What is Home Loan - Its Important Features and Benefits
- What is Home Loan – Home loans help people to achieve their dream of home ownership.
- A home loan is a secured loan that can be availed from both banks and Non-Banking Financial Companies (NBFCs) for the purpose of buying a residential property.
- Home loans have varying interest rates which are often linked to your credit score. The normal tenure is up to 30 years and the amount has to be repaid in Equated Monthly Installments.
- Tax deductions are possible on both the principal amount and interest component of the home loan amount. This is possible under Section 80C and Section 24 respectively of the Income Tax Act.
Purpose of Home Loans
Home Loans for purchasing, building, renovating, repairing, or redecorating a perfect living space. One can also opt to transfer the existing Home Loan from another lender over to a new lender.
- For the purchase of a new/old residential unit (it may be an independent house/ flat/villa/an apartment etc.)
- For the construction of a residential unit on an existing non-agriculture plot.
- For the extension of the existing residential property with repairs and improvements.
- For the Take-over of a housing loan availed from another bank / FI Completion of the under-construction residential unit.
- For the purchase of solar power panels along with the purchase/construction of the house.
Eligibility for Home Loans
- The applicants must be Indian citizens and NRIs’. Loan eligibility depends on the value of the property and the repayment capacity of the borrower.
Other important factors
- Co- applicant’s income
- Continuity of occupation
- Credit Information Bureau (CIBIL/Experian, etc.) track record.
However, the sanction of loans to individuals is the sole discretion of the Bank. Here Bank has the right to approve or reject the loan without assigning any reason.
- The minimum entry age for the loan is 18 years and the maximum exit age is up to 75 years.
- Individuals may apply for the loan singly or jointly with other eligible individuals.
Quantum of Loan - The Limit of Loan Amount
- There is no limit on the quantum of the loan amount.
- The maximum loan amount for repairs/renovation is up to Rs.30 lakhs.
Processing charges are 0.50% of the loan amount subject to a maximum of Rs. 15, 000 plus GST
- The actual Valuation process is applied for the calculation of Stamp Duty / Memorandum registration charges / Legal / CERSAI and Valuation charges.
15 Must Have Documents Required for Home Loan in 2023
Required Documents Are,
- Loan application form.
- 3 photographs passport sized.
- Identify proof
- Residence proof
- Bank Account Statement/Passbook for last 6 months.
- Signature verification by bankers of the applicant.
- Liabilities statement and Personal Assets.
- Property detailed documents
- Salary Certificate (original) from employer. (salaried individuals)
- Form 16/IT Returns for the past 2 financial years. (salaried individuals)
- IT Returns/Assessment Orders copies of the last 3 years. (self – employed professionals)
- Challans as proof of Advance Income Tax payment. (self – employed professionals)
- Proof of business address for non-salaried individuals. (self – employed professionals)
- IT returns/Assessment Orders copies of the last 3 years. (Self – Employed Businessmen)
- Challans as proof of Advance Income Tax payment. (Self – Employed Businessmen)
Home Loans Moratorium Period
- In the case of purchase/ construction, the Moratorium period is 36 months.
- In the case of repair & renovation, the Moratorium period is 12 months.
3. In the case of Composite Home Loans from the date of first disbursement OR up to the period allowed by the Development Authority, the Moratorium period is 48 months.
- In the case of purchase/ construction, the repayment period is up to 30 years.
- In the case of repair & renovation, the repayment period is 15 years.
Equated Monthly Installments (EMI)
- Equated Quarterly Instalments (EQI) For borrowers engaged in agriculture or allied activities, instead of EMI may be permitted.
Step-Up Repayment Method
- For the initial months, the EMI value is set at a value lower than the normal EMI value. Then for the remaining period, the EMI value is set at a level higher than the normal EMI.
- Balloon Repayment Method: lower than normal EMI at the start of the repayment tenure followed by a lump sum amount expected to be available at end of repayment tenureThe flexible Loan Installment Plan (FLIP) Method with the EMI for the remaining period can be at a lower value than normal EMI.
- Bullet payment is possible with lump sum payment during the repayment tenure. Then a downward revision in EMIs for the remaining period is applicable.
There is no prepayment penalty / take-over penalty if the loan is taken over by other banks/FIs.
- A prepayment penalty is not required if the loan is repaid from its own verifiable sources.
- A take-over penalty of 2% is charged on the average outstanding balance of the preceding 12 months if the loan is taken over by any other bank.
- A third-party guarantee is not required for Resident Indians
- For NRI applicants, 1 or 2 guarantors of Indian Residents is a must.
- Insurance coverage is mandatory. Property should be insured for an actual amount of the property, covering all risks with a Bank clause.
The types of insurance coverage are as below;
- Property Insurance – Safeguard the property against any loss or damages caused by unpredictable natural disasters and damages.
- Liability Insurance or