What is Home Loan?
Home Loan is a loan provided by a bank or a financial institution for the purchase of a residential property. The loan can be used to purchase a new/ resale house, construct a house or to buy an under-construction house from a builder. The same property will serve as a security.
The demand for home loans is very high in India. Apart from fulfilling the dream of own house, it also helps in wealth creation in the long term. Property is proven to be an appreciating asset since the price of the house is expected to rise over a period of time. This makes financing of such a purchase by borrowing a smart method to own and create an asset without having all the funds for the purpose at the moment.
Significance of Home Loan:
The property prices in India have shot up quite significantly. Owing a house from one’s savings is a a very difficult task . With rising levels of income and loan offers from virtually every banks makes it easy for fulfilling this basic need . The loan is secured in nature and hence the tenure offered for such loans are very high when compared to other loans. The rate of interest is also very low vis a vis other loan products. The uniqueness of home loan is the borrower get benefited from tax savings because interest out flow up to Rs. 150000 during a financial year can bet set off against salary/business income . Similarly principal amount to the extend of Rs 100000 can also be availed as a deduction under Section 80 ( C) of the Indian Income Tax Act , 1961. The ability to repay the loan over a long time period also makes the entire borrowing affordable for the individual because it fits the monthly outgo within his/her income. It is the easiest way to create an asset thereby giving tax benefits as well.
Different types of Home Loans:
Home Construction Loan
This is the right home loan type if you already have a plot of land and you need financing to construct a house in that land.
Home Extension Loan
Say you already own a house and you would like to extend the house with another room or another floor to accommodate the growing family. Home extension loan provides financing for this purpose.
Home Improvement Loan
A home improvement loan provides financing for renovating or repairing the house if there’s any fault in the existing system, such as painting the house’s interior or exterior, plumbing, upgrading the electrical system, waterproofing the ceiling, and more.
Home Loan Balance Transfer/ BT + Top up
The current home loan interest rate may be overwhelming, or you may not be happy with your current lender’s service; you can transfer the home loan’s outstanding balance to a different lender who offers a lower interest rate and better service. Upon transfer, you can even check out the possibilities of a top-up loan on your existing one.
Composite Home Loan / Plot + Construction Loan
This type of home loan provides financing for purchasing the plot of land where you would like to construct a house and for the construction, both within a single loan.
- Home loans are secured form of Loan that menas the property on which the finance has been done will be taken in the mortgage.
- Loan tenure will be determine by the retirement age of the person & applicant must be at least 21 years of age.
- Home Loans are typically long term loans.
- The intrest rates will be in between 8.50% to 11.80% ( Depending upon cases & Bank Repo Rate)
- Property can be owned jointly.
- Income of family members can be clubbed for higher loans.
- It has tax benifits and it can use as an investment.
- Eligibity of applicant will be determined by income of him and the valuation of the property.
Benefits of Taking a Home Loan
Tax benefits
The foremost benefit of a home loan is the income tax deduction you can claim on the interest and principal repayments. You can claim up to Rs.1.5 lakh on principal repayments u/s 80C, up to Rs.2 lakh on interest repayments u/s 24B, up to Rs.2 lakh on interest repayment in special circumstances u/s 80EE and 80EEA, and up to Rs.1.5 lakh on stamp duty expenses u/s 80C.
Lower interest rate
The home loan interest rate is much lower as compared to any other loan types available. If you come across a cash crunch, you may get a top-up on the existing home loan at a lower interest rate than a personal loan to solve the issue.
Due diligence of property
When you go through a bank to purchase a house, the bank will conduct thorough checks on the property from the legal perspective and check if all the documents produced are valid.
This due diligence check from the bank’s end will reduce the risk of you being scammed. If the bank approves the property, that means you and your house are safe.
Long repayment tenure
Unlike any other loans, home loans come with longer repayment tenure, as much as 25-30 years. This is owing to the significant loan amount one will have to borrow to purchase a house.
Spreading the loan amount and interest applicable over a longer tenure will reduce the monthly EMIs reducing the borrower’s burden.
No prepayment penalty
When you take a floating-rate home loan, you can make prepayments towards the loan whenever you have a lump sum at hand without having to pay any prepayment penalty. This will help you close the home loan much before the set loan tenure.
Balance transfer facility
You can transfer the home loan from one lender to another for several reasons, such as the interest rate, service charges, customer service experience, and others.
The below mentioned points need to be kept in mind while availing a home loan
- Funding may vary In the range of 80% to 85% depending on the financier.The balance portion need to be taken care by the borrower from his savings or other sources.
- In case of resale property, look for the age of the property since banks fund for a tenor which they are comfortable after doing a valuation of the property. Most banks consider the age of a building as 60 Years and the loan Should get over within this age of the property.
- If the property is already approved by a bank/ financial institution, the faster the sanction is.
- If the borrower is looking to buy a property which is not approved by a bank, then proper check need to be done to ensure the property has a clear and marketable title.
- Banks offer both fixed rates and varibale rates( Floating Rates).
- Rates can go up depending on the market conditions. Increase in rate can result in increase in the loan tenor or higher EMI -EMI (Use EMI Calculator).
- Fixed rates offered by banks need not be fixed for the entire tenor of the Loan.
- Tax benefits offered to home loan borrowers may change in future.
- Any volatility in money market conditions which affects bank’s books will have a cascading effect on your Home Loan.
List of Documents Required for Home Loan
The following documents are required, along with your duly-filled loan application.
| Agriculturists | Salaried Customers | Businessmen/Non-Salaried Professionals |
| Application form with photograph | Application form with photograph | Application form with photograph |
| Identity and Residence proof | Identity and Residence proof (Aadhar & Pan Card) | Identity and Residence proof (Aadhar & Pan Card) |
| Last 6 months bank statements | Last 12 months bank statements & SOA of all runnig loans | Last 12 months bank statements & SOA of all running Loans |
| Processing fee cheque | Processing fee cheque | Processing fee cheque |
| Copies of Title Documents of Agricultural Land depicting Landholding | Latest Salary Slip | Educational Qualifications Certificate and Proof of Business ( GST Certificate , 12 Months GST returns, MSME Certificate) |
| Copies of Title Documents of Agricultural Land depicting crops being cultivated | Form 16 | Business Profile and Previous 3 years Income Tax returns (self and business) |
| Statement of previous 2 years of loans availed | Previous 3 years Profit/Loss and Balance Sheet with all schedules |
What is loan against property?
Loan against Property ( LAP ) is very unique product which couples the feature of a personal loan and a secured loan. This loan product helps in unlocking the value of the most precious asset: your Property. The end use of the loan is not monitored when compared to any other secured loan which generally comes with a specific purpose. In that sense, LAP is an any purpose loan, but at the same time secured by collateral of property.
This is one of the best tools for those looking at debt consolidation. There are several businesses which has obtained high cost funds like unsecured business loans and leveraged themselves to a greater extend, thereby putting pressure on higher interest cost and lower profit margins. LAP perfectly fits for such businesses to reduce their borrowing cost and consolidate debt at lower cost. The other advantage is the tenor for LAP loan is generally in the range of 7 to 15 years, thereby giving the borrower to plan business expansion among other things. Moreover with the appreciation of property, future requirements also can be taken care of. This allows the best use of the property that is owned and at the same time will enable the raising of funds required for various purposes. Also, a loan against property comes with a low interest rate compared to that of a personal loan or home loan.
LAP has following features:
- The Loan is secured in nature.
- Only those who own a clear and marketable property can avail this loan.
- Intrest rate will be in between 8% to 25% ( Depending upon case, Eligibility and Bank repo rate).
- Loan under LAP should be liquidated before eldest borrower attains the age of 70 years and lowest age will be 25 years.
- Loan is long term in nature ,usually ranges between 7 to 15 years depending on the use of property.( Commercial Or Residential)
- Interest rates are low when compared to unsecured loan.
- Funds can be used for any personal or business purpose.
- Best suited for people looking for debt consolidation and business expansion.
- Quantum of loan is high depending on the value of property.
- It increases the future borrowing capacity along with property appreciation.
- The loan can also be used as a normal overdraft or a dropline overdraft (Depending on the lender).
List of documents required for LAP:
Bank loan documents required for salaried individuals:
- A copy of the duly filled application form
- Identity proof – PAN card/ Aadhaar card /Driving License/Voter ID/Passport
- Address proof of both residence and office – Aadhaar Card/Voter ID/ or a copy of any utility bill like electricity bill
- Salary slips for the latest three months
- A copy of the for last 3 years Form 16
- Bank statements for the previous six months reflecting salary obtained and current repayments
- Proof of ownership – Original Property title deed of the property Offered as security. Other property documents such as
- Latest maintenance, Water Tax, Municipal Tax and any other such taxes paid receipt.
- Non-encumbrance letter from Co-op Society (wherever applicable).
- Permission to create Equitable Mortgage from society / Development Authorities. (wherever applicable)
- Confirmation of society that Bank’s lien on society records is noted. (wherever applicable) Any other documents specified by Bank’s panel advocate in the legal opinion/ title clearance report.
Documents required for loan approval for self–employed individuals:
- A copy of the duly filled application form
- Identify proof – PAN card/ Aadhaar Card
- Address proof residence and office as well – Aadhaar Card/Voter ID/ Driving license or a copy of any utility bill like electricity bill
- Income returns filing of the previous three years with P & L , Balancesheet with schedules & Audit Reports for 3 years if applicable
- Business Proof ( GST Certificate , GSTR 1 & 3B for past 12 months, MSME Certificate)
- Bank account statements of the last 12 months
- Proof of ownership – Original Property title deed of the property provided as collateral
- Receipt of payment for the latest water tax, municipal taxes and other maintenance taxes
- Non – encumbrance letter issued by your housing society
- No objection letter from your housing society for mortgage
Why to choose Finbizz for Home Loan and LAP?
- Hassle free Documentation
- We provides best consultancy to the client for his financial planning while availing loans
- Quick Sanction and Disbursements. ( with in 15 Days from documentaqtion)
- Throughout support even after disbursement also
- wider range of Banks and NBFCs