All you need to know about Home Loans

All you need to know about Home Loans

Home loan is the amount of money given by a bank or money lending company or family member or friend to either construct a home or purchase a property. The loan is specifically to be used for purchase of residential property – Plot or House or Apartment or Villa etc

Types of Home Loan

Plot Loan: These loans are used for purchasing a residential plot.

Composite Home Loan: These are loans given to buy a plot and start construction of a home on it within 18 months. If the construction is not started within 18 months of purchase, then banks would consider it as a plot loan and charge a higher rate of interest.

Home Purchase Loan: These loans are provided to buy ready-to-move-in homes (could be an individual house, an apartment, or a villa).

Home Loan Balance Transfer: If you already have a home loan and want to transfer the loan to another lender with lower interest rate or a higher loan amount. The additional loan amount excluding the actual home loan will be at a slightly higher rate of interest.

Home Refinance: If you have already bought a property, you can still avail a home loan within six months of purchase.

Features of Home Loan

  • Home loans are provided at very attractive interests and are amongst the lowest across all loan types
  • Tenure can go up to 30 years depending on the age of the borrower
  • Family members of the borrower can become co-applicant and avail the loan together
  • The property that is bought gets mortgaged as collateral
  • Home loans can be availed for a property that is under construction. For apartments that are under construction, banks provide loans only if it is built by a reputed developer (while the property is under construction, the loan is given phase wise. You just need to pay interest on the amount borrowed and not the EMI)
  • Government has introduced Pradhan Mantri Awas Yojana and many other schemes for Affordable Housing for Economically Weaker Section (EWS) and Lower Income Group (LIG) who are eligible for subsidies on their home loan. Please visit https://pmayuclap.gov.in/  for complete details

Eligibility Criteria of Home Loan

  • Following income of an individual are considered for eligibility calculation
    • Salary
    • Profit or Share of Profit
    • Dividends
    • Interest Income
    • Rental Income
    • Agriculture Income (Only as an additional source of income)
    • Annual Bonus

  • 60 to 65% of the net income of the borrower is equated to EMI while calculating the loan amount
  • Type of property: For built up properties, the “No. of Units” plays a vital role while availing loan. “Unit” refers to a completed portion of the property e.g., a residential house in a multi storied property. If a floor has 2 houses, then it’s counted as 2 units. Banks restrain from providing home loans on properties with more than 4 units and you might have to borrow loans from NBFCs
  • Size of property: If the plot size is less than 500 sq. ft. then most banks and NBFCs don’t provide home loans and you might have to look for Housing Finance Companies (HFCs) or Affordable Housing Finance Companies (AHFs)

Tax Benefits on Home Loans

  • Home loans are eligible under Section 80C, by which you can avail tax benefits of up to 2 Lakh
  • If you are a first-time home buyer, you are eligible for a subsidy under the PMAY scheme as mentioned earlier
  • If you have planned to rent the property, your rental income can be squared off against the interest paid and can claim tax exemptions of up to 2 Lakh

Interest Rates offered on Home Loans

Banks are directly linked to RBI and offer home loans linked to Repo Bench Mark Rate and on the other hand NBFCs, AHFs, and HFCs offer their interest rates linked to their Prime Lending Rates. Home loans rate of interest are amongst the lowest across all loan types.

(Source: en.wikipedia.org) (Source: rbi.org.in

Things to look for before buying a Home

  • While buying an under-construction or completed apartment, the following needs to be carefully checked –  
    • Reputation of the Builder and previous projects completed by them 
    • If the project is an Approved Project Financial or APF with any reputed bank 
    • Has the builder availed any project finance on the project 
    • If RERA is vailed for the project and completion stage is within RERA timelines 
    • If RERA escrow account is operational 
    • Project needs to be built as per approved Sanction Plan
    • Ratio between Carpet Area to Super Built-up Area – Normally its greater or equal to 70%
    • Title Flow documents of the entire project needs to be verified for known or CAT B builders 
  • While buying individual Homes / Villas or Plots it is very important to get all the Title Flow documents verified by a lawyer to ensure the property has no legal issues. Following documents needs to be verified  
    • Parent Title Deed 
    • Chain Deeds
    • Ownership Deed in the name of the borrower 
    • Building Sanction Plan and Permit – For built up property only
    • Tax Paid for latest 3years – Latest to be in Borrower’s name
    • Corporation / Municipality mutations records – Latest to be in Borrower’s name
    • Encumbrance Certificate for 30 years – Latest to be in Borrower’s name

Lenders offering Home Loans 

  • PSU Banks 
  • Private Banks 
  • Non-Banking Finance Company (NBFC)
  • Housing Finance Companies (HFCs)
  • Affordable Housing Finance Companies (AHFs)

AHFs offer a loan amount between 30 to 40 Lakh and a maximum of 50 Lakh. NBFCs and banks fund home loans to a bigger extent depending on the property value

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