A house is one of the most momentous investments that an individual makes in a lifetime. For this reason, home loans or housing loans make up an inevitable part of the real estate market and the economy in general. Home loans serve the needs of aspiring homeowners who lack the means to finance the construction or purchase of a house.
What are home loans?
Home loans provide financial assistance to those homebuyers who cannot otherwise buy or build their dream house on their own. They are disbursed for a property that is already constructed, undergoing construction or is going to be constructed in the future. The lender then takes the property itself as security, for the sales of the same in future, in case the buyer fails to clear the debt.
There are several types of home loans that cater to the different needs of a homeowner or a buyer. Here are 7 different home loan types available in India.
A land loan or plot loan helps a buyer buy a piece of land. This loan is regarded similar to the home loan in terms of Equated Monthly Instalment options, documentation process, applicants, etc. This loan allows the buyer to build the house on this piece of land or just save the land as an investment option. These loans are given to both salaried and self-employed individuals. Make sure that the layout of the land you would like to purchase is strictly for residential purposes, not agricultural, and approved by the authority. Banks like ICICI and Axis Bank lend up to 85% of the land’s price.
Home Construction Loan
A home construction loan is a loan that assists the buyer in the construction of a house. Since there is a risk factor involved, the interest rates of these loans tend to be higher than other loans. The loan disbursal is executed in 2 to 5 instalments based on the progress of your home’s construction. For the loan to be sanctioned, you need to produce documents like NOC from the local governing body, approved plan, sales deed, etc. Deviation from the house plan will lead to freezing of the loan by the bank. To avoid this, deviations have to be submitted to the bank for approval.
A Composite loan is a combination of a land loan and a construction loan, that is, the lender provides money for buying the plot as well as the construction of the house. In India, financial institutions cover up to 80% of the land’s market value, with a repayment holiday of a maximum of 24 months. Banks like SBI charge only a low-interest rate for composite loans. In India, the average age group that is eligible for this loan is 18 to 70 years. Address proof, income proof and identity proof are the mandatory documents to be produced for the sanctioning of this loan.
Home Improvement Loan
Home improvement certainly entails a considerable expense on the owner’s side. Home improvement loans can cover up to 90% of the renovation expenses and offer impressive interest rates. However, it does not apply to external improvements, like a swimming pool or a garden. The owner can apply for this loan with proof of address, income, identity, and employment. If there is a joint owner, the loan should be applied by both of them jointly. The proposal of repair works and all the documents of the property are also to be produced for the sanction of the loan. Upon submission of the application, a repayment period of 15 years is provided.
With interest rates of home loans being more affordable and Indian currency’s value weakening, more and more NRIs are in a hurry to build their homes in India. To lower the chances of non-payment of the loan, banks are extremely careful in lending loans to people who live abroad. In addition to the usual documents that are required for the processing of loans, NRIs are demanded to produce the documents that prove they have been working in the current nation for the past two years in the least. The loan tenure is also shorter for them, that is, 15 to 20 years. The net income and educational qualification are the other two factors that influence an applicant’s eligibility. Passport, visa, permanent address, salary certificates, appointment letter of the job, foreign land address proof, work experience certificate are some of the documents crucial to the processing of the loan.
Home Conversion Loan
If you are gripped by the fear of hiking interest rates, a home conversion loan is exactly what you need. Home conversion loan gives you the provision to convert your current form of loan into a different type of home loan, based on your specific needs and affordability. You can do this by paying a certain amount of conversion charges. But it is advised to analyze the consequences thoroughly before you go for the conversion. Decide whether you want to pay conversion charges and stay with the existing lender or shift to a new lender and pay the processing fees of a new loan. The ideal choice is the one that has fewer repercussions on your finance. In India, banks like Axis Bank and Bank of Baroda charge very less conversion fee.
Home Extension Loan
Home extension loan is a boon to those who wish to extend the living space in their houses. Anyone who wants to make structural changes in their houses can apply for this loan, which will cover up to 90% of the construction estimate. Even if you have availed a home loan from a certain lender, you can still apply for the home extension loan individually or jointly from the same lender. The loan amount will rely on the age of the applicant/s, credit score, repayment history, the age of the property, etc. You are required to produce the proofs for identity, income, address and construction estimate along with the documents of your property.
Today, almost all major Indian banks lend home loans at affordable interest rates. Top banks like HDFC, Axis, SBI, Bank of Baroda, DHFL, and LIC provide low interest rates and attractive tenure. Do not forget the tips to consider while taking your loan, keeping in mind your affordability and risks involved, to avoid the repercussions of not repaying the money. With a satisfactory credit history and the confidence to match the eligibility criteria of the respective bank, your dream home can turn into a reality.