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.
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.
Home loans are sanctioned after taking into consideration several factors . Some of the criteria are listed below:
The below mentioned points need to be kept in mind while availing a home loan
Any one who has got a stable source of income is eligible to apply for a home loan. The income can be salary income, business income, rental income etc.
Loan eligibility is calculated on the basis of your income and valuation of property. Banks/ Financial Institutions take into account your repayment capacity. Generally loans are given to the extent of 80-85% of the property valuation and the final sanction is subject to the repayment capacity.
Yes, your spouse’s income will also be included while calculating your loan eligibility. Also you can club your parents income, brothers income for loan enhancement. In case of self employed applicants’ , partners income can also be clubbed for loan enhancement.
No, you cannot get a home loan on a property which is already owned by you. However if you have purchased a property and within 6 months if you want to avail a home loan , the same would be considered by the bank. After 6 months you would be eligible for only a loan against property, and the interest rates for this loan is generally higher than that on a home loan and the tenor of such loans are shorter. Moreover , you will not be able to avail income tax benefits on it like on a home loan.
Yes, you can avail home loans from different banks( only for sanction purpose) . However ,the property can be mortgaged to only one bank and hence you need to finalize one bank for completion of formalities.
Yes, you can avail multiple home loans on different properties. The banks are primarily interested in the repayment capacity of a person and if they are comfortable with it you will not have any problem getting home loans for different properties at a time.
Yes, non-resident Indians can avail a special NRI home loan to buy a property in India. However it is at the discretion of the bank to sanction such loans. Most of the banks fund NRIs for a shorter tenure and charge a higher interest.
Many banks have their panel lawyers to conduct title search for properties. Banks sanction loan only after they receive a report that there are no encrumbances and it has got a clear and marketable title. In many cases builders get their projects pre-approved by banks. These lenders thoroughly examine the legal documents of the title to that project, the stage of construction, and the builder’s track record to complete a project in time. The time taken to sanction loans from approved projects are comparatively lower.
Many a times a borrower will opt for an under construction property and hence the bank make disbursements in parts, depending on the progress in the construction. However till the full loan is disbursed, you pay a simple interest at the rate you have already agreed upon with the lender. This is known as Pre-EMI. Once the full disbursement is made, you start paying your actual EMI from the next month.
In fixed rate home loan, the interest rate remains the same throughout the tenure of your home loan. In floating rate home loan, the interest rate charged by a lender keeps changing with respect to the movements in Prime lending rates ( PLRs) of bank. Whenever there is a hike in the PLR, floating rate customers’ EMI would go up. Alternatively the tenor of the loan goes up .
You will be eligible to claim tax benefits on both the interest and principal components of your repayment during that financial year. Under Section 24, you can claim up to Rs. 1,50,000 or the actual interest repaid, whichever is lower. (Also note that you can claim this interest only when you are in possession of the house.) Under Section 80C, you can claim the principal up to the maximum amount of Rs. 1,00,000. But this is subject to the maximum level of Rs 1,00,000 across all 80C investments. To avail the above tax benefits, you will need to produce a statement by your lender, showing the repayment of the loan for the year as well as the interest and principal components of the same.
Yes, if the land comes under non agricultural use, then you can get a home loan to construct for residential purpose. You need to provide an architect estimate for the construction plan. Tax benefits for such loan starts only after completion of the house.
Yes, you can get tax benefits under Section 80C and Section 24 on both housing loans. However, the total amount on which you can get tax benefits will be Rs 1,00,000 and Rs 150,000 respectively across both loans.
Yes, the EMI amount or the tenure of the loan could get changed if one has availed a floating rate of interest.
No, it is not mandatory to buy property insurance when you are availing a home loan. But it is in the interest of the borrower to insure property as it eliminate risk of loss of property.
Yes, you can sell the house even when the home loan is active. However you need to inform the lender and get a consent from them to sell. The title deeds shall be released to the borrower once all the dues to the bank are fully paid off.
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