Buying a home involves substantial capital investment, and a home loan is extremely important for most homebuyers.
In fact, almost all banks and various non-banking finance companies (NBFCs) offer home loans.
However, their terms and conditions often differ, and borrowers find it difficult to choose the most suitable home loan from the right financial institution/bank.
Different Types of Home Loans
Home purchase loan: This loan is for individuals for buying a new or resale property. Depending on the lender’s policies, the borrower can be granted up to 80-90% of the property’s value as a home loan.
Home construction loan: This loan is for individuals who want to construct a new home on a plot owned by them. The loan amount can cover the construction cost, and the lender disburses the loan amount in installments based on the construction’s progress.
A bank or an NBFC takes into account the cost of the plot before approving the home construction loan. The loan amount depends on the estimated cost of construction.
Also, to include the plot cost in the home loan, the plot must be bought within a year.
Home improvement loan: This loan is for renovation or significant repair of an existing home.
This loan can be used for changing the tiles of the house, painting the house, or any other type of home improvement/renovation expenses.
Home extension loan: In case you have permission to extend your house and add more floors or add a room to your existing house, you can use this loan to do so. To apply for this loan, you must have the home extension approval document with a blueprint.
Plot purchase loan: An individual can avail of this loan to buy a plot and build a new house. It covers the cost of the plot and disburses the loan based on the progress of construction.
Apart from the above, there are also some other types of loans such as:
- PMAY (Rural) home loans
- NRI home loans
- Balance transfer loans
- Top-up home loans
Let us now discuss the eligibility criteria for applying for home loans.
Eligibility Criteria for Home Loans
The eligibility criteria for applying for a home loan in India vary from lender to lender. Here are some common criteria that borrowers need to meet to apply for a home loan.
Age: The borrower should be at least 21 and less than 65 years old when applying for a home loan.
Income: The borrower’s income determines the home loan amount and eligibility. The lender may consider the borrower’s salary, business income, or other sources of income to determine eligibility.
Employment status: The borrower should have a stable job or a steady source of income.
Credit score: A good credit score is essential to get a home loan in India. A score above 750 is acceptable to most lenders.
Property ownership: The borrower should have a clear title to the property they plan to purchase or build.
Documentation Necessary for a Home Loan
Proof of identity: Passport, voter ID card, Aadhaar card, PAN card, or driving license.
Proof of address: Aadhaar Card, voter ID card, passport, utility bills, or ration card.
Income proof: Salary slip, Income Tax Returns (ITR).
Fees Charged for Home Loans
Processing fee: The lender charges a processing fee for the home loan application. The fee is typically a percentage of the loan amount, ranging from 0.1% + GST to 1% + GST.
Legal fee: The lender charges a legal fee for conducting a legal and technical check on the property. This is usually a fixed amount.
Besides these, lenders typically charge a pre-payment penalty and late payment fee (charged for late payment of EMIs)
How to Increase Your Chances of Getting a Home Loan Approval?
Here are some tips to improve your chances of getting approved for a home loan. For personalised service in this regard, contact us.
Maintain a good credit score: A good credit score is critical in approving a home loan. Lenders consider a credit score of 750 or above as good. Take the necessary steps to repair your credit score if it is unsatisfactory.
Choose the right lender: Different lenders have different home loan eligibility criteria, interest rates, and loan terms. Choose the best home loan deal that suits your requirements.
Provide all required documents: Providing all the required documents for a home loan accurately and on time can improve your chances of getting approved.
Apply with a co-borrower: Applying for a home loan with a co-borrower with a good credit score and stable income can improve your chances of getting the loan approved.
Make a higher down payment: It can improve your chances of getting a home loan approved by reducing the loan amount and risk for the lender.
Select the right loan amount and tenure: Applying for a loan amount or tenure you cannot afford can reduce your chances of getting the loan approved. In India, taking a home loan is considerably tax efficient. Please follow our blog to learn more about the tax benefits of home loans.
