Types of Home Loans in India
Banks in India provide different types of housing finance options for different purposes. Here’s a list of the prominent types of housing loans in India, based on a study of products offered by some of the top banks:
- New Home Loans: New Home Loans are offered to eligible customers who are looking to purchase a house or property for the first time.
- Pre-approved Home Loan: Pre-approved home loans are offered by banks to eligible borrowers once his/her creditworthiness, income and financial position are taken into considerable for an in-principal approval of the loan.
- Home Purchase Loans: Home purchase loans are specifically given to borrowers looking to purchase a house or flat.
- Home Loan for Construction: Home loan for construction is offered to customers who are looking to construct their own house on an existing piece of land.
- Plot Loans: Plot loans are loans offered to customers looking to purchase a piece of land or plot for the purpose of constructing a house on it.
- Home Loan Top Up: Home Loan Top Up is a facility offered by most banks and NBFCs that allows existing customers to borrow a certain amount above and over the existing home loan.
- Home Extension/Renovation Loans: Home loans for extension or renovation of home are offered to borrowers who wish to renovate/extend their existing house/property.
- Balance Transfer Home Loan: 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.
Home Loan Eligibility
|Age||Minimum Age: 18 years and Maximum Age: 70 years|
|Resident Type||The applicant must be (any one):Resident IndianNon-Resident India (NRI)Person of Indian Origin (PIO)|
|Employment||The applicant can be (any one):SalariedSelf-employed|
|Net Annual Income||At least Rs.5-6 lakh depending on the type of employment|
|Residence||The applicant must have (any one):A permanent residenceA rented residence where he/she has resided for at least a year prior to applying for a loan|
|Credit score||A good credit score of at least 750 or more obtained from a recognised credit bureau|
Home Loan Documents Required
|Identity Proof (any one)||Residence Proof (any one)||Other Documents|
|Driving License||Copy of Electricity Bill/Water Bill/Telephone Bill||Employer Identity Card|
|PAN||Copy of valid Passport/Aadhar Card/Driving License||Duly filled loan application form affixed with 3 passport size photographs|
|Voter ID||Loan account statement for the previous 12 months if the applicant has any other ongoing loan from other banks/financial institutions|
|Valid Passport||Bank account statements for all the bank accounts owned by the applicant for the last six months|
Income Proof Documents
|For Self-employed Applicant/Co-applicant:||For Salaried Applicant/Co-applicant:|
|Income Tax Returns for the last 3 years||Salary Slips for the last three months|
|Certificate of Qualification (for Doctors/C.A. and other professionals)||Copy of Form 16 or Income Tax Returns for the last two years|
|Balance Sheet audited by a certified C.A and Profit and Loss account for the previous 3 years|
|Business License Details|
|Business address proof|
Documents Required from all Non-Resident Indians (NRIs) Applicants
|Identity Proof (any one)||Residence Proof (any one)||Other Documents|
|PAN||Telephone bill||Attested copy of the applicant’s/co-applicants’/guarantor’s valid passport and visa|
|Valid Passport||Electricity bill||Proof of residence indicating the applicant’s current overseas address|
|Driver’s License||Water bill||Employer Identity Card|
|Voter ID Card||Piped Gas bill||If the applicant is employed in the Merchant Navy, the applicant is required to submit a copy of Continuous Discharge Certificate (CDC)|
|Valid Passport||PIO Card issued by the Government of India in case the applicant/co-applicant is a Person of Indian Origin (PIO).|
|Driving License||The completed loan application form duly filled with three passport size photographs of the applicant and co-applicants.|
|Aadhar Card||The attestation of the documents can be done by: 1. Indian Embassy/Consulate 2. Overseas Notary Public 3. FOs/Representative Offices 4. Officials of Branch/Sourcing Units based in India|
Income Proof Documents for NRI
|For Self-employed Applicant/Co-applicant||For Salaried Applicant/Co-applicant|
|Proof of income if the applicant/co-applicant is a self-employed professional/businessman.||Valid work permit|
|Business address proof||Employment contract (translated in English) attested by the employer/consulate/embassy/Indian foreign office if the contract is in another language.|
|Balance Sheet and Profit and Loss accounts audited by a certified CA for the last 2 years||Salary slips for the last 3 months|
|Individual Tax Return for the last 2 years – Not applicable to NRIs/PIOs located in the Middle East countries.||Bank statements indicating salary credit for the last 6 months|
|Bank statement of the individual’s as well as the business/company’s overseas account for the last 6 months.||Copy of the Identity Card issued by the current employer along with the latest salary slip (original).|
|Copy of the individual Tax Return for the last assessment year. – Not applicable to employees in the Merchant Navy and NRIs/PIOs located in the Middle East countries.|
- Agreement of Sale (any one):
- Registered Agreement of Sale
- Stamped Agreement of Sale
- Allotment Letter
- Occupancy Certificate in case the property is a ready-to-move-in property
- Copy (blueprint) of the Approved Plan and Registered Development agreement of the builder
- Conveyance Deed in case of a new property
- Bank account statements indicating all payments made to the seller or builder
Home Loan Fees and Charges
Depending on the type of loan you are applying for, the following charges may be levied:
- Processing fees: This is a one-time non-refundable fee that is to be paid to the home loan provider after the loan application has been approved. The processing charge varies depending on the bank and the loan scheme you are applying for.
- Prepayment charges: Prepayment penalty is the fee you will have to pay the lender if you plan on repaying your home loan before the completion of the loan tenure.
- Conversion fees: Some banks also charge a conversion fee when you decide to switch to a different loan scheme in order to lower the interest rate associated with your current scheme.
- Cheque dishonour charges: The fee is levied when the loan provider find that a cheque issued by the borrower is found to be dishonoured due to reasons such as insufficient funds in the borrower’s account.
- Fees on account of external opinion: In some cases, you might want to consult an external expert such as a lawyer or a valuator for his/her opinion on the loan. This fee should be paid directly to the concerned person and not the lending institution.
- Home insurance: The premium should be paid directly to the concerned company during the term to ensure that the insurance policy is running during the home loan tenure.
- Default charges: Loan providers also charge a penalty on delayed repayments i.e. if you fail to make your Equated Monthly Instalments (EMIs) or Pre-EMIs on time. The defaulting charges vary from one bank to another.
- Incidental charges: This charge covers for the expenses incurred by the bank to recover dues from a borrower who has failed to make his monthly instalments on time.
- Statutory/regulatory charges: The fee includes all charges associated with Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI), Memorandum of Entry and Deposit, and stamp duty. You can visit www.cersai.org.in to know more about these charges.
- Photocopy of documents: The fee is payable to the bank if you require a photocopy of your home loan documents for any personal needs.
- Change in loan term: Some banks also charge a nominal fee if you wish to change the tenure associated with your loan.
Home Loan Rejection
|Ensure that you have researched on the loan you want to apply for||Do not blindly sign the documents before you read every term and condition on it|
|Read the fine print before taking the loan||Do not forget to compare interest rates offered by different loan providers|
|Look out for any charges applicable on prepayments and foreclosure||Do not default on your monthly payments|
|Make sure you pay the equated monthly instalments (EMIs) on time||Do not apply for a loan just for the sake of it|
|Ensure that you have a good credit score before you apply||Do not sign the home loan agreement before reading the clauses|
|Apply for a loan amount you are eligible for||Do not request for a change in tenure unless you have considered all the aspects|
|Submit all the necessary documents||Do not submit an incomplete or mismatched loan application|
|Ensure that you have stable employment||Do not have too many ongoing loans|
What to do if your home loan application is rejected?
You can always re-apply for a home loan if your first loan application was rejected by the lender. However, there are a few aspects you must consider before doing so.
Credit score: Since housing loans are generally long-term retail loans, lenders look into the applicant’s repayment capacity before approving or rejecting a loan application. Your credit score plays a major role in deciding your repayment capacity against a loan.
If you have a poor credit score on your credit report, chances of your loan application being rejected are high. The unsatisfactory credit score gauges your creditworthiness which banks and financial institutions consider before processing your loan application. Hence, it is advised to go through your credit score and credit report before you apply for a loan.
In case you have a poor credit score, consider improving your score by making your debt repayments on time before you reapply for a housing loan again. If you do not know what your current score is, you can get your credit score along with the credit report on BankBazaar.
Loan Amount: Since purchasing/constructing a home is a one-time investment, we often tend to overlook the financial costs involved in it. Banks and financial institutions fix the maximum loan amount you are eligible for by taking your present monthly income. There is a high chance your application was rejected because of the loan amount you have applied for.
If the loan amount applied for exceeds your eligible loan amount, the lender can decide to reject your application. In such cases, you can consider increasing the down payment on your home loan to bring down the loan amount.
Other Ongoing Loans: Banks can also choose to reject your home loan application if you have too many other ongoing loans. Since home loan lenders see to it that not more than 50% of your monthly income is being contributed to your loan repayments, any other ongoing long-term loans can result in your application being rejected.
Having too many ongoing loans will not only impact your personal finances but also your repayment capacity. Hence, it is advised to clear the ongoing loans, if any, before you apply for a housing loan.
Co-applicant: There can be instances where applications are rejected due to low income. In such cases, you can consider adding a co-applicant such as a member of your immediate family. This will increase the maximum amount you are eligible for as the income and creditworthiness of the co-applicant will also be taken into account while deciding your eligibility.
Employment: In some cases, the employment of the applicant can act as the deciding factor on whether the loan application is being approved or rejected by the lender. Your application can be rejected if the lender learns that you have been switching between jobs frequently.
Unstable employment can sometimes prove to have a negative impact on your loan application. On the other hand, stable employment with a recognised institution on your application can have a positive impact.
In case your housing loan application was rejected, and you have only been working with the current employer for a short period of time. You can consider giving it some more time before re-applying for another one.
Documentation: Housing loans include a lot of documentation such as identity proof, residential proof, bank account statements, income tax returns, income proofs, property papers, documents approved by concerned authorities, etc. Your loan lender can reject your loan application even if one of the required documents are not submitted.
You can always consult the banks’ customer relationship executives to assist you with proper loan documentation.
- Which factors determine my home loan eligibility?Banks/financial institutions consider the following factors when determining your loan eligibility:
- Annual Income
- Occupational stability
- Resident type [Indian Citizen, Non-Resident Indian (NRI), Person of Indian Origin (PIO)]
- Number of co-applicants
- Co-applicants’ income
- Credit score
- Other ongoing loans, if any
- What is the difference between a fixed rate and floating rate home loan?The rate of interest associated with fixed rate loans remain unchanged during the entire tenure of the loan. On the other hand, the interest rates applicable on floating rate loans can be revised from time to time depending on the RBI key policy rates. The equated monthly instalments can increase or decrease depending on the prevailing RBI rates in the case floating rate type loans.
- Can I prepay my outstanding home loan amount?Yes, you can choose to prepay your outstanding loan amount either partially or in full before the completion of your loan tenure. While banks do not charge any prepayment fee on floating rate loans, fixed rate home loans attract a penalty up to 2% of the loan amount if prepaid through refinance.
- Can I avail tax deductions on my home loan?Yes, you can avail tax benefits on both the interest and principal component paid against your home loan. As per Section 80C of the Income Tax Act, you can avail deductions up to Rs.1.50 lakh on the principal amount repaid annually.Under Section 24 of the IT Act, taxpayers are also eligible for benefits up to Rs.2 lakh on the interest repaid against a home loan annually.
- Who can be a co-applicant?The co-applicant can be an immediate family member such as your spouse, your parents or even your major children. It is also mandatory for all co-owners of the property to be co-applicants while applying for a loan. However, the co-applicant need not be a co-owner.
- What is Pre-EMI?Pre-EMI is defined as the interest that is to be paid to the loan provider until the entire loan amount is disbursed. The Pre-EMI is payable on a monthly basis until the last disbursement, post which the regular EMI will be applicable comprising the principal and interest components.
- What are the types of home loans available?
- Home Purchase Loan: Suitable for those looking to purchase a new house/flat or an under-construction property.
- Home Construction Loan: Can be availed by those looking to construct a house/property according to his/her plan.
- Home Conversion Loan: Suitable for those looking to purchase and move to another property when they have already bought a house with a home loan.
- Plot Loan: Can be availed by eligible borrowers looking to purchase a residential plot for the purpose of construction of a house/dwelling unit.
- Home Improvement Loan: These loans are sanctioned to those looking to repair/improve/renovate an already existing property.
- Home Extension Loan: Suitable for those looking to extend/expand/alter the structure of an existing property.
- Home Loan Balance Transfer: Can be availed by those who wish to transfer their outstanding home loan balance from their existing lender to another lender due to reasons such as reduced interest rates or better customer service.
- Home Loans for NRIs: These home loans cater to the housing needs of NRIs in the country. They also include PIOs and OCIs.
- What is MCLR?Marginal Cost of funds based Lending Rate is the benchmark rate set by a lending institution below which they cannot provide loans to their customers.
- Can I switch from a fixed rate to a floating rate during my home loan tenure?Yes, you can switch from a fixed to floating rate of interest on your home loan during the repayment tenure. However, you will be charged a conversion fee by the lender in such cases.
- When does my loan repayment period begin?The loan repayment period begins only after the loan provider has disbursed the entire home loan amount. However, you will be required to pay the interest i.e. pre-EMI on the partially disbursed loan on a monthly basis, in most cases.
- Can I take 2 home loans at the same time?Yes, you can take 2 home loans at the same time provided that your lender approves your eligibility to manage 2 Equated Monthly Instalments (EMIs) at the same time. However, the tax benefits on the second house will be different and you will be required to establish the property as self-occupied or let-out property.
- Can I get 100% financing on a home loan?No. Banks/financial institution do not grant 100% of the property value as home loan. Home loan lenders establish a margin on their loan i.e. the percentage of the cost that the lending institution will be covering. For example, if the margin on the loan is set at 10%, the bank will cover 90% of property value. In such cases, you will be required to a make a down payment of the balance amount, i.e. 10% in order to cover for the rest of the cost.
- Does having a personal loan affect home loan eligibility?When determining your home loan eligibility, the lender makes sure that your monthly repayments are not being affected by any other ongoing loans such as personal loan, two-wheeler loan, etc. However, other ongoing loans ultimately tend to affect your eligibility as your overall spending power is reduced. If your other loan commitments exceed 50%-60% of your monthly income, your home loan application may be rejected.
- Is personal loan better than home loan?If you are buying a house, home loan is the best option. Usually you will not be eligible for a personal loan for as high an amount required for the purchase of a house. If you want extra money for non-specific personal needs, then go for a personal loan. Home loans also have an added advantage of top-up loans wherein you can request a top up on your loan amount to cover additional needs such as furnishing your house.
- Can I buy a house with two loans?No, you cannot avail two home loans for the same property. Any such practice will be considered fraudulent. The Central Registry of Securitisation Asset Reconstruction and Security Interest of India (CERSAI) ensures that fraudulent practices such as availing two housing loans for the same asset/property are prevented.
- How do joint home loans work?A joint home loan can be availed by adding a co-applicant such as your spouse, parents, or an immediate family member on your application. Adding a co-applicant will increase your home loan eligibility as the lending institution will also be considering the co-applicant’s income and credit score when determining your loan eligibility. All co-owners of the property are required to be the co-applicant for a loan. However, the co-applicants need not necessarily be the co-owner of the concerned property.