Home Loan
Buying a House is not only a dream but also a huge Investment. Be it searching your dream home out or constructing it; both involve a considerable amount of time, effort & most importantly financial planning. Home Loans comes as a relief here. Getting funded 80-85% of the Cost is a huge breather. To quote Archit Gupta, Founder & CEO ClearTax , "Home loans are the most common and quickest route to becoming a homeowner – unless you are one those rare breeds of savers who save the entire money required to buy a house first and then invest. If you have availed a home loan, tax saving is the biggest silver lining you have every year as you pay your way towards complete loan repayment."
Like any other Loan, Home loans have three distinct parameters-
Amount of Loan
Tenure of Loan
Rate of interest
With the rising complexities of modern life, Home Loans are not confined to the mere purchase of a House but also encompasses-
Land purchase
Home Construction
Home improvement & extension
Home conversion
Home loan top-up
Why go for Home Loans?
Apart from shelling out a chunk of your lifetime savings, there are several reasons that work in favour of taking a Home Loan-
Low rate of interest: Home loans are of cheaper rate than other loans available. Being a long-term decision, the interest becomes a deciding factor. Long tenures will attract a larger sum of interest. Various Financial Institutions are offering lower rates to woo customers.
Income Tax benefits: Every EMI has two components- interest and principal. Income Tax allows you to claim benefit on both the interest and principal paid under various provisions of the Income from House Property Subhead.
Capital Appreciation: Buying a Property is mostly a positive investment that gives you a good return in the long run. A judicious decision will always fetch a decent future income.
Fixed or Floating?
The interest rates currently offered by Banks varies with the MCLR (Marginal cost of lending rate) of RBI plus a charge depending on the risk profile of the Borrower. You will find a host of offers and deals in the Home Loan Market, but the basic rate remains the same.
Home loan interests can either be fixed or floating. In a fixed rate, you must shell out a fixed amount every month and in floating charge, the amount will vary as per existing market rate. A floating rate is more popular due to the simple reason of their variable nature. In case of any decrease in the rate of interest, floating interest Customers enjoy benefits of the reduced rate whereas Fixed Interest Customers keep on paying the same amount on a monthly basis. Floating interest rates are calculated as per the base rate plus a floating charge so when the base change fluctuates, the rate of interest varies too. The only disadvantage of the floating rate is the fluctuating EMIs with the changing rates. In case there’s an increase, the Customer ends up paying much more than he bargained for.
When choosing between these two schemes, most borrowers go for floating rates. Existing home loan borrowers either can choose to continue with base rate or switch to MCLR. New home loan borrowers need to avail the new MCLR rates that are subject to change every set interval of time as directed by the RBI. However, it is strongly recommended to go through various Bank Sites to take an informed decision.
Eligibility for Home loans:
The criteria to apply for Home loans are pretty simple and generalized. Here, we sum up a few basics of the very same-
|
Home Loan
Eligibility Criteria
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Salaried
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Self-Employed
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Age
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21 Years – 60 Years
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24 Years – 65 Years
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Experience
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Min. 2 Years
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Min. 5 Years
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Co-Applicant(s)
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Not Mandatory – only Family Members are accepted
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Not Mandatory – only Family Members are accepted
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CIBIL Score
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750 or above
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750 or above
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Max. Loan allowed
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Up to 90%
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Up to 90%
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Max. EMI – Per Income %
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Up to 65%
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Up to 65%
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The documents needed for a home loan are-
-Govt. ID proof
-Govt. address proof
-Photos as specified by Bank
-Employment Certificate/Salary Certificate/ Form no. 16
-Last 6 Month’s Bank Account statement
-last 3 years Income Tax return
-Co-Lateral Security (if needed)
-Details of the property from Promoters
-Photocopy of receipts of Govt. Taxes and Bills
-Sanctioned Plan of the property
-Registration deed of the Land in the name of the Promoter
The steps involved:
Now that you have got everything in place, fill-up the application form and submit with the relevant documents. The Bank may call you for a discussion with the Manager to choose the best home loan deal. Pay the processing charges and inspection charges and your property is ready for a visit by Bank Officials. Once these two reports are submitted, Bank will sanction the loan and send an official confirmation of the same. The Final documentation may need a few more documents. You may again need to visit the Branch to complete the signature formalities. Finally, the loan is disbursed.
The not-so-hidden charges:
It is important to go through the Terms & Conditions n read the fine prints of Loan Offer Document. Banks levy several charges & it varies. It’s important to take your decision depending over the quantum of these charges. Some of the charges may be like -
• Technical valuation charges
• Legal and Notary Charges
• Documentation fee
• Balance transfer charges (In case of a Balance transfer loan from another Bank)
• Pre-payment charges (In case of closure of loan earlier than the mentioned tenure) & late payment charges
• Administrative Fees
The leading Banks offering the Home Loan segment are-
SBI- the leader. SBI’s customer-friendly schemes and trust among customers are the reason for placing SBI in the top. Apart from competitive interest rates, the Bank also offers interesting rates and charges.
ICICI Bank- the largest private Bank of India offers a bouquet of services and schemes when it comes to home loans. The bank also offers special rates for Women applicants, Senior Citizens and different segment of Central Government Employees. The zero charges on pre-payment and pre-closure have earned them a loyal Customer base.
HDFC Limited: Another trusted name in this loan category. With zero pre-closure and pre-payment charges, the Bank is surely attracting a lot of Customers. A unique feature of their home loans is non-requirement of Guarantors. To make the application process easy, the Bank also offers door-step service and instant e-approval facility.
Our current Prime Minister has launched Pradhan Mantri Aawas Yojana (PMAY) in 2015 to provide a roof over the heads of the urban poor. The Scheme recognizes three income groups as Middle Class, Lower Income groups and Economically weaker sections. Any Indian Citizen applying under PMAY Scheme is eligible to get Loans for the top banks provided the documentation formalities are fulfilled.
We have tried to cover the significant features of a Home Loan and we hope that it helps you make an informed decision.
Process
0.25% of the loan amount subject to a minimum of Rs 1000 for loans up to Rs.25 lakhs, Rs.6500 for loans above Rs.25 lakhs and up to Rs.75 lakhs and Rs.10, 000 for loans above Rs.75 lakhs.
Hidden Cost
NA
| Bank | Interest Rate | Minimum Age (in yrs.) | Minimum Income (in Rs.) |
|---|---|---|---|
 State Bank Of India |
10.3% to 10.5% p.a. (depending upon the amount) | 18 to 70 years | Availability of sufficient, regular and continuous source of income for servicing the loan repayment. |
 ICICI Bank Limited |
9.5% to 10.05% | Minimum 21 years | Regular Source of Income should be there |
 Allahabad Bank |
8.70% onwards | Min 21 and Max 60 years | Regular Income Source |
 Andhra Bank |
8.80% - 8.85% floating | 21 to 65 years | Regular Income |
 Bank of Baroda |
10.25% | Maximum 60 Years | Regular Source of Income should be there |
 Bank of India |
8.85% - 8.90% | 21 to 60 years | Regular Income |
 Canara Bank |
08.75% - 10.00% | NA | Regular Source of Income should be there |
 Punjab National Bank |
10.5% to 12.5% | 18 years to 65 years | Regular Source of Income should be there |
 Union Bank of India |
10.25% to 13.25% | Minimum 21 years | Regular Source of Income should be there |
 Axis Bank Limited |
Fixed Rate: 11.75% and Floating: 10.25% to 12.25% | 24 to 60 years | Regular Source of Income should be there |
 HDFC Bank Limited |
Information not available | 21-60 years | Regular Source of Income should be there |
 Industrial Development Bank of India (IDBI) |
09.75-12.50% | Minimum 21 years | Regular Source of Income should be there |
 CITI Bank |
Information not available | Minimum 23 years, Age on loan maturity should not exceed 65 years | Information not available |
 Yes Bank |
9.85% to 12.00% | Must be 21 to 60 years | Regular Source of Income should be there |
Banks and other financial institutions make available for various types of loan for homes. You can decide on the type of loan that best suits you. Some of the most availed home loans from the banks are as follows:
- Loans for purchasing land
- Loan for purchasing home
- Loan for construction of a home
- Loan for the extension or expansion of home
- Loan for improvement of home
- Loan for the conversion of home
- NRI home loans
The duration of loan repayment in case of home loans start from a period of 5 years, and it can continue up to 30 years. The term of repayment is decided by the amount of loan sanctioned by the financial institution.
The home loan is given to people who have a regular source of income from any source. The source of income can be a salary from any organization or self-employment. The person applying for a home loan must be at least 21 years old. The individual should not be more than 65 years at the end of the payments. Some lenders also consider the minimum income levels.
To get your home loan processed, you would need to submit certain documents before the financial institutions:
- Filled form of a loan application
- Passport size photographs of the applicant
- Identity Proof
- Proof of residence
- Statement of bank account
- Copy of the housing plan
- Estimation of the cost
- Letter of house allotment
You can apply for joint loans for home. However, the financial institutions only allow for immediate members of the family to be a partner of the loan. The family members with whom you can apply for joint home loans are:
- Parents
- Spouse
- Children
The financial institutions have arranged for several ways to repay the loans. You can pay the EMI of the loan in the below-mentioned ways:
- Post Dated cheque
- Deduction from Salary
- Electronic Clearing System
When you apply for a home loan from any bank or financial institution, there are a certain amount of charges that you need to pay for the processing of the loan. The costs that are usually included are as follows:
- Processing Fee
- Commitment Fee
- Pre-payment charges
- Miscellaneous charges
You can certainly be eligible for getting tax rebates if you have availed a home loan. However, the benefits of taxation are divided into two main categories:
- Tax Exemption on the repayment of the principal of the loan
- Tax benefit on the interest paid for the loan
The credit score of an applicant is essential in the point of view of home loans. The repayment duration of home loans starts from 5 years to almost 30 years. So the financial institutions want to be very sure about the repayment of the amount that they are sanctioning. For this reason, the authorities will make a detailed audit of your past credit history before moving forward with the processing of the loan. It is highly essential to have a good credit score. If the credit score is higher, there are even chances for you to get lower interest rates and some waivers too.
Home loan pre-approval is one such facility that many financial institutions make available for customers in which the bank allows the interested applicants with particulars in regards to their eligibility criteria even before they have made up their mind to purchase a house. The pre-approval is valid for a limited period. This period is usually valid for 6 months. It varies from banks to banks. The rules are set as per the internal principles and guidelines. You can get in touch with your bank for more information about pre-approval of home loan.
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