Home Loan

What is Home Loan or Housing Loan?


A home loan or housing loan is an amount borrowed by individuals for a fixed tenure from financial institutions to buy, construct, repair or renovate a residential property. Lenders charge an interest on the amount borrowed, which has to be paid by the borrowers along with the principal amount.
Home loan or housing loan is one of the most popular products offered by banks and NBFCs to customers. Home loan is also the largest selling banking product and the one that ensures the longest banking relationship with the lender. Owning a home of your own is generally an obvious as well as a major decision in a person’s life. However, the cost of construction or purchase of property is quite high and this is where home loans play a major, almost indispensable role for majority of home buyers. Home or housing loans are advances made to borrowers who require funds to purchase houses/flats/land. They can also be availed of for construction, extension and renovation of houses. Lenders can be banking or non-banking financial institutions.


Why Home Loan:


In the last few years, real estate has been one of the most lucrative investment options for investors. No matter how profitable it sounds, the rising stature of real estate as an investment option has led to soaring prices of property in the country. Both land and buildings have become extremely expensive for customers to buy. This has led to a surge in the number of home loans that are applied for each day.

  •  Even though rising prices of real estate is one reason for borrowers availing home loans, another major reason behind this is that property transactions are generally hefty as compared to other day to day financial transactions. As such, it is not at all necessary that the buyer will have the entire property cost available with him or her, at the time of buying property. This is where home loans step in and bridge the gap between property seller and buyer.

  •  Banks chip in to pay on behalf of property buyer in return for a particular rate of interest. The general rule is 80-20 which means that banks offer only 80% of the value of home to customers and the rest 20% is to be borne by the property buyer. This serves as a win-win situation for both banks and property buyers, since, banks are able to make profits by loaning out money while buyers are able to assimilate the entire cost of property and pay it back over a fixed period of time.

  •  Home loans are eligible for certain income tax exemptions which can be used to save up on the amount of income tax that an individual pays every financial year. Under section 24 of the Income Tax Act, tax benefit can be claimed on up to Rs.1.5 lakh out of the interest component of your home loan. In case you are staying in the house bought on loan, then you can claim a maximum exemption of Rs.1 lakh on the principal amount of the home loan too.


  • How to Apply for Home Loan


    Step 1 As the first step, the applicant of the fill up the home loan eligibility form that is available online. This must contain all the data required to process the home loan application.
    After submission, the home loan tool checks automatically for the applicant’s eligibility and displays personalised home loan eligible options.

    Step 2 As the second step, the user can choose to compare different home loan options offered on the page and then apply for the one that suits him/her the best.
    Step 3 The final step in this process is receiving the immediate e-approval from SBI after successfully submitting the home loan application online.


    Home Loan Eligibility:


    Home loans are secured advances and therefore the eligibility criteria for these loans is laid out differently by different banks. Here are some of the most important factors that feed into determining home loan eligibility criteria for almost all banks in India.   

  • Age: The minimum age at the time of application should be 21 years. Repayments have to be completed before the age of 60 or 65.
      
  • Employment: Ability to service interest charges, as reflected in the borrower’s earning capacity, is important. Borrowers should:
  •    Be salaried employees or self-employed persons (professional/non-professional)
  •    Have been in employment/business for at least 3 years of which current employment should account for at least 1 year.
      
  • Income: A minimum income varying between Rs.5 - 7 lakhs would be required. This depends on the nature of employment i.e. salaried or self-employed.
      
  • Residence: At least one year of stay at the current residence is required to display stability with respect to employment as well as financial. This is an indirect indicator but is taken into account by almost all banks while calculating home loan eligibility.
      
  • Credit Rating: A good credit score is required (a score of 750-900 from CIBIL is considered good). Besides this, a healthy financial background is vital for approval and to determine the interest rate and loan amount.
      
  • Parallel debt channels: While sanctioning home loan to customers, banks also look into the current credit standing of the loan applicant. If a borrower has other home loans, personal loans or car loans in-progress then the lending entity calculates the loan quantum eligibility accordingly. Banks do this to make sure that the loan applicant is able to pay the minimum monthly installment towards his/her home loan.


    Documents Required for Home Loan:


    List of Property Documents Required For Applying Home Loan By All Applicants


    • Loan application form.
    • 3 photographs passport sized.
    • Identify proof (acceptable documents listed below).
    • Residence proof (acceptable documents listed below).
    • Bank Account Statement/Pass Book for last 6 months.
    • Signature verification by bankers of the applicant.
    • Liabilities statement and Personal Assets.


    Documents For Guarantor (Wherever Applicable)


    • Liabilities Statement and Personal Assets.
    • 2 photographs passport sized.
    • Identify proof.
    • Residence proof.
    • Proof of business address.
    • Signature identification from present bankers.



    List of Documents for Salaried Individuals


    • Salary Certificate (original) from employer.
    • Form 16/IT Returns for the past 2 financial years.



    List of Documents Required for Self – Employed Professionals


    • IT Returns/Assessment Orders copies of the last 3 years.
    • Challans as proof of Advance Income Tax payment.
    • Proof of business address for non-salaried individuals.



    List of Property Documents:


    • Deed of Sale or Sale Agreement or Share Certificate (original) in case of a cooperative society.
    • Receipts for taxes paid for Building and Land, certificate of possession, and certified sketch of the location of property from revenue authorities.
    • Allotment Letter from Society/Housing Board/Private builder.
    • Receipts of advance payments for flat purchase.
    • Certificate of Non encumbrance encompassing the last 12 years/30 years.
    • Receipt of land tax payment and certificate of possession issued by revenue authorities.
    • Permission letter from Appropriate Authority.
    • Approved building plan (showing floor plan for flat purchase).
    • Original No Objection Certificate issued under the ULC Act, 1976.
    • Copy of relative order if agricultural land is being converted.
    • No objection certificate (NOC) from Builder/Housing Society.
    • Detailed estimate of construction cost.
    • Letter from Society/Builder/Housing Board mentioning their bank and account details, for installment remittance.
    • Applicable for purchase of land plot, a declaration by loan borrower stipulating the date by which to construct a house.
    • Report from lawyer as per standard format.
    • Report stating the valuation of property in standard format by an empanelled valuer.
    • Post closure of loan, documents required for handover of original Property documents
    • Power Of Attorney for collecting original documents of Property.
    • In event of demise of the loan borrower:
    • Letter requesting handing over of Property documents from Legal Heir/Nominee(s).
    • Letter relinquishing the right to Legal Heirs/Nominees for Property documents handover.



    List of Documents Required for Self – Employed Businessmen


    • IT returns/Assessment Orders copies of the last 3 years.
    • Challans as proof of Advance Income Tax payment.



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