Home loan: In this article, you will get all the information related to home loans, and I guarantee that after watching this, you won’t need to watch any other articles about home loans. First, let’s understand what home loans mean.
What is a Home Loan?
In simple terms, a home loan is the loan you take to buy a residential property. The keyword here is residential. If you take a loan to buy a commercial property, it won’t be considered a home loan.
Types of Home Loans
There are three types of residential property purchases under home loans:
- Buying a flat in an apartment.
- Purchasing an independent house.
- Buy land and build a house on it.
All three come under the broader category of home loans, but there are small differences between them.
Home Loan vs. Construction Loan
If you’re purchasing a flat or an independent house, it is a straightforward home loan. But if you’re buying land and building a house, it’s known as a construction loan. In a construction loan, the bank releases the money in stages as the construction progresses, unlike a regular home loan where the entire amount is disbursed at once.
Step-by-Step Home Loan Process
Let’s walk through the entire home loan process from property selection to ownership:
- Choose a property within your budget and approach a bank. Do not finalize the deal before getting the loan approval.
- The bank will tell you that they can provide a loan for 80-85% of the property’s value. For instance, if the house is worth ₹1 crore, you will get a loan of up to ₹80-85 lakh. However, this depends on your credit score and annual income.
- The bank will issue a sanction letter, and you can finalize the property by giving a token amount.
- The bank then hires an external agency to evaluate the property, which usually takes 1-2 weeks.
- After the evaluation, you need to sign an agreement to sell. This document is essential and should be stamped on ₹4000 stamp paper to be legally valid.
- You will need to pay 20–25% of the property value as a down payment, with the rest covered by your loan and savings.
- The bank will carry out due diligence, including a title search, legal verification, and property valuation.
- On the property registration day, a bank representative comes with a check for the remaining loan amount, and the property is officially transferred to your name.
Important Factors that Impact Home Loan Approval
Three main factors determine how much home loan you can get:
- Annual Income
Banks generally provide a loan of up to 5 times your annual income. For example, if you earn₹10 lakh annually, you can get a loan of₹50 lakh. - Credit Score
Your Sibyl score needs to be above 750 to qualify for a standard loan, and if it’s over 800, you’ll get better offers. - Loan Amount
Banks have slabs for different loan amounts. For loans under ₹30 lakh, you may get 90% of the value; for loans between ₹30-75 lakh, banks usually offer 80%.
Home Loan Interest Rates
When you take out a home loan, you have two types of interest rates to choose from:
- Fixed Interest Rate: This rate stays the same for a set period, making it predictable.
- Floating Interest Rate: This rate changes according to the RBI repo rate. Since the repo rate is currently high, opting for a floating rate can be beneficial in the future when rates drop.
Additional Costs in Home Loans
Be aware of the extra charges that banks may add, such as:
- Processing fees
- Legal verification fees
These charges are negotiable, and you can often get them waived.
Best Banks for Home Loan
The best banks for home loans depend on your employment.
- Government employees should opt for PNB, offering an interest rate of 8.15%.
- Private employees can choose Kotak, ICICI, or HDFC, with interest rates between 8.30 and 8.35%.
Tax Benefits of Home Loans
A housing loan offers significant tax benefits:
- You can claim up to ₹1.5 lakh on principal payments under Section 80C.
- You can claim up to ₹2 lakh on interest payments under Section 24B.
If you take a joint loan, both applicants can claim these deductions, doubling the benefits to ₹7 lakh annually.
Why Opt for a Joint Loan?
Taking a joint loan has its advantages:
- Lower registration fees: You can save 1-2% on the registration cost.
Higher tax benefits: Both applicants can claim tax deductions.