Home loan is the money borrowed from a bank or a housing finance institution on interest for buying / constructing / upgrading a residential real estate property.
The banks usually offer these nine types of loans on interest:
• Home Purchase Loan: It is the most common type of loan taken for purchasing a new residential property or an old house from its previous owner.
• Home Improvement Loan: Home improvement loans are given for executing repair and renovation work at home.
• Home Construction Loan: These loans are sanctioned to construct a house on a piece of land you have already purchased. The loan approval and application process for these loans is somewhat different from the other commonly available home loans.
• Home Extension Loan: Home extension loans are offered for expanding or extending an existing house. For example, addition of an extra room, a floor etc.
• Land Purchase Loan: This type of loan is granted for purchase of a plot of land for both residential or investment purposes.
• Home Conversion Loans: These loans are available for people who have already purchased a house by taking a home loan but now want to buy and move to another house. With these loans, they can fund the purchase of the new house by transferring the current loan to the new house.
• Balance Transfer Loan: These loans are availed to transfer one’s home loan from one bank to another. It is usually done to repay the remaining amount of loan at lower interest rates or when a customer is unhappy with the services provided by his existing home loan provider and wants to switch to a different bank.
• NRI Home loans: These are specialized loans, structured to suit the requirements of NRIs who wish to build or buy a home in India.
• Loan against Property (LAP): These loans are given or disbursed against the mortgage of a property.
As home loans cover a large sum, the tenure generally varies between 3 to 30 years.
Longer the tenure you have, the lesser will be your EMI but higher would be the interest outgo. In shorter tenures, you pay a greater EMI, but the loan gets repaid faster and you pay less interest.
EMI or Equated Monthly Installment is a fixed amount paid by you to the bank on a specific date every month. The EMIs are fixed when you borrow money from the bank as a loan. EMI’s are used to pay both interest and principal amount of a loan in a way that over a specific number of years, the loan amount is repaid to the bank with interest.
Under the Pre-EMI option, the borrower is required to pay only the interest on the loan amount that will be disbursed as per the progress on construction of the project. The actual EMI payment starts after the possession of the house.
The general eligibility conditions are as follows:
• The borrower should be a resident of India or an NRI
• Above 24 years of age at the beginning of the loan
• Below 60 years (65 for self-employed) or retirement age when the loan matures.
Yes. One can avail a pre-approved loan from a housing financial institution or a bank.
Apart from other criteria and norms of the lending bank, the home loan amount is generally calculated as 30 to 65 percent of your gross income. You can increase your loan amount by including a co-applicant.
You have to submit the following documents:
• Proof of Identity: PAN, Driving license, Voter ID, Aadhar Card
• Proof of Income:
• Salaried Applicants: Latest 3 Months salary slip showing all deductions and Form 16 for the last three years.
• Self Employed Applicants: IT returns for the past 2 years and computation of income for the last 2 years as certified by a CA
• Bank Statement: Past 6 months
• Guarantor Form (Optional)
The interest on home loans is usually calculated either on monthly reducing or yearly reducing balance. In some cases, daily reducing method is also adopted.
• Annual reducing: In this system, the principal, for which you pay interest, reduces at the end of the year. Thus, you continue to pay interest on a certain portion of the principal that you have actually paid back to the lender. This means that the EMI for the monthly reducing system is effectively less than the annual reducing system.
• Monthly reducing: In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
• Daily Reducing: In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system
In fixed interest rate, the interest remains constant throughout the loan period irrespective of the changes in market conditions while in the floating interest rate, the interest can decrease or increase depending on market fluctuations.
Home loans are usually accompanied by the following extra costs:
• Processing Charge: It is the fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan amount or a percentage of the loan amount.
• Pre-payment Penalty: When a loan is repaid before the scheduled duration, a penalty is charged by some banks, which is known as the pre-payment penalty.
• Miscellaneous Costs: Some lenders may also ask for documentation or consultation charges.
As per Section 80C of the Income Tax Act, you are allowed separate deductions on principal and interest amount of home loan amount, along with other entities like ULIP, PF, PPF, ELSS and NSC’s. In case of principal, you can claim deduction up to Rs 1.5 Lakhs while in case of interest, it is Rs 2 Lakhs. The amount of stamp duty and registration is also eligible for tax deduction.
It is important to note that the tax break can only be claimed for the year in which the construction is completed.
Yes, you can get the benefit on both loans. However, the total amount that you will be entitled to will not exceed Rs 1, 50,000 for both the homes.
On an average, loans are disbursed within 3-15 days after satisfactory and complete documentation and completion of required procedures.
Generally, banking finance institutions pay around 75 to 85 percent of the cost of the property bought. The remaining 20 % of the amount is paid up front, which is popularly known as the down payment.
Yes, a single woman can get a loan. Many lending institutions also have special schemes for them, such as a discount of up to 0.25% on the interest rate.
Yes, you can sell the property with the consent of the banking institution.
If the buyer wants to take a loan to buy the property, the process is much easier if he approaches the same bank. In these cases, the bank does not need to release the property papers to another bank before getting the payment.
If the buyer wants to make a payment outright, he can make it to the bank directly. The property papers will be released only after the bank has recovered the entire loan amount.
In a majority of the cases, the property to be purchased itself becomes the security and is mortgaged to the lender till the entire loan is repaid. A number of lenders may ask for additional security such as life insurance policies, Fixed Deposit receipts and savings certificates.
It is generally advantageous to go for a home loan as it helps you in availing tax benefits. However, please consult your CA or tax advisor to discuss the advantages and disadvantages in your case.
It depends from one bank to another. Some banks ask for 1-2 guarantors
Yes, lending institutions allow you to prepay your loan. However, these institutions may charge early repayment penalties, which may vary from 2 to 3% of the outstanding principal amount.
Home insurance is a type of insurance policy that covers private residences and protects them from unpredictable damages, natural or man-made disasters, burglary and theft.
Home insurance policies cover the house structure as well as its contents or possessions. Many insurance policies also combine various personal insurance features too.
Under personal possessions, home insurance companies generally cover furniture, electronic/electrical gadgets and jewelry under personal possessions. However, the maximum liability of these items depends upon the type of insurance cover sought or valuations done by the bank.
• Sale Deed
• Title Deed
• Approved Building plans
• Completion Certificate ( Newly Constructed)
• Commencement Certificate( Under-construction property)
• Conversion Certificate( If agricultural land is covered to non-agricultural)
• Khata Certificate (especially in Bangalore)
• Encumbrance Certificate
• Latest Tax Receipts
• Occupancy Certificate
Yes. FIR is compulsory in cases where insurance is claimed for malicious damages, riots, terrorism, burglary, theft and larceny. In case of a fire incident, you need to submit the assessment report compiled by the fire department as well.
Allotment papers of the plot, Building Plan approvals, Transfer Deed (in case of multiple owners), Sale Deed, PAN Card and Photographs.
Sale Deed, No Objection Certificate (NOC) from builder, NOC from banks, Building Plan approvals, Completion Certificate, PAN Card and Photographs.
Clear and marketable Title, Sale Deed, Encumbrance Certificate, latest tax receipts, Occupancy Certificate, Building Plan Approvals and Possession Certificate.
• Projects approvals can be verified from the corporation or the sanctioning authority’s office
• Ownership documents can be confirmed from the Sub Registrar’s office where they are registered
• Share certificate related to societies can be verified from the concerned Society itself
• Original copies of the chain of title agreements and Building Plan approvals
• Original registration and stamp duty receipts
• Possession Letter
• Original share certificate (In case of societies)
• Proof of payment of all dues like maintenance charges, electricity bills, phone, water and property taxes up to the date of handing possession
• NOC from the Society or other concerned body confirming no objection to the transfer
It refers to the registering of documents relating to transfer, sale, lease or any other form of disposal of an immovable property. Registration is compulsory by law for all properties under Section 17 of Indian Registrations Act, 1908. Once a property is registered lawfully, it means that the person in whose favor the property is registered, is the lawful owner of the premises and is fully responsible for it in all respects.
You can own as many properties as you want.
Registration of a property includes necessary stamping and paying of registration charges for a sale deed and getting it recorded at the sub-registrar's office of the concerned jurisdictional area. If a property is purchased from a developer directly, getting it registered amounts to act of legal conveyance. In case the purchased property is a second or third transaction, it involves a duly stamped and registered transfer deed. Nowadays, property registration process is computerized in most states.
New Sale Deed, PAN Card, Photographs.
Property valuation is done by multiplying the built up area of the property with the cost of construction per square feet. This is the usual method followed by most banks.
It varies from bank to bank. Generally, most policies cover a period of five years.