Home is the enabler for middle class family in India where building their dream house is like achieving their life ambition. Everyone struggle in their childhood, college days and job life to buy their dream house which will make them forget all their pain while achieving it. We at loan on mind help you to make your dream come true in lesser hassle free in quickest possible time. The cost of construction or purchase of property is quite high and this is where home loans play a major, almost indispensable role for majority of home buyers. Home or housing loans are advances made to borrowers who require funds to purchase houses/flats/land. They can also be availed of for construction, extension and renovation of houses. Lenders can be banking or non-banking financial institutions. Home loans are eligible for certain income tax exemptions which can be used to save up on the amount of income tax that an individual pays every financial year. Under section 24 of the Income Tax Act, tax benefit can be claimed on up to Rs.1.5 lakh out of the interest component of your home loan
Availing a home loan scheme that suits your financial stand and zeroing in on a house that is well-aligned with financial capacity is a sure way to ensure a comfortable loan tenure. There are times when customers make the mistake of buying a property that is way too expensive for their pocket. At other times, customers may end up availing a loan that has installments which are too high for them to pay. Any such situation will lead to delayed repayments and thereby a higher final amount being paid to the bank as interest and fees.
The first step involved in the process is to find your property, which is followed by the verification of property documents, post that the documents are examined. Simultaneously, you can start searching for the lender who can offer the best home loan deal after checking your eligibility criteria.
Know the Home Loan Eligibility: Banks offer the loan amount based on your monthly income and the value of the property. They will give you max amount in which your EMI of home loan and others loans is 50-60% of your income. Other factor is value of that property.
Select the Best Home Loan after evaluation: Comparing home loan interest rates of various banks is the primary feature in the home loan selection process. However, you should not also forget to compare other fees & charges like application fees, processing fees, legal charges of different loan offers. To check the interest rates & other charges incurred by various banks, Deal4Loans has brought in a Home Loan Comparison Chart across various government and private banks. Banks offer fixed and floating rates in home loans.
Applying for the Loan : After you have selected your lender, you have to fill in the application form, wherein the lender requires complete information about your financial assets & liabilities; other personal & professional details together with the property details & its costs.
Documentation & Verification Process: You are required to submit the necessary documents to the bank, which will be verified together with the details in the application
Credit & default check: Bank checks out the borrower’s loan eligibility (through repayment capacity) & the amount of loan is confirmed. The borrower’s repayment capacity is reached, which is based on the income, salary, age, experience & nature of business etc. Bank also checks credit history through the Cibil Score, which plays a critical role in deciding & approving your loan application. Low credit score implies that the bank upfront rejects your application on the basis of earlier credit defaults; on the other hand high credit score gives a green signal to your application
Bank sanctions Loan & Offer letter to the borrower: After the credit appraisal of the borrower bank decides the final amount & sanctions the loan, the bank further sends an offer letter to the borrower, which constitutes the details like rate of interest, loan tenure & repayment options etc.
Acceptance Copy to the Bank: The borrower needs to send an acceptance copy to the bank after the borrower agrees with the terms & conditions in the offer letter.
Bank checks the legal documents: The bank further asks the legal documents of property from the borrower to check its authenticity, so as to keep them as a security for the loan amount given. The next step involved is the valuation of the property by the bank which determines the loan amount sanctioned by the bank.
Signing of agreement & the loan disbursal: The borrower signs the loan agreement & the bank disburses the loan amount.
Depending upon the type of property being purchased and the loan amount, home loans can be classified into the following different types.
As the name itself indicates, home purchase loans are specifically given for purchase of flats or homes. These are the most popular type of home loan and are availed by most home loan borrowers. Almost all banks and Non-Banking Financial Corporations offer home purchase loans.
Home loan for construction is offered to customers who want cash to construct their own house on an existing piece of land. The catch is that the land for construction should have been bought within a year of availing the loan for the cost of land to be counted as part of this loan. In case the land was bought earlier than one year, then the cost of land is excluded from the loan amount. The formalities for construction loan are slightly different than those for regular home loans. The loan applicant needs to give a lump-sum construction cost estimate to the lending entity and thereafter the lender evaluates and decides to sanction or reject the loan.
Plot loans are loans offered by banks for purchase of land or plot. These loans are not necessarily offered by all banks or NBFCs.
Home loans for extension or renovation of home are offered to those home loan borrowers who already have a house but are looking for further construction or renovation on their existing piece of property.
If you have already taken a home loan for purchasing a house, but wish to shift to another house, then you can opt for a home conversion loan. It will help you in transferring the current loan to your new house.
Individuals can use the balance transfer option to transfer their home loan from one bank to another. Most people choose this option to avail better interest rates.
NRI Home Loans are specially designed for Non-Resident Indians (NRI) who wish to purchase a residential property in India. The requirements and procedure of availing this loan is different from the regular home loans.
Stamp Duty Loans are offered by banks to cover the stamp duty charges, which is incurred while purchasing a property.
Existing homeowners who want to buy a new house can apply for a Bridged Loan, which will fund the new house. Generally, the tenure of this loan is below 2 years and it requires the borrowers to mortgage the new property with the lender until the loan is repaid.
|Home loan Banks||Interest Rates||Processing Fee|
|Axis Bank Home Loan||8.85%||0.50% Min Rs. 1,000 - Max Rs. 25,000|
|Kotak Mahindra Bank Home Loan||8.95%||Max Rs. 10,000|
|HDFC Bank Home Loan||8.90%||0.50% Min Rs. 3,000 - Max Rs. 10,000|
|Muthoot Finance Home Loan||13.50%||Upto 1.5%|
|Bank Of Baroda Home Loan||8.75%||0.50% Min Rs. 7,500 - Max Rs. 20,000|
|Bank of Maharashtra Home Loan||8.75%||0.50%|
|Canara Bank Home Loan||8.75%||0.50% Min Rs. 1,500 - Max Rs. 10,000|
|Central Bank of India Home Loan||8.60%||0.50% Max Rs. 20,000|
|Corporation Bank Home Loan||9.05%||0.50% Min Rs. 1,000 - Max Rs. 50,000|
|ICICI Bank Home Loan||9.10%||0.50% Min Rs. 5,000 - Max Rs. 5,000|
|IDBI Bank Home Loan||8.65%||0.50% Min Rs. 2,500|
|Indian Bank Home Loan||8.60%||0.23% Max Rs. 20,381|
|Union Bank Of India Home Loan||8.80%||0.50% Max Rs. 15,000|
|Oriental Bank of Commerce Home Loan||8.75%||0.50% Max Rs. 20,000|
|Punjab National Bank Home Loan||8.85%||0.25% Min Rs. 1,000 - Max Rs. 15,000|
|State Bank of India Home Loan||8.75%||0.50% Min Rs. 10,000 - Max Rs. 10,000|
|Uco Bank Home Loan||8.70%||0.50% Min Rs. 1,500 - Max Rs. 15,000|
|Bank of India Home Loan||8.85%||0.25% Min Rs. 1,000 - Max Rs. 20,000|
|United Bank of India Home Loan||8.65%||0.59% Min Rs. 1,180 - Max Rs. 11,800|
|Syndicate Bank Home Loan||8.75%||0.13% Min Rs. 500 - Max Rs. 5,000|
|Dena Bank Home Loan||8.75%||0.50%|
Lenders generally finance for
Normally financial institutes finance maximum up to 80% (90% for loan amount below Rs. 20 lakhs) of the agreement value of the property. As per RBI notification, banks do not fund stamp duty and registration charges anymore. This means that your down payment will have to be atleast 10% – 20% of the agreement value of the property plus 100% of other costs such as stamp duty, registration charges, etc
The final loan amount is dependent on host of other factors like income and regular outgoings, existing loans, repayment track record, valuation of the property by the lender, etc.
To increase the eligibility amount, you can add your earning parents / spouse / children and in some cases brothers as co-borrowers to the loan.
Very few financial institutes offer pure “Fixed” interest rate that remains fixed for the entire duration of loan. Nowadays, some lenders offer “Dual Rate” where the interest rate remains fixed for duration 1 – 10 years and then gets converted to floating rate of interest.
In “Floating” rate, the interest rate fluctuates with market conditions. The rate of interest is tied up with the Base Rate (BR) of the bank or Prime Lending Rate (PLR) of the Housing Finance Companies and gets affected whenever there are changes in the repo rates announced by RBI or any changes in Base Rate / PLR of the lender.
Normally, the interest rate is calculated as certain point above Base Rate for Banks and certain point above or below PLR ( Prime Lending Rate) for Housing Finance Companies. This difference is popularly known as spread.
You can periodically review your loan account to ensure that whenever there is a reduction in Base Rate / PLR, corresponding changes happen in your home loan interest rate. The lender tends to provide the benefit of lower rates selectively to new borrower by changing the spread rather than by decreasing the Base Rate / PLR.
Therefore, you should ideally consider the spread (preferably lowest or nil in case of banks and highest in case of housing finance companies) along with the BR / PLR, if you want to get the benefit of lower interest rate on par with new customers.
Most lenders offers maximum tenure of 30 years but it is also restricted by the borrower’s age at the end of the tenure so as to ensure that the loan repayment ends on or before the retirement age of the borrower which is usually 60 years for salaried and 65 years for self employed borrowers.
Every loan has a costs attached to it like Processing Fees or Administrative fees which are non refundable, Legal fees payable to the lender or to the legal consultants of the lender, Stamp duty on creation of mortgage, etc.
Foreclosure charges are applicable only on fixed rate loans taken from bank, whereas housing finance companies levy prepayment penalty only on fixed rate loan if prepaid from other than own sources.
It is very important that you as a prospective borrower do your own research or take help of online price and feature comparison like loanonmind to compare the latest interest rates, features, fees, etc. and shortlist the lenders that will offer you right loan at right cost.