What is a home loan?
- A home loan is borrowed from a bank to purchase a house it consists of fixed interest rates and payment terms. However, buying a home has become a very tough task due to huge real estate prices.
- A home loan is a wise idea to have funds for buying a new house because the payment can be made with easy installments.
- To fulfill the requirements of different economic sections of the society, financial institutions have come up with various beneficial home loan schemes.
- A person can choose the one which is best suited for him according to his financial needs. Borrower can make the pre-payment of home loan.
Types of home loan
There are various types of home loans introduced by the banks, therefore a person can choose wisely the best-suited loan for himself.
Loan for Purchasing a home
- It is the most popular type of home loan.
- This type of loan is given by the bank to the applicant for purchasing a new home.
- Is easily available if you have a good income and various banks tend to give out this loan because of its high demand.
- The interest rate ranges between 9.85% and 11.25%. Also, 85% of the total amount is offered as a loan by many leading banks.
Loan for Constructing a House
- This loan is best suited for people who want to construct a house as they wish rather than buying an old pre-constructed house.
- The most important aspect you need to remember
- Applying for a home construction loan
- The plot on which house is needed to be constructed must have been purchased within a year for the plot cost also to be included in the loan amount.
- The bank decides the loan amount based on an estimate of the construction cost of the house.
- The approval process for this type of loan is different because it takes into account the cost of the plot also on which house is to be constructed.
- The amount can be disbursed in one go or in multiple installments.
Loan for Purchasing Land
- There are various banks which provide loans to individuals for purchasing land.
- It is the best loan option because up to 85% of the cost of land is given as loan by the top banks.
- Purchasing a land is a good option, a person can purchase a land and construct a house for himself on the land
- He may have the land just as an investment for raising his estate. It helps the buyers to save their funds for future.
Loan for Home Conversion
- This type of loan is suitable for people who have already availed a home loan and purchased a house but wants to change it and move into a new house.
- Such people can opt for home conversion loans. It can be easily done by transferring the current running loan to the new house. Also, there is need not repay the previous home loan.
- Home loan is very expensive as it offers various benefits to the borrower.
Loan for Improving the Home
- If the borrower do not have much money for renovating the home and making improvements in it then go for home loan.
- Renovation as well as internal and external repair, works like:
- Electrical renovation
- Constructing water tanks etc. takes a lot of money.
- Certainly with the home loan you can make your house look better.
- There are various banks like
- Union Bank of India,
- ICICI Bank, etc which offers specialized home improvement loans.
Loan for House Expansion
- Bank offer home loan even for the expansion of house which includes
- Construction of additional rooms
- Bathrooms, and
- The alteration of current structure.
- The two of the few popular house expansion loans are:
- The loan offered by HDFC i.e Home Extension loan, and
- House renovation loan offered by Bank of Baroda
Balance Transfer Home Loans
- This is the best option which can be availed when an individual wants to transfer his home loan from one bank to another. Because of reasons like
- Lower interest rates, or
- Better services offered by the other banks.
- Borrower can do this to repay the remaining loan at a revised and lower interest rates offered by the other banks.
- These kinds of loans are short-term loans that are designed for existing homeowners who are planning to purchase a new property in a new area.
- It helps the borrowers to raise funds for the purchase of new house until a buyer is identified for the existing property.
- However, this type of loan requires the mortgage of a new house with the bank and is extended only for a short time i.e for less than two years. Several banks tend to offer bridging loans.
Stamp Duty Loan
This is the most less known loan of all the above loans. Stamp duty loans are offered to cover the stamp duty charges during the purchase of a property.
Home Loan for NRIs
- This type of loan is best suited to NRIs (Non-Resident Indians) and also it is specially designed to support them in buying a house in India.
- But the applicant will go through various formalities and application procedure for this type of loan is different from the others.
- Generally, most of the top private and public sector banks offer NRI loans as a product of their housing loan portfolio.
- Because of the growing demand for purchasing a new house the demand for home loans has also raised. So it is important for you to choose wisely among the home loans offered by banks according to your own needs.
Steps to apply for home loan
There are various steps to be taken in order to apply for home loan. However, the procedure for obtaining a home loan is more or less the same in all the banks. Here we will let you in details of the procedure. One can get home loan approval easily.
Keep the Property related Documents ready
- You need to have all the legal documents related to your property from your builder, in hand, before you from any bank. It usually includes the booking receipt and the copy of the cheque.
- The document such as
- Encumbrance certificate, and
- Receipt of the tax paid is required and this step could require a lot of documents from various sources and can take the longest time.
Take Legal Opinion
- Take along with you all the required legal document for a home loan to the bank official or an advocate and get them verified.
- He will then verify the Sales Agreement & Construction Agreement.
Valuation of your Property
Once the legal valuation is complete the property needs to be evaluated by a property valuation belonging to the bank. Once he evaluates the property, a letter of acknowledgment is given to you.
Franking of Agreement
- It is mandatory that the Sales and construction agreement is franked or E-stamped.
- The value of e-stamping can be different for different properties based on the value of the properties.
- Franking can be done at the registrar’s office, and
- e-stamping can be done at select registrar’s offices, post offices and syndicate banks.
Submission of Application
- Once all above-listed steps are complete, the borrower must visit the bank along with the documents and the application form.
- The bank will let you know about the documents that need to be submitted such as valuation statement etc.
- The waiting period for the approval of the loan may vary from person to person and from bank to bank.
- The bank’s special home loan branch can disburse the loan within three days or can take some more time.
- However, you should periodically follow-up your application, asking for the inspection to be done and other things that accelerate the process so that you can get the loan faster.
Bank will give you a call as soon as they sanction the loan. You will then be asked to submit some more documents which may include the following:
- Two E-stamps, where you are the first party and bank is the second party.
- E-stamp worth INR. 200/- where the parties are same as listed above.
- E-stamp worth INR. 200/- where the first party is the guarantor and bank is the second party.
- All documents submitted while applying for the loan application.
- Cheques in favor of bank you demand loan from.
You as well as your guarantor has to be present at the bank with all the above documents.
Once the loan is sanctioned by the bank, a borrower must attain the following documents from the builder:
- NOC which states that the property is not mortgaged at any other bank.
- Tripartite agreement, if your property is under construction.
- A demand note from the builder, matching the payment schedule.
- Before the registration process verify the stamp duty and inform the bank about the same.
- Once the registration process is complete, an officer from the bank will visit you to hand over the demand draft to the builder, even you may be asked to collect it from the branch you applied for a loan from.
Get a loan for land
A person can even get a loan for land for himself if he/she plans to buy a piece of land. However, the procedure to get a loan for land is little tiring but for taking a home loan for land you need to remember some points.
Use of the land
- Borrower should be clear about the use of the land as it has an effect on factors such as the term of the loan, down payment and interest rate etc.
- This can even make getting bank loan more complicated than buying an existing house.
Select the loan option
- If the borrower wants to take a loan for land form the bank, then you should think about the loan options.
- Borrower can get a loan from
- Local banks, and
- Credit unions
- Usually, banks offer better terms as they have more market knowledge about the property.
- Borrower can take home equity loan if the borrower have an existing property. Home equity loan has better terms and conditions.
Banks provide home loan
SBI Home Loan
Features of Home Loan
- Under its personal financing scheme for plot loans, State Bank of India offers up to INR 10 Crores.
- SBI has flexible repayment tenure because of which customers can receive benefit up to 15 years.
- But it is different for agricultural plot loans, the repayment period is 9 to 10 years only.
- Loan extension is also available with the bank. Customers who have obtained a plot loan can further take a loan for various improvement purposes they need to do. Bank provide home loan with various home loan benefits.
Who can take a loan from the bank?
- Landless agricultural workers are eligible for SBI plot loans.
- The applicant having a stable income and job.
- Customer’s having a good record of repayment of the loan within 2 years.
- Marginal and small farmers.
- Various borrowers who have good repayment record in other banks too.
- Applicant’s residing in India.
Required Documents for Home Loan
- For identity proof various documents such as
- Valid passport
- Driving license
- Aadhaar card, and
- Voter ID card.
- For income proof, various documents such as
- Salary receipts
- PAN card
- IT returns and
- Bank statement.
- Property related documents like:
- Title deeds
- Agreement deed, and
- The copy of allotment letter.
- Other documents like
- Passport size photo
- Contribution proof, and
- Employer’s documents.
Rejection of Home loan
There can be various reasons for rejection of the home loan. A person should make sure that he fulfills the requirements of all the documentation for a home loan. There are some key points one should remember before applying again for the home loan. There can be a various reason behind home loan rejection.
Reason behind the rejection of home loan application
- The letter that is issued by the lender for conveying the denial of the loan to you is the most generic thing to be read carefully.
- If you do not understand the letter or it does not specify the detailed cause, you must speak to the concerned officials.
- You should not stop asking questions until you understand the exact reason for rejection of your loan.
- This would help you when you reapply again in any other bank.
Try to reduce the loan amount
- If the bank has found upon its assessment, that your monthly income is not sufficient in order to support the loan amount, then your application may get rejected.
- In such cases, you as the borrower is supposed to rework the amount which is to be borrowed according to your income.
- By reducing the loan amount the debt servicing ratio can be easily corrected by the banks. That would make the bank confident about your loan repayment ability.
Pay off your existing debts
- This would basically lead you to a high debt-income ratio. Which means that the debt obligations and the repayment commitments are comparatively more then the income.
- Any more debt obligations would, however, put the banks at risk point.
- Paying off a couple of existing debts is the best alternative in order to rectify this situation and for applying for a new loan application.
Effect of Credit score on Home Loan
- The credit history is one of the most important factors in order to determine the interest rate and the borrowing terms of the banks.
- The higher the credit score is, the better is the chances of your loan approval will be.
- There are several things which influence the mortgage and its interest rate, including where the home is located and the type of loan which the borrower is applying for. But the credit score also plays a big part in it.
- A base credit score is a number between 300 and 850 that helps the banks to decide whether the borrower would pay back the loans on time or not.