What is a Home Loan? Why should you opt for a Home Loan?

October 06, 2021

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Buying a house is one of the biggest dreams come true for most people and is an extravagant affair altogether. Imparting life to such a dream requires a lot of effort from the buyers’ end and the best one can do to accommodate a home in their budget is through a Home Loan.

A Home Loan can be opted for any of the following purposes:

  • To buy a house/flat - under construction or constructed

  • To buy a plot of land where you can construct the house

  • Construction of the house on a land you already own

  • Renovation, extension and repairs to an existing house

  • Buy an independent house, along with the land.

There are many Public and Private Banks and Housing Finance companies that offer Housing Loans, where you borrow money to purchase the house of your choice and repay the loan in monthly instalments.

You can get up to 75% - 90% of the house’s market price in the form of financing. The lender will hold the house until you completely repay the loan. The remaining amount has to be paid for by the borrower from his/her savings and constitutes the owner’s equity or stake in the property. So, this is an important factor to consider and plan for when you are applying for a Home Loan.

Process of Application:

Availing a Home Loan has gotten easier than before, thanks to the various mediums that exist now, with the advent of technology. You can choose any of the following methods to apply for a loan:

  1. Online application – Many of the banks/financial institutions have created an online application section on their website. If you have chosen the financier, you can opt for a digital and contactless application. The required documents for the assessment too can be uploaded and submitted online.

  2. Branch – You can choose to visit any branch of your bank/financier and submit your application with the assistance of a branch staff. You can also take the assistance of any Relationship Manager from the bank, if you happen to be an existing account holder, where you are applying for the loan.

  3. Call Centre – Another alternative method of application can be through the call centre of the bank. You can place a call and gather the required information for you to decide on the application. Post which you can have the call centre arrange for an executive to collect your application.

  4. Sales Agent/Partner – You may approach a financial or loan advisory agency and apply through them, however, it would always be advisable to approach the bank/institution through the direct routes mentioned above, as you will not be required to pay any handling charges to the agent and there would be greater transparency when dealing directly with a Bank Representative.

Upon applying, the bank collects the required documents from you. It initiates the processing of your application, including checking of CIBIL score, the value of the asset, eligibility calculation based on your income and liabilities, and more.

After evaluating and verifying all the documents, the banks decide to approve or reject the loan.

Documents required for Home Loan

The following documents are required when you apply for a Home Loan, along with the application. This may vary based on the institution you are applying to, however, broadly the following documents are required based on your profile/income source.

Salaried Customers

Businessmen/Non-Salaried Professionals

Application form, with photograph

Application form, with photograph

Identity and Residence proof. PAN Card issued in India is no longer considered a valid proof of identity.

Identity and Residence proof. PAN Card issued in India is no longer considered a valid proof of identity.

Last 6 months’ Bank Statements

Last 6 months’ Bank Statements

Processing fee cheque

Processing fee cheque

Latest Salary Slip

Educational Qualifications Certificate and Proof of Business

Form 16

Business profile and previous 3 years Income Tax returns (self and business)

 

Previous 3 years’ Profit/Loss and Balance Sheet

Benefits of availing a Home Loan:

There are multiple benefits of availing a Home Loan and funding your property through a loan. It is advisable to avail some part of the property as finance from a bank/financial institution, even if you can afford to fund the purchase through your savings or other forms of market borrowing:

  • Due diligence of property:

When you go through a bank to purchase a house, the bank will conduct thorough checks on the property from a legal perspective and check if all the documents produced are valid.

This due diligence check from the bank’s end will reduce the risk of you being scammed. If the bank approves the property, that means you and your house are safe.

  • Tax benefits:

The foremost benefit of a Home Loan is the Income Tax deduction you can claim on the interest and principal repayments. You can claim up to Rs 1.5 lakh on the principal repayment u/s 80C, up to Rs 2 lakh on interest repayments u/s 24B, up to Rs 2 lakh on interest repayment in special circumstances u/s 80EE and 80EEA, and up to Rs 1.5 lakh on stamp duty expenses u/s 80C.

  • Lower interest rate:

The Home Loan interest rate is much lower, as compared to any other loan types available.

  • Long repayment tenure:

Unlike any other loans, Home Loans come with longer repayment tenure, as much as 25 - 30 years. This, owing to the significant loan amount one will have to borrow to purchase a house.

  • Top-up opportunity:

If you have a cash crunch, you may get a top-up on the existing Home Loan at a lower interest rate than a Personal Loan to solve the issue. Since the property is already verified and mortgaged to the bank, the process is much faster and cheaper than any other form of Unsecured Loan.

A Home Loan can help you accommodate your dream home in your budget. You can get up to 75% - 90% of the house’s market price, in the form of financing. Availing a Home Loan has gotten easier than before, thanks to Internet Banking and Mobile applications.

There are multiple benefits of availing a Home Loan and funding your property through a loan. You can enjoy lower interest rates and longer tenure, reducing your monthly outflow. You will also enjoy tax benefits on the interest and principal amount repayment. When you go through a bank to purchase a house, the bank will conduct thorough checks on the property from a legal perspective and check if all the documents produced are valid. If the bank approves the property, that means you and your house are safe.

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