Types of Home Loans in India

Posted On: 21-Aug-2021


In India, owning a home is synonymous with settling down. Whether you are a salaried employee or an entrepreneur, owning a home is the most important step towards your success. If you are looking to buy a new home then you are at the right place to understand what steps you need to follow.

Are you looking to buy a new home?

Are you all through with the document verification?

Have you taken a home loan?

If not, here are a few things that you need to follow through to get your home loan approved. There are a few concepts you should understand before you opt for a home loan. The following steps will offer you a clear picture of how and when a home loan can be availed in the most optimum way.

  1. Improve your credit score- Credit score is the single most important concept that you should understand to improve your chances of getting a home loan. If you have a good credit score, the chances of you getting a large sum are high. So, maintain a good credit history and get the best out of your bank’s offers.
  2. Verified Documentation- Make sure all your documents are verified and thoroughly scrutinized before opting for a home loan. Any discrepancies may lead to the rejection of your loan which may prove hazardous to your credit history.
  3. Consulting an Expert- An expert advice is something you need at all stages of home-buying. A proper understanding of the risks and potential involved is the first and foremost necessity of any transaction. An expert in home loans is who you need to proceed with your property-buying.

Now that you have understood the main elements for home loans, let us take a look into the types of home loans in India. You will be overwhelmed with them, but with the right guidance, you can make the right choice that best suits you.

Types of home loans

Bankers offer loans not just for buying a home, but also for a variety of other purposes.

  • Loans for a home purchase- This is the most popular type of loan, either to buy a new or old home. The interest rate is usually around 7% to 10%. Also, 85% of the loan amount is offered by most banks.
  • Loans for purchase of land- In this case, also 85 % of the cost of the land is given as a loan. Purchasing land is a viable option, wherein the buyer can later construct a house or just hold the land as an investment.
  • Loans for construction of a house- This loan is for the people who own a place and want to construct a house as per their wishes. In this case, the amount of loan to be sanctioned depends upon the cost of the site as well as the construction cost.
  • Composite Loan- If you are looking to buy a land and then construct a house on it, then this type of loan is for you. It allows you to both purchase land and then construct on it. They can be availed at several public national banks as well as private banks.
  • Home extension/improvement loan- If you already own a home but want to add a room or a floor to it, this type of loan can be availed. It can also be availed for renovation and repair works.
  • Home conversion loans- People who have already purchased a home with a home loan, but want to purchase a new home can opt for this type of loan. This facilitates the transfer of the current loan to a new house. But it is a bit expensive.
  • Balance transfer home loans- This kind of loan can be availed when an individual wants to transfer a home loan from the existing bank to a new bank, either due to a lesser interest rate or better services offered by the latter.
  • Bridged loans- This loan is for existing homeowners who want to purchase a new property. In this, the new house is mortgaged by the bank until the older property is sold off. This loan is usually for a shorter duration, typically less than two years.
  • NRI Home Loans- This kind of loan is specifically designed for NRIs who want to buy a property in India.
  • PRADHAN MANTRI AWAS YOJANA- With the credit-linked subsidy scheme under PMAY, first-time homeowners can buy a home at subsidized interest rates. Only banks registered under this scheme are eligible to offer this kind of subsidized loan.

A home loan is a loan you can secure from a bank or other financial institutions at a certain rate of interest to buy a home or construct a new one. Usually, the property you buy is taken as mortgage till the end of the tenure. However, you may continue to say in it or rent it while you repay the loan amount at definite intervals with interest.

You can plan your EMIs according to your income generation. You can also avail concessions, if you are a woman, senior citizen or a bank employee. This comes down to 0.05% lesser interest than the others.

There are many benefits of availing a home loan.

  • Tax savings are the major advantage of opting for a home loan. You can claim income tax deductions on the interest rate or EMIs you pay.
  • The banks thoroughly check the due diligence of the property, which reduces the risk of you being subject to fraud or any kind of discrepancies.
  • Home loans can be availed with a longer tenure 25-30 years unlike other loans which need to be repaid in 5-10 years
  • Home loans are subject to lower interest rates than any other type of loans.
  • Also, there is no repayment penalty when you opt for floating-rate home loans.
  • Balance transfer facility on home loans allows you to transfer the balance to another lender offering lower interest rate.

Eligibility Criteria for Home Loans- Banks have certain factors based on which the home loans are sanctioned or rejected.

  • Age
  • Occupation
  • Income
  • Assets, Liabilities
  • Collateral Security
  • Residency Status

Availing home loans has become easier, thanks to the banks’ digital presence and better understanding of consumers. Once can either directly approach a bank or go for an online application.

Then the bank will collect all the required documents and process verification. Upon thorough scrutiny of the documents and their validity, the banks may process or reject your home loan application.

Happy Home-buying!!