Nothing comes close to that great feeling of owning a home. And nothing makes one happier than making that ownership easy. Now, this is where home loans come into the picture. Let’s understand what these home loans are all about, how they work, and what are the different kinds of loans that are available.

What’s a home loan?

A home loan is basically a form of financial assistance a homebuyer avails to fund the purchase or construction of a house. These days, a home loan can also be used to refinance an already existing home loan or simply reimburse the cost of buying a second-hand property. 

What are the different types of home loans in India?

Fixed Interest Rate Home Loan:
A fixed interest rate home loan is one wherein the interest rate is fixed for the entire tenure of the loan and isn’t likely to change even if there are significant changes in the economy.

Floating Interest Rate Home Loan:
A floating interest rate home loan is one wherein the rate of interest varies according to the market conditions. This means that the interest can either go up or down depending on how the market is performing.

Combination Home Loan:
A combination home loan offers a part of the loan at a fixed rate of interest and part at an adjustable or floating rate of interest.

What are the eligibility criteria for a home loan?

Eligibility for a home loan is determined by one’s income and repayment capacity. A person’s age, qualification, financial position, the number of dependents, spouse’s earnings, and job stability are also important factors that are considered for loan disbursement.

Being able to maintain a good credit score plays a crucial role in getting a loan approved. Institutions such as CIBIL, CRIF, Experian, Equifax, measure the credit score, which should be more than 700 for the loan to get approved. The right credit score not only makes getting home loans easier, but also makes it easier to qualify for higher loans with better interest rates, and it improves your negotiating power.

What are the documents needed to apply for a home loan? 

• Fully filled and signed application form along with a photograph
• Identification proof and residence proof
• Credit/income Documents
• KYC documents
• Property documents

Apart from the above-mentioned documents, there are also a few other documents that might be required depending on whether you are salaried or self-employed.

Loan Tenure
The loan tenure for a home loan can often last from 15 years to 30 years, so it’s good to assess the loan tenure and determine whether it’s right for an individual.  A longer-term generally reduces the EMI burden.

Borrowing Capacity
The borrowing capacity for a loan is determined not just by an individual’s earnings, but by how much money he or she would be left with after meeting all monthly expenses. It’s this amount that’s taken into account to assess possible EMIs and the borrowing capacity of an individual.

Insurance Cover:
It’s important to purchase a loan cover term insurance plan that covers the loan amount. Therefore, it’s crucial to do the right research to identify the best home loan insurance available. This insurance relieves the family members from the liability of any outstanding loan, as the loan is repaid by the insurance company in the event of unforeseen circumstances.

The Terms and Conditions of The Loan:
It’s very important to read and thoroughly understand all the terms and conditions attached to the loan before applying for one

Overview

• Home loans eligibility is the repayment capacity.
• Floating rate loans are popular due to the flexibility which they offer to the customers.
• One can enhance the loan eligibility by adding in an earning family member as a co-applicant.
• The rate of interest applicable on the home loan is the rate prevalent on the date of disbursement.
• One can apply for a home loan even before shortlisting a property.
• The longer the tenure, the lower are the EMIs.
• One can be in one location, buy a property in another location and service the home loan from a third location.
• One can convert the fixed-rate loans into floating-rate loans and vice versa, by paying a small fee.
• One can get tax benefits on both, principal repayment and interest payment on housing loans.
• All co-owners of the property will have to be co-applicants of the home loan. However, all co-applicants need not be co-owners.

Buying a home is special. With the help of a Home Loan, you can buy the home of your dreams. Make sure you do your research and take the right steps to do so. Our consultants can assist you with any further questions you might have.