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What Is Home Loan? Research Team | Posted On Tuesday, January 08,2019, 04:26 PM

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What Is Home Loan?



What Is Home Loan?

A home loan is money borrowed from a bank or a lending institution like an NBFC, for the purchase of a house or residential land. In a home loan, the bank agrees to lend money for a specific time period, at a certain rate of interest each month. Home Loan is repaid in the form of EMIs (Equated Monthly Installments). A home loan is a secured loan where the property purchased is taken as security for the money borrowed.  A home loan is a cost effective way of borrowing money and taking ownership of a house.

SEE ALSO: 5 Reasons Why Your Home Loan Application Might Get Rejected?

Documents required for home loan:

Given below is the list of documents required by the bank to apply for a home loan:

  • Complete Home Loan Application Form with one passport size photograph.
  • Photo Identity Proof: Passport/ Driving License/ Voter ID/ PAN.
  • Residence Address Proof: Driving License/ Registered Rent Agreement/ Utility Bill.
  • Residence Ownership Proof: Sale deed or rental agreement.
  • Income Proof: salary slip, bank statement and Form 16.
  • Job Continuity Proof: Appointment letter and validation letter from HR.
  • Bank Statement: bank statement of the past 6 months.
  • Property Documents: Sale deed, Katha, transfer of ownership.
  • Advance Processing Cheque: A cancelled cheque for validation of bank account.

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Financial Documents:

  • For Salaried Individuals: Three months salary slip, Form 16 and bank statement.
  • For Self-Employed Individuals: IT returns for last 2 years along with computation of income tax for past 2 years, certified by a Chartered accountant (CA).
  • For Self-Employed Non-Professionals: IT returns for last 3 years along with computation of income tax for past 2 years certified by a Chartered accountant.

SEE ALSO: Does MCLR Make Home Loans Cheap?

Eligibility criteria for housing loan:

These are the eligibility conditions on a home loan:

  • The individual must be above 18 years of age while applying for the loan.
  • The applicant must have a stable source of income.
  • He must be employed for at least 2 years in the current profession.
  • The applicant must have a good credit score. Default in payments reflect negatively on the credit score and may lead to rejection of home loan application.

The interest rate on a home loan:

The tenure of the home loan ranges from 5 to 30 years. The home loan interest rate starts from 8.65% and can go up to 12% a year at a bank. NBFCs and HFCs charge a higher interest. Some banks offer special rates to woman borrowers. A home loan can be availed for up to 80-90% of the property value.

SEE ALSO: Tips to apply for a home loan after 45

Types of home loan in India:

Home loans are offered by lenders for not only the purchase of a house, but for other purposes as well. Take a look at the list below:

  • Loans for purchase of land: The borrower can take a loan to purchase only the land and construct a house later on, as finances permit. The borrower can also avail funds to buy a land for investment. Banks offer up to 60-70% of the cost of the land.

  • Loans for purchase of home: this is the most popular type of home loan given by the banks. The borrower can avail the loan either to purchase a new property or a resale property. The interest rate generally ranges from 9.5% to 12% a year and is either floating or fixed.
  • Loans for construction of a house: this is a type of loan given by the banks to borrowers who want to construct a house. The loan for house construction can be availed for a plot that is purchased within a year as the cost of the plot is also taken into consideration and included in the loan amount. The amount that is sanctioned is based on the rough estimate of the construction cost of the house.
  • Loans for house expansion: Some banks offer loans for expanding the existing house structure. Borrowers can avail this type of loan for construction of new structure like additional bedroom, or construction of a new floor.
  • Loans for house repair: some of the leading banks offer home loans for renovation and repair work like external and internal repair, painting, construction of overhead water tank and electrical renovation.

SEE ALSO: How To Avail Tax Benefits On Home Loan?

Home loan EMI calculator:

EMI stands for equated monthly instalments. It includes the repayment of principal amount and payment of interest on the home loan outstanding. The home loan EMI calculator gives a clear understanding of the amount that the borrower needs to pay in EMIs. This helps the borrower make an informed decision when availing a home loan. With the home loan EMI calculator, the borrower can calculate the outflow of cash towards the home loan every month. Consequently, the borrower can decide how much money to borrow according to his repayment capacity.  

How to get the home loan online?

There are various loan aggregators online that make the process of applying for a home loan simple and hassle free. You can apply for home loan online, by visiting the official website of the bank or other private lenders. You can compare the rate of interest offered by different banks as well as read customer reviews.

You can also check your home loan eligibility criteria as well as calculate your EMIs by providing the necessary details. You can apply for home loan online, by filling the online application form with proper details and make a submission.

Why read the review before applying for a home loan:

Before applying for a home loan, read IndianMoney reviews that help you gain knowledge on home loans. IndianMoney provides unbiased advice on home loans and other financial products, to help make informed decisions when availing financial products. IndianMoney research team provides newsletters, articles, videos, and FAQs on various financial products and concepts only to help you make wise financial decisions.

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