All You Need to Know About Home Loans

Owning a house is among the most important goals a large number of people aspire to achieve in life. It is a critical investment, both emotionally and financially. Property prices in India, especially in large cities, are climbing up with every passing day. Hence, to buy the house you want, there is a good chance that you would need a home loan. Having the option of easy monthly repayments and the choice to select the loan tenure according to your requirements, these loans provide a simplified solution for making your dream of owning a house come true.

What Exactly is a Home Loan?

Home loan is a type of credit that can be availed from both banks and Non-Banking Financial Companies (NBFCs). They are meant to help people to buy residential property. You can take out the best home loan from NBFC or a bank to buy a plot or renovate your home & have your plot but needs to construct your home. Home loans generally have a tenure of up to twenty-five years, which have to be repaid as Equated Monthly Instalments or EMIs. You can also get tax deductions on both the principal and interest component of a home loan under Section 80C and Section 24 respectively, of the Income Tax Act.

Documents Required to Take Out a Home Loan

NBFC offering home loans typically require the following documents for loan approval: 

  • Passport Photo of the applicant 
  • Age proof of the applicant
  • PAN card copy of the applicant 
  • Aadhar card of the applicant
  • KYC Documents of the applicant including identity proof or address proof 

Both salaried and unsalaried individuals can take out home loans through NBFCs. Salaried individuals have to furnish salary slips for the last two months/ salary certificate with deductions, Form 16 for the last year, and bank statements of all operating accounts for the last six months.  Self-employed individuals, on the other hand, provide:  

  • Latest Copies of ITR with Computation for 1 year/ 2 year
  • Latest profit and loss account, balance sheet, along with all schedules for 2 years
  • Latest Audit Report, Form 3 CB / 3CD for 2 years
  • Latest 6 months of banking of all operating savings, current, and OD/CC accounts 

Property documents needed while applying for a home loan are: 

  • Payment receipt/demand letter 
  • House tax receipt/mutation order 
  • All Agreements/title deeds/approved plans
  • Share certificates/allotment letter/possession letter

Interest in Home Loans

The interest rate for home loans plays a major role in deciding whether to avail of a loan or not and which lender to choose. You need to properly research various bank and NBFC home loan interest rates and do a systematic comparison to zero on the right lender. 

There can be three types of interest rates charged by banks and NBFCs for home loans, which are: 

  • Floating Interest Rate: Also referred to as variable interest rate, floating interest rates implies to the rate of interest that might change during the loan tenure as it is subject to current lending rates. Your EMI amount shall invariably change as per the change in interest rate. In the market of decreasing home loan interest rates, it can be a good idea to go for a floating interest rate.
  • Fixed Interest Rate: As the name suggests, the rate of interest remains the same throughout the loan tenure in the case of a fixed-interest rate home loan. Therefore, your EMIs shall remain constant over time. It will be a good idea to go for a fixed interest rate loan when the rate of interest is low, but an upward trend is expected in the future.
  • Hybrid Interest Rate: This implies a combination of floating and fixed interest rates. A lot of financial institutions offer a fixed interest rate for a particular period, which can be switched to a fixed interest rate. This type of interest rate can be a prudent option if you get a home loan at a lower interest rate, which is anticipated to go up in the future, but you have a plan in place to repay the loan before the floating rate starts.

You need to research the trends related to home loan interest rates and opt for the one that seems to be the smartest.

Loan Amount and Tenure

As home loans are a long-term financial commitment, you need to select a loan amount that you can repay comfortably by paying consistent EMIs for years. You need to be smart about selecting a loan amount that you can afford to repay without any kind of delay or default, as doing so may negatively impact your future loan eligibility and credit score. Home loans are typically availed for a long tenure, depending on your eligibility. The longer tenure aids in lowering the monthly repayment amount but does increase your total interest outgo. On the other hand, selecting shorter loan tenure may create a burden of huge EMIs.

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