Get the best rates that will help you buy your new home
What is Home Loan?
In simple words, Home loan is something by which an individual can build his/her house which once they have dreamt of. It is a particular amount which is borrowed by individual for a fixed venture from banks or financial institution to buy, construct, repair or renovate a residential property. A fixed interest is also levied on such loans which has to be paid by the borrowers along with the principal amount.
Housing loan or home loan is very popular among people offered by various banks and NBFCs. It is even the largest selling banking product and 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. The expenses for the 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.
Home Loan- Eligibility
|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 :|
|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 debts channel||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. It is done by banks to make sure that the loan applicant is able to pay the minimum monthly installment towards his/her home loan.|
BENEFITS OF HOME LOAN
Typically, when you take a Home Loan, you repay it through equated monthly instalments. This is also when you pay the interest accrued on the principal amount. There are many financial institutions like Bajaj Finserv, who offer low-interest rate on their Home Loan, most lenders charge a fairly high rate of interest. This makes your loan that much more expensive.
You can get income tax exemption on Home Loan interest, up to a maximum of Rs.2 lakh for a house that you live in. This means that you can’t claim deductions on a house that is still under construction. When you claim interest deduction, the total interest amount is deducted from your income, so the total amount of taxable income is reduced.
Under section 80C of the Income Tax Act, you can claim repayment of your principal amount up to Rs.1,50,000. So when you file your tax returns, you mention the amount of money you pay as principal on your EMIs and this amount will be deducted from your taxable income.
It’s important to note that if you’re claiming a principal deduction, you won’t be able to sell your house for 5 years. If you do, the principal amount will be added to your taxable income again.
Stamp Duty and Registration
If you’re paying stamp duty and registration fees for your new home, then you can claim these expenses as deductions on your income tax for that year according to Section 80C of the Income Tax Act. The maximum claimable amount for this is Rs.1,50,000.
To claim tax benefit on interest on Home Loan, you’ll have to wait till the year your house is completed. However, you can still avail of pre-construction interest deductions in that year as well.
Simply calculate the total amount that was paid as interest during the construction and include that in your tax returns for that year.
However, this will be clubbed with the rest of your interest deductions, so both your pre-construction and current interest deductions cannot exceed a combined total of Rs.2 lakh.
If you’ve taken a Home Loan with a co-applicant who is employed and co-owner of your house, then both of you can claim deductions for the same loan on your respective incomes. You will both be able to claim interest deduction and principal repayment up to the maximum amounts, individually.
CLAIMING THE DEDUCTIONS
Only homeowners are eligible to tax deductions, so you’ll have to provide proof of ownership.
Completion of Construction Date
Since you can apply for deductions only on a completed house, you’ll need to provide a date of construction and claim pre-construction interest deduction later.
Interest and Principal Details
Your bank should be able to give you a certificate like the Provisional Interest Certificate provided some banks against your Home Loan. This is used to calculate your interest and principal every month for that financial year and decides the amount that will be deducted from your taxable income.
WHY ONE SHOULD GO FOR PERSONAL 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. It is a well-known fact that today 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.
- Real estate’s rising prices 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. From here is the home loans step in and build 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.
DOCUMENTS REQUIRED FOR HOME LOAN
Documents to be submitted differ according to the eligibility requirements. The following, however, are commonly requested for from all the applicants :
- The application form which has to be signed and affixed with the specified number and size of photographs.
- Proof of identity (Copy of Passport/Voter ID/PAN Card/Driving License).
- Proof of Address (Copy of latest Electricity Bill/Telephone Bill/Property Tax Receipt/Voter ID/Passport).
- Last 6 months’ Pass Book/Bank Account Statement.
- Business proof in case of non-salaried individuals.
- Statement of Personal assets and liabilities.
- Identification of signatures from present bankers.
|Documents Requested from Guarantors|
|Additional Documents Requested from Salaried Applicants:|
|Additional Documents Requested from Non-Salaried/Self-Employed/Professionals/Other IT Assesses|
TOP BANKS THAT OFFER HOME LOAN IN INDIA
India has a long list of both private and public sector banks that offer home loans. And the confusion which plagues most first-time home loan applicants is which bank to apply with. There are pros and cons applicable to every bank. Public sector banks are more stable and less likely to go bankrupt in the long run than private sector banks. Alternatively, private sector banks offer smoother customer service and processing time as compared to public sector banks.
One of the most popular strategies that customers employ is to avail home loan from the bank where their salary account or savings account is hosted. Since all the KYC details and financial data is already available with the lending bank, this eases out the approval process a bit.
Various surveys have come up with a list of most popular banks for home loans in India. However, the 5 names which are always present in these lists are:
- State Bank of India
- ICICI Bank
- LIC Housing Finance
- HDFC Bank
- Axis Bank
SBI is a very trusted brand because of its public holding and HDFC despite being a private lender is popular since it is basically aimed at offering housing finance to customers in India. Most customers look for an established brand name before zeroing down on a particular bank name. Home loan act as a product is a long-term offering and it is wise to choose a bank that has been around for some time and one that has a substantial customer base.
Apart from banks, there are several NBFCs or Non-banking financial companies which offer home loans to customers. These companies too, offer home loan to customers. One of the biggest differentiating factors is that the eligibility guidelines for NBFCs are slightly flexible than those of banks. Also, the loan amount sanctioned by an NBFC is generally greater than that sanctioned by any bank, public or private. There are some Top NBFCs in India that offer housing finance to customers in India are India bulls Housing Finance, Dewan Housing Finance, Reliance Capital, Shriram Transport Finance, Muthoot Finance, LIC Housing Finance.
WHY FINBUCKET FOR HOME LOAN
- Finbucket is emerging as a leading portal for financial services where different home loan offers from various banks can be compared at one place. You can easily apply without having to visit any lending institutions.
- Compare the best offers to identify he right lender to deal with.
- To find out the lowest rates, you can make real-time home loan comparisons.
- Finbucket monitored interest rates on daily bases and always remain updated to reflect the latest changes made by the financiers.
- Through Finbucket you can even avail exclusive discounts and deals for huge savings as we have the collaboration with leading financial institutions and banks.
- Browse user reviews to gain insights on service provided by various institutions.
- Apply online for the chosen home loan product directly through the BankBazaar website.
- Receive end to end guidance from a dedicated customer care team for smoother processing leading to quick disbursal of money.
- Get regular status updates via emails and SMS for easy processing of your home loan.
How to apply for Home Loan
In 4 steps you can easily apply for personal loan in no time
- Firstly, you have to fill a simple application form which will demand your basic personal information given on the site.
- We already have a coordination with 30+ banks/NBFC to get your application to them.
- Compare interest rates by your own and choose the best one for you.
- We will send you an e-approval that your loan application is accepted within 24-48 hours and amount will be credited to your account.
HOME LOAN INTEREST RATES
|Banks||Floating Interest Rates||MCLR Rates||Action|
|SBI||8.35% – 8.70%||8.00%||Apply Now|
|Axis Bank||8.35% – 11.75% *||8.25%||Apply Now|
|HDFC LTD||8.35% – 8.60% *||8.15%||Apply Now|
|ICICI Bank||8.40% – 8.85% *||8.20%||Apply Now|
|Bank of Baroda||8.35% – 9.35%||8.35%||Apply Now|
|DBS Bank||8.40% to 8.45% *||8.20%||Apply Now|
|Bank of India||8.45% – 8.60%||8.30%||Apply Now|
|Canara Bank||8.45% – 8.65%||8.45%||Apply Now|
|Yes Bank||9.35% to 10.50% *||8.80%||Apply Now|
|Indian Overseas Bank||8.55% to 9.05%||8.55%||Apply Now|
|Karnataka Bank||8.60% to 8.90%||9.20%||Apply Now|
|Oriental Bank||8.45% to 8.55% *||8.45%||Apply Now|
|Syndicate Bank||8.60%||8.50%||Apply Now|
|Citi Bank||8.60% to 9.10%||8.05%||Apply Now|
|Kotak Mahindra Bank||8.50%||8.60%||Apply Now|
|Corporation Bank||8.75%||8.75%||Apply Now|
|United Bank of India||8.55%||8.75%||Apply Now|
|HSBC||8.65% to 8.75%||8.05%||Apply Now|
|Federal Bank||9.59% to 9.84% *||8.90%||Apply Now|
|Allahabad Bank||8.75% to 9.25%||8.45%||Apply Now|
|Central Bank of India||8.30%||8.30%||Apply Now|
|UCO Bank||8.55% to 8.70%||8.45%||Apply Now|
FACTORS THAT INFLUENCE YOUR HOME LOAN INTEREST RATE
MCLR (or Base Rate)
It is the minimum rate set by the Reserve Bank of India (RBI). Banks are not allowed to grant a loan to applicants at a rate lower than the base rate. This is done to make credit markets more transparent, and to ensure that banks pass on the lowest cost of funds to their customers.
It is the rate at which the RBI lends money to banks in the event of any shortfall. It is a financial instrument used by the central bank to control inflation (i.e. when the repo rate is raised).When the RBI raises or lowers the repo rate, this will have an effect on the interest rate on banking products such as loans and mortgages.
Reverse Repo Rate
Reverse repo rate is the rate at which the RBI borrows money from banks. It is a financial instrument used by the central bank to control the money supply. Increasing reverse repo rate will lead to decreasing money supply in the country, and vice-versa. An increase/decrease in the reverse report rate will have a direct impact on lending rates.
Cash Reserve Ratio (CRR)
Cash Reserve ratio (CRR) is a fraction of the total deposits of customers which banks have to hold as reserves (either in terms of cash/deposits) with the RBI. This is done to ensure that banks do not run out of cash/money while meeting payment demands of their customers when they need money.
Statutory Liquidity Ratio (SLR)
Every bank has to maintain a certain percentage of their “Net Demand and Time Liabilities (NDTL)” as liquid assets in the form of cash, gold etc. This ratio between liquid assets and NDTL is called the Statutory Liquidity Ratio (SLR). Maintaining the SLR restricts banks to pool more money into the economy. This, again, has an impact on lending rates.
Benchmark Prime Lending Rate (BPLR)
The Benchmark Prime Lending Rate (BPLR) has now lost relevance. But it is important to understand what it means because all retail loans were once linked to the BPLR. The loans which are sanctioned before the base rate was introduced in July 2010 is applicable under BPLR. The BPLR is the rate at which banks lend money to their credit-worthy customers. It was introduced to ensure transparency in the pricing of loans, according to the loan worthiness of applicants
TYPES OF HOME LOANS
Land Purchase Loan
These loans are given by banks and housing finance companies when you wish to purchase a land or a plot where you wish to construct your dream home. This land can be used for residential as well as for commercial purpose. The maximum term for which this loan is advanced is 15 years and of course your retirement age is taken in to account.
Home Construction Loan
This loan is offered for the purpose of construction of your home on a land or plot or for the construction of a newly acquired home. However, prior to going forth with the construction you should remember that factors like financing cost, site of construction, design of the house and financing cost will form a part of home building cost.
Home Purchase Loan
Home Purchase Loans are the most common and sought after product of home loan. While you opt for home purchase loan you may go forth buying a new residential property or you may purchase an existing house from its previous owner. You may opt for these loans at floating, hybrid or fixed rate of interests – whichever suits you the best.
Home Improvement Loan
Home improvement loan or home renovation loan as it is called is one which gives you steady cash to take up any kind of renovation in your existing home. Repair works, renovation, external and internal painting of the house, electrical work, external repair work, construction of overhead or underground water tanks, tilling, flooring, waterproofing etc all form a part of home improvement loan.
NRI Home Loan
All Non-Residents who have left their native place for some reasons or the other and dream of making a comeback after their respective task gets accomplished can also dream of owning a home on their soil with the NRI home loan. This is a specialized loan that is advanced by banks and financial institutions to NRIs who wish to purchase residential property in India.
Home Extension/Expansion Loan
Home extension or expansion loans come handy when you wish to expand or alter the existing structure of your house by adding some extra space. This space could be added by constructing new rooms, enclosing balcony, expanding your bathroom or building a floor etc.The interest rates may be floating or fixed. Processing fees up to 1-2 percent may also be charged for the purpose.
Home Conversion Loan
In order to purchase a new house, if you already have a home loan in your name then you can opt for Home Conversion Loan if you wish to purchase and move in to a new house. In the process the purchase of new house can be funded moving the existing loan to the new house. You might not repay the loan on the previous loan, it just gets transferred.
Those of you who have set eyes on a new house but have not been able to find a buyer for your existing residence, bridged loan offers a solution. Bridged loans help you to buy your new house while you continue your hunt for a borrower for your existing residence so that you do not miss on to the opportunity of buying the new property that you have set your heart on due to lack of funds.
Balance Transfer Loan
If you are not happy with the services of your bank from where you have opted for your home loan or want to pay-off your home debt at a lesser rate then you may go forth with the idea of balance transfer loans. Whenever you wish to transfer your home loan from one bank to another, you can easily opt for balance transfer loan.
Stamp Duty Loan
Stamp duty loan is yet to gain momentum in India. These loans are designed for helping home buyers to pay off the stamp duty charges that are attached to the purchase of property. The amount that gets sanctioned under the head of Stamp Duty Loan is to be solely used for the purpose of writing off the stamp duty charges that get accrued on purchase of property.
8 COMMON REASONS FOR HOME LOAN REJECTION
1. Unpaid Dues
When a borrower takes a home loan, one of the foremost things that are involved in the approval for the same are credit history and record. The credit history check basically involves determining timely payment of dues and EMIs of other loans, etc. The best way to clear this condition is to be punctual with payments and never miss deadlines on EMIs and credit card dues. You can always keep a check on your credit record by being aware of your bills and repayment dues.
2. Other Debts
If there is more than one debt in your name, your real income is calculated by subtracting the credit repayments from your income. If according to the lender’s analysis, your repayment capacity seems inadequate, the bank or lender may refuse to offer you a home loan.
3. Job Stability
Changing too many jobs also reflects poorly on the home loan application. Banks consider job stability as one of the main criteria for approving a loan for buying a home. Banks insist that the borrower should be employed in a particular firm or company for three years preferably, in order to be eligible for a home loan. If sometimes, the applicant’s company, although reputed seems unstable, the bank reserves its right to reject the loan.
4. Age while Application
Home loan applications are rejected if the borrower’s age is close to the retirement age. The lender is hesitant to offer loans to such borrowers as it assesses your repayment capacity to be poor or zero, after a few years. However, some banks may be willing to offer short-term home loans. Short term loans for big amounts would lead to a really high EMI, taking away the comfort of availing a home loan in the first place. Therefore, borrower’s age plays a very important role in terms of home loan rejections.
5. Loan Guarantor to a Defaulter
Being a loan guarantor to someone can sometimes be risky. Unless you are sure of the borrower’s repayment capacity, do not agree to be a loan guarantor. Without having any strong reasons for believing in that person, do not sign to be a guarantor. If the borrower defaults in his repayment, you will be held responsible to repay the loan on his or her behalf.
6. Credit Score
Keeping your credit score high plays a significant role in getting your home loan approved. You should ensure you have a good credit score when you apply for a loan. Your credit score is recorded by CIBIL (Credit Reports and Risk Management Solutions).
7. Previously Rejected Loan Applications
CIBIL records incidents such as rejection of loan applications. Such an incident, becomes a part of your credit record. Therefore, it is best to know the result from one bank before applying to another bank. By ensuring this, you will be able to correct your mistakes and not repeat the same errors while applying for the second time.
8. Income Tax Return Filing
It is important to file your income tax every financial year, whether or not you receive your Form – 16 from your employer. Lenders and banks check for a clear track record of filing income tax returns of the last two years, before approving a home loan.
7 EASY STEPS TO AVOID REJECTION OF HOME LOAN APPLICATION
- Review and restructure your existing loans
- Know how to Compute Debt Servicing Ratio (DSR) before home loan application
- All the income will be recognized and consolidated for minimum 6 months, preferably 2 years before home loan submission
- Know precisely how to compute your new monthly mortgage repayments after refinancing
- For those in their first job, take a credit card – use it and repay on time (and in full if possible) every month.
- Prepare all your bullets….I mean, complete documents for loan application.
- Don’t submit Fraudulent Information (DUH!)
OPTIONS FOR HOME LOAN WITH CIBIL DEFAULT
If a person has low credit scores and he or she doesn’t have enough time in hand however, he or she still has interest to take a home loan then the following options could be helpful.
If you have a high and stable source of income then banks and financial institutions will be any way willing to give you loan even if you have a defaulted CIBIL history. Especially if you are working for a renowned MNC then the prospects of getting home loan are even higher.
Spouse’s Credit Score
In case your income is just an average one and yet you need a home loan, what you can alternatively do is – add your spouse as a co-applicant. In such a case, bank looks at the total income of the couple and if found considerably enough to seek loan then the same can be sanctioned easily. However, this should be borne in mind, that even your spouse’s income should also be stable and consistent.
The good about home loan unlike a personal one is that in this case you can easily use your property papers as collateral. This works as a security for a bank or a financial institution hence increasing your chances of getting a loan. In addition, if you repay this loan without any miss or delays, it will also help in increasing your CIBIL scores with immediate effect. Hence one can always use home property papers to take a loan.
Loans with High Rate of Interest
If nothing works then also there are many lending agencies, peer to peer groups and online financial agencies which are willing to give loans to CIBIL defaulters but with very high rate of interest. Though this is not a very wise step as it will hardly leave you any savings but if you think you have the potential to repay the loan with high rate of interest later and your need is only of the current time then you can always go for this option.
DO’S AND DON’TS WHILE TAKING A HOME LOAN
|Try to prepay the loan by borrowing money from parents or friends; you won’t have to pay them as high a rate of interest. DO NOT forget to pay them back.||Try to keep limits on purchase of clothes for your family. You could choose two occasions in a year to buy clothes instead of doing it on every festival.|
|Planning some money for charitable purposes will put your desires in control.||Don’t get tempted by all travel schemes proposed by travel companies. Travel involves a lot of planning, expenditure and an unnecessary strain on your finance if not planned meticulously.|
|Think of the less fortunate ones before you think you need to purchase anything fancy and needless from a market/ mall near you.||Don’t get tempted by all travel schemes proposed by travel companies. Travel involves a lot of planning, expenditure and an unnecessary strain on your finance if not planned meticulously.|
|If you are in the IT profession, try planning for one abroad trip so that you may earn a considerable amount for some down payment.||Don’t take any loans to purchase household items or electronic items just because they are introduced in the market. If at all you have to buy it, make sure you have at least 70% money instead of going for credit card or personal loans. These loans look good at the beginning, but we usually end up paying more money than the original price.|
FEES AND CHARGES APPLICABLE TO HOME LOANS
Apart from the rate of interest that is charged on home loan products there are various fees, and charges that are applicable to housing finance offered by different banks. These charges may differ in value from one bank to another, however, the types of charges remains the same for almost all banks.
Banks generally charge a fee for processing your home loan request. These charges vary with different banks. This fee is non-refundable and is either a specific percentage of the loan amount or a fixed amount of money. There are times when banks are willing to negotiate on the processing charges and lower this fee or waive it off completely depending upon certain terms and conditions.
Late payment charges
Almost all the banks charge late payment charges when a loan borrower is late in paying loan installment. There are times when financial crunch or some other financial liability or plain oversight might result in non-payment of home loan installment on time. This results in a late payment fee being levied by the bank.
Most banks have stopped charging any kind of fee for pre-closure of home loans. However, some banks still charge some percentage of home loan balance as pre-payment charges. When any home loan customer repays his/her home loan prior to the stipulated home loan tenure, this fees is typically levied .
Typically, home loans are offered by banks either on a fixed interest rate or on a floating rate of interest and customers always have a choice of switching between these two rates. Every time a customer applies for switching from fixed rate to floating or vice versa, conversion charges are levied by the bank. These charges are some specific percentage of the principal outstanding amount.
Legal fee is charged in order to pay the lawyer who does the task of verification of property that is being bought with the loan amount. There are lots of banks which do not have in-house lawyers and as such pay fees and recover it from home loan customers.
Some banks charge administrative fee separately from the processing charges. This fee is levied to pay for the administrative cost that the bank incurs for processing of home loan application. Moreover, a administrative fee is charged by banks to compensate for the back-end administrative processes that are performed while processing of home loan applications.
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