The Ultimate Home Loan Guide; Must Read Before Taking Out a Home Loan

Post By - Laxmi Mahera
Review By : Rohan Sharma
Updated on : October 29, 2021

What is a home loan, often known as a housing loan?

A house loan, also known as a housing loan, is a sum obtained from a bank or a non-bank financial institution (NBFC) for the purpose of purchasing, constructing, repairing, or renovating a residential property over a set period of time. Lenders impose interest on the amount borrowed, which the borrowers must pay in addition to the principal amount.

A house is more than simply a place to live; it’s also a place to create memories with your family. Owning a house is critical to your current and future well-being. It is also a significant decision in one’s life. The cost of purchasing, building, renovating, or repairing a residential dwelling is extremely high these days. This is when a home loan is required. One of the most common products given by banks and NBFCs to customers is the home loan or housing loan. Home loans are also the most popular banking product and the one that secures the lender’s longest banking connection.

Features of Home Loan

A home loan can be used for a variety of purposes, including:

1. Purchase or construction of a home or apartment
2. Purchase of a plot of land and construction of a dwelling on it
3. Existing residential property repairs, upgrades, and extensions
4. Takeover of a home loan from another bank or financial institution

Home loans are secured loans, which means that collateral is required to obtain one.
When compared to unsecured personal loans, home loan interest rates are cheaper.
When compared to unsecured personal loans, the interest rate on a home loan is cheaper. Because these are secured loans, the interest rate on house loans is lower.
EMIs will be used to repay the loan.
When compared to other types of loans, the loan amount given and sanctioned is large when compared to the cost of purchasing property.
Home loans are typically for a long period of time, ranging from 5 to 30 years.
The use of a co-applicant/joint applicant is permitted.
On home loans, prepayments are permitted.
The interest rate ranges from a low of 8.35 percent to a high of 16. percent. It also differs between self-employed and salaried workers.
Property insurance is required in the amount of the property’s worth.
The following parts of the Income Tax Act of 1961 entitle home loans for tax incentives.

1. Section 80C: Home Loan Tax Break (Principal Amount).
2. Section 24: Income Tax Benefit on Home Loan Interest.

Loan Types for Households

Customers can also choose variety of home loan options to meet their needs. The following is a list of the several types of house loans that banks and NBFCs offer:

Home purchase loans: As the name implies, these loans are used to buy houses or apartments. These are the most frequent and widely used types of house loans.
Home loan for construction: A home loan for construction is obtained when a home loan is obtained for the construction of a house on one’s own land. The caveat is that the land for building must be brought within a year of receiving the loan in order for the land cost to be recognized as part of the loan. If the land was purchased more than a year ago, the cost of the land is deducted from the loan amount. The procedures for obtaining a construction loan differ slightly from those for obtaining a normal home loan. The loan applicant must provide the lending company with a lump-sum construction cost estimate, after which the lender assesses and chooses whether to sanction or refuse the loan.
Plot loan: This loan is used to purchase a plot of land.
Home extension/renovation loan: This sort of loan is for people who currently own a home and want to either extend or renovate it.
Home conversion loan: If you took out a loan to buy a property and then decided to move, this form of loan will assist you in getting the loan converted from one house to another.
NRI Home Loans: These loans are intended for NRIs who want to buy a home in India. The method and documentation for an NRI Home Loan are unique.

Fees and Charges for Household Loans

Aside from the interest rate levied on house loan products, there are a variety of fees and charges associated with housing finance offered by various institutions. The following are the numerous fees that banks charge:

Processing Fee: Most banks charge a fee to process your home loan application. These fees varies depending on the bank. This fee is either a percentage of the loan amount or a fixed amount of money, and it is non-refundable. Depending on the terms and conditions, some banks may waive this fee.
Late payment fees: As the name implies, late payment fees are assessed when an EMI is not paid on time.
Pre-payment fees: Pre-payment penalties are imposed when house loans are pre-paid. This means that if you pay off your house loan before the agreed-upon term, the bank may impose pre-payment penalties. The majority of banks have stopped charging fees for pre-closing house loans. However, some banks continue to levy pre-payment penalties equal to a percentage of the house loan total.
Conversion fees: Home loans are often issued by banks at either a fixed or a fluctuating interest rate. The consumer can switch between these two tariffs at any time. Conversion charges are imposed by the bank whenever a customer requests to go from a fixed rate to a floating rate or vice versa. These fees are calculated as a percentage of the outstanding principle.
Legal Fee: A legal fee is charged to compensate the lawyer who performs the duty of verifying the property being purchased with the loan funds.
Administrative Cost: Some banks levy a separate administrative fee from the processing fees. This fee is charged to cover the bank’s administrative costs associated with processing home loan applications. In general, banks charge an administrative fee to compensate for the back-end administrative operations that occur during the processing of house loan applications.
Statement of account: The bank provides one free copy of a home loan statement; any more copies are charged. This cost is often bank-specific and so varies from one bank to the next.

Loan Amount

The exact loan amount will be decided based on the applicant’s income and repayment capacity, age, assets and liabilities, and the cost of the planned house/flat, among other variables. You can increase your loan eligibility by mentioning the following items:

Income of your spouse/son/daughter living with you, provided they have a consistent income and a salary account with SBI.
If the house/flat being acquired is intended to be rented out, expected rent accruals (minus taxes, cess, etc.).
Depreciation, if certain requirements are met.
Regular earnings from a variety of sources.

Eligibility

Indian citizen over the age of 21.
Individuals who have regular sources of income as co-applicants, either individually or together with other family members such as father, mother, son, and/or spouse.
Siblings, such as brother-sister, brother-brother, and sister-sister, may be allowed to apply as applicants/co-applicants, but the property must be in the siblings’ joint names.
NRIs can also apply for a home loan. Please contact our local branch for further details.

Margin/Loan to Value Ratio

The majority of banks use this margin/loan-to-value ratio. The percentage of the property’s worth that will not be funded by the banks is referred to as the margin. The remainder will be given as a loan.

Security

Equitable mortgage on a residential property (E.M.).
If the house or flat you want to buy hasn’t been built yet or is still being built, interim security may be required (till the period of its completion).

Guarantee

For Resident Indians, a third-party assurance is not required.
The NRI applicant must furnish one or two Indian residents as guarantors with financial resources equal to the loan amount.

Repayment

The loan can be paid back over a period of up to 30 years.
The maximum repayment time for repairs is 20 years.

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The Ultimate Home Loan Guide; Must Read Before Taking Out a Home Loan