more than he/she budgeted for, in case the lending rate goes up.
What tax benefits are associated with home loan?
There are double tax benefits associated with home loan for Resident Indians-
- Repayment of the Principal Amount
- Repayment of the Interest on Home Loan
One can get a Tax rebate under section 80C of the Income Tax Act on whole amount repaid by him in a financial year, maximum upto Rs. 1,50,000/- each financial year (Increased from 1 Lakh to Rs. 1.5 Lakh in Budget 2014).
Tax Benefit on Home Loan for payment of Interest is allowed as a deduction under Section 24(1) of the Income Tax Act. One is eligible for a Tax Rebate of maximum of Rs. 2 lakh per financial year for home loan interest paid by him/her during that financial year.
This home loan can be taken for any purpose like Purchase/ Repair/ Construction/ Renewal/ Reconstruction of a Residential House Property etc.
Which home loan is beneficial long-term or short-term?
Loan repayment period options range generally from 5 to 30 years. Long-term loan is more beneficial as it gives you the option and comfort of lower EMIs, The good point associated with the short-term home loans is that you have to pay lesser interest. A home loan borrower can choose any of the options considering his financial status.
What security is required for the home loan?
The property that is purchased using the home loan generally is considered as the collateral/security. But the bank can ask for providing some additional securities like insurance policies, fixed deposits, etc.
Can one repay the home loan amount before its tenure?
Yes. One can repay his/her home loan amount before its tenure also which is called a pre-payment, however, bank can levy a penalty fee for the same.
How will a bank decide the loan amount one is eligible for?
It will be determined by one's income and repayment capacity. Some other important factors are age, qualification, number of dependants, spouse's income, assets & liabilities, savings history and the stability & continuity of occupation.
What is EMI?
EMI is an abbreviation for "Equated Monthly Instalment" which is the amount you will pay to bank on a specific date each month till the loan is repaid in full.
The EMI comprises of the principal and interest components. These components are designed in a way that the interest component is much larger than the principal component during the initial years of your loan, while the principal component is much larger than the interest component during the later years of the loan.
You can use our EMI calculator to find out your monthly payments based on the loan amount, the rate of interest and the repayment period.
What does the term "Market Value of the property" mean?
Market value of the property is the estimated amount that is expected to be fetched on the property as per the prevailing market conditions.
In how many ways, repayment of the loan through EMI is possible?
Bank offers multiple ways for repayment of the loan through EMI as follows-
- One can issue standing instructions to his/her bank to pay the instalments through ECS (Electronic Clearing System)
- Opt for direct deduction of monthly instalments by his/her employer
- Issue post-dated cheques from his/her salary account
In how many instalments bank disburses the loan to the borrower?
Bank offers multiple ways for repayment of the loan through EMI as follows-
Once bank receives the request for disbursement, it can disburse the loan in full or in instalments, which usually do not exceed 3 in number.
For under-construction property, bank disburses the loan in instalments based on the progress of construction, as assessed by the bank.
If someone has enough funds to buy a house, is it still worthwhile to avail of a bank loan for buying a house?
It is usually beneficial to take a Housing loan as it would enable you to get tax exemptions. However, one can consult his/her income tax advisor to know benefits/disadvantages in his/her specific case.
What is a co-applicant? Who can be a co-applicant?
Co-applicant(s) is/are the co-owner(s) of the property which is being offered as collateral/security to the loan. Co-applicants to the loan are generally husband/wife, father/son, etc. All co-applicants need not be co-owners.
What are daily reducing, monthly reducing and yearly reducing balance systems of EMI?
- Annual Reducing: In this, the principal, for which one pays interest, reduces at the end of the year. Hence, one continues to pay interest on a certain portion of the principal which is actually paid back to the lender.
- Monthly Reducing: In this, the principal, for which one pays interest, reduces every month as one pays his/her EMI. This means EMI for the monthly reducing system is less than the annual reducing system.
- Daily Reducing: In this, the principal, for which you pay interest, reduces from the day one pays his/her EMI. EMI in the daily reducing system is effectively less than the monthly reducing system and the annual reducing system.
What are the different stages involved in taking a home loan?
Following 3 stages are there under home process-
- Application: To be submitted with the necessary documents.
- Loan Sanction: Approval for a specific loan amount is given based on one's repayment capability, the value of the property and requirement.
- Disbursement: This is the final stage. In this stage, home loan agreement is signed and the lending bank will issue a cheque in the favour of seller/builder. Under home construction, the disbursement will be made as per stage of construction. It takes around 5-8 days to complete the entire process from the day of submission of the documents to avail disbursement.
What is Home Loan Balance Transfer?
You can transfer your existing home loan to any bank which is offering a lower interest rate with a Balance Transfer home loan. The main reasons why customers switch their loans are relatively higher interest rates and poor service from the existing lender. When the Reserve Bank of India (RBI) reduces rates, lenders should also reduce the same but it doesn't happen in reality and even if they cut rates, this reduction usually is not be in line with what RBI did. Some of the lenders offer conversion of existing higher interest rate to a lower rate to their existing customers but the conversion rate is high. This also leads to home loan transfer from existing lender to new lender.
What are the benefits of Home Loan Balance Transfer?
- Reduced EMI: You can reduce the EMI amount on your Home Loan Balance Transfer.
- Saving for the long term: You can enjoy the savings for the other important things in life.
- Decide upon Tenure & Term: You can decide the tenure and term of EMI as per your own choice.
- Availability of Repayment Options: Customised repayment options are available that suit your needs.
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