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Housing is one of the most basic needs for humans along with food and clothing. Every youngster strives to build a house and makes it the first priority. This is preferred over other expenditure in household and basic needs. Housing is a major investment that allows a family to cut down on much other expenditure. The potential homeowner must first look out for the family’s monthly income and then look out for a loan which is generous so that he need not spend his entire life repaying the loan.
It is much known thing that if you own can land, then it is easy to build a space for yourself which is comfortable and unique. Several home loans are now available from various banks in order to fulfill your dreams. Loans that are provided are of a varied range like loans for plot, construction, renovation etc. it provides robust service which includes fast approval of loans. They make sure that they provide high standards of principles, integrity and simplicity.
Types of Home Loans Available in India
Owning a plot or home is the dream of every man. It also provides financial stability as well as emotional security. In India, there has been great demand for loans from the very start. Several companies that work under many banking sectors are helpful in providing faster approval of loans. When it comes to loans there are many categories that includes:Land Purchase Loan: As the name itself mentions, land purchase loans are provided in order to buy lands or plots. These loans are provided for both investment purpose and also residential or housing purpose. The banks provide upto 85% loans when purchasing a plot or land. These loans are mostly taken in order to build a house.
House Construction Loan:
Home loans are given to those people who are likely to build a new house in the way they desire instead of buying a property that has been already constructed. The process in which home construction loans are obtained is slightly different from that of the common loans provided for housing. When applying for home construction loans the borrower must have an idea of the cost that will incur and apply for the loan accordingly. House construction loans in most cases are easy to obtain once the borrower provides the necessary documents to support his claim.
House Purchase Loan:
One of the most popular and commonly availed loans would be home purchase loans. These loans are used when a person buys a property from another owner. It is also necessary to take adequate care in buying properties from another owner. The loans are given on both fixed and floating interests or even as hybrid loans. These kinds of hybrid loans are the ones which include floating interests and fixed interests combined in an ideal way. Almost all the banks give out home purchase loans. This loan includes a little elaborate process when compared to home construction loans.
House Improvement Loan:
House improvement loans are those that are provided when a property has to undergo renovations and other repair works. The kind of expenses that are covered under this includes painting works, repair works both internally and externally, electrical work, plumbing works, waterproofing the house and also when constructing underground tanks or overhead tanks.
NRI Home Loan:
For the application of NRI loans the applicant must be of a minimum age of 25 years and the age limit would 60 years. The applicant must be working abroad at least for a period of 1-3 years. Only a person holding a degree of diploma, graduate, post graduate or any kind of professional degree is eligible. The loan is provided for a maximum of 20 years of tenure and no loans will be provided for office premises.
House Extension/Expansion Loan:
Expansion or extension loans for homes are given out when people tend to expand or extend their present house. This includes addition of an extra bedroom, living room, a bigger bathroom or a new floor or a space for balcony. It is nothing but the modification in the structure of a house.
House Conversion Loan:
These are the loans that are provided to such people who wish to move into another home with the existing loan. If incase the person wants to move into a new place they have an option of moving by paying some extra amount or pre-payment on the prior loan. When this is done there is no need of paying loan for the previous home.
These loans are otherwise called as short term goals which are taken up by owners of a residential property. Bridge loans help people to bridge the space between an old house and a newly purchased plot. These kinds of loans are extended for not less than 2 years which will later require finance documents of the new house.
Balance Transfer Loans:
This is a method of transferring your outstanding balance from your credit card to a new/existing bank credit card. The kind of loans that can be transferred also includes vehicle loans, personal loans etc.
Stamp Duty Loan:
When a property is bought, it is necessary to pay the stamp duty as well, apart from the price of the house. A specific amount of registration fee must also be paid, if the property’s value comes to ten lakhs.
Features and Benefits of a Home Loan
Home loan features are unique as compared to other loans. Few basic features are listed here:
- Purpose: For resale or construction, purchase of fully constructed house from builders, extension or renovation of existing house.
- Loan Amount: Home loans amount totally depends on the requirement; however there is limit is loan amount which is ranging from Rs.2 lac to Rs.200 lac, and this is calculated on applicant’s eligibility, repayment capacity and income.
- Security: All home loans are secured wherein collateral is a must.
- Loan Tenor: 20 years is the maximum loan tenure offered for home loan. Of course, there are a lot of benefits in availing a home loan:
- Increases the probability of acquiring a house. Many, especially in India will not be able to buy a house will full cash readily available. This is where home loan creates an opportunity for low-class and middle-class community to have a home of their own.
- This helps in capital appreciation; there is no doubt property prices have boomed in the past 5 years. Investment in home is always a safe and smart move. The value of land always increases and thus appreciation for your investment can be visibly seen within few years.
- Applicants can avail tax benefit from home loans. Under Section 80CCE of the Income Tax Act, 1961 repayment of principal up to Rs 100,000 on home loan is subject for tax deduction. Once all prescribed conditions are met, this benefit can be availed.
Top Banks for Home Loan
All those who are looking for a home loan will be looking for the list of best banks that offer home loan. We have furnished this list to make things easier for you.
- State Bank of India: Nearly 50% of home loan market is captured by this bank
- HDFC: This bank is known as a home loan banker
- PNB Housing Finance: A subsidiary of the Punjab National Bank.
- ICICI Bank: Very fast in processing and friendly approach
- Axis Bank: Very catchy home loan provider with attractive interest rates
Shall I use my savings to pre-pay my home loan?
Is there an option to get excess fund, then it’s time to check if the home loan is actually life a sword in your life. If the monthly EMI amount is huge, then without any doubt pre-close the loan amount. However, on the other hand if the EMI is a very minimal amount, then it’s fine to retain the home loan to avail tax benefits and make use of the surplus fund for other investments. Also if you interest amount is more than INR 200,000 per annum, there will be no tax exemption, thus it’s wise to pre-close the home loan amount as early as possible. Another available option will be to pre-pay the loan to the extent such that the annual interest will be less than INR 200,000, this was your EMI amount will drop, the interest will be tax free and you will have sufficient surplus of fund for any other type of small investment. On the whole it is advisable to pre-close the loan as early as possible as there is lot of changes in a span of 10-15 years. In case of any emergency situations, it is good to not have huge EMI commitments. Thus consider job security, health issues and any such serious aspects before making any decision.
What is the process to pre-close a home loan in India?
The whole process of pre-closure of home loan can be put into 7 simple steps. If the loan is pre-closed through these steps, the processing will be easy and fast.
- Firstly make a list of all the documents that should be received back from the bank in order to complete the process.
- Then obtain the no objection certificate, this is commonly known as NOC from the bank. This certificate is a clearance certificate from the bank stating you have cleared all the outstanding payments related to the home loan and there is no objection to transfer the ownership. Through this the bank confirms that it has no more interest on the property.
- The third step is to remove lien on property from the registrar office, in case of no lien is created, then it’s not an issue at all.
- Fourth step is to get the CIBIL score updated. The score will shoot up if the loan is repaid without any default.
- Fifth is to get a certificate for legal clearance from a lawyer.
- Then make sure you have a copy of the detailed tracking of loan repayment. This can either be taken through online bank website or directly from the bank officials.
- Finally get a new Encumbrance certificate from Registrar.
Home Loan Pre-closure: Good Idea or a Bad Idea?
Can I get home loan tax rebate on 2 separate home loans in India?
Yes, you can still get a home loan tax loan rebate even if you have two separate properties both registered in your name. Even if the property is in two different cities of India, it is still possible to get home loan tax rebate. However, the limit for both together will be only upto INR 200,000 for the owner of the property. However, only one house can be claimed as self-occupied and the other should be claimed as rented or let-out. Any rent from the let-out property will be considered as part of your income for income tax evaluation for a particular assessment year. If you really want to save tax and not show as let-out then buy the other property on your spouse’s name.
What are the Documents that I should get after closing a home loan?
Basically there are just 5 documents to be received once you close your existing home loan and the list of these documents are below:
- No Objection Certificate (NOC): This is an authorization certificate confirming there is no outstanding due and it is issued by the lending bank assuring that all payments have been settled. It is considered as the important documents to acquire during closure of home loan.
- Retrieve original property documents: Take back all documents from the bank that was submitted while applying for home loan. Check for misplaced or missing pages and documents. If possible, go the bank and personally retrieve your loan documents thus courier delays and problems can be avoided.
- Retrieve Security Cheques: Everyone would have submitted 3-4 security cheques at the time of applying loan to the lending bank. Make sure to take these back after filing necessary documents for the same. This was just shared with the bank for security reasons in case if you default the payments.
- Encumbrance Certificate (EC): An EC is a certificate listing all monetary transactions on your house. Once the home loan is closed, it must reflect in the EC. This is necessary to complete the home-loan closure procedure.
- Get Legal Clearance: Though this is optional, it is advisable to get a legal clearance certificate from a lawyer. In this way, you can be sure that all necessary formalities are completed from a legal stand-point. Also in case of any issues, a lawyer is the best person to make any decision on the same.
Can siblings take joint home loans in India?
Yes, siblings are allowed to take joint loan from any bank for home loan. And with the help of this both can avail tax benefits under Income Tax Act section 80C. However, here are some of the points to be kept in mind while taking a joint loan with a sibling.
- Joint home loan means both will be the owner of the property thus both has rights on the property however if the sibling is just a borrowers then he/she has the right of liability. A sibling can be a co-owner of the property only if you share the liability of the property as co-borrowers, else banks will not consider you as a co-owner. Loan liability and co-ownership percentage can be altered as per each applicant’s requirements.
- In case if siblings are taking a home loan, usually banks will approve the loan amount upto 10 years of tenure. This is the maximum tenure that is offered if siblings are the applicants.
- Under section 24 (interest repayment) and 80C (principal repayment) both the applicants have the right to claim tax benefits on their home loan.
- If you have an option to apply for a joint loan, this option is the best if you are in need of huge amount. As the income and CIBIL scoring of both together will be considered by the bank, thus huge amount will be approved. This way you can be the owner of huge property.
- Pre-EMI option is available even if it is a joint loan. This means both the applicants/ borrowers just have to pay the interest on the loan amount as a pre-EMI until the possession of the property. This works in cases when the property is still under construction, the applicant have the benefit of avoiding the actual benefit until the construction is completed and possession of the property is taken.
- Do a complete research on the joint home loan for siblings as not every bank will allow this. In cases of disputes bank will have to suffer any delayed payments or failure to pay.
How to pick the right Home Loan?
Inflexible terms and conditions and bizarre policies are the attribute of most financiers which every possible borrower should avoid. Only a reliable banker would be able to offer necessary flexibility to loan’s terms and conditions. It is essential to pick the right home loan provider as it is mostly a long duration relationship with an agreement of mutual benefit.
- Processing and Disbursal Speed: Usually a genuine and normal bank takes 10-15 working days to process the application. Once loan is sanctioned, money will be disbursed within 3-5 days. When things fall out of this normal timing, you should rethink and understand what is causing the delay. If all your documents are accurate along with property details, then the bank is lacking something from their end.
- Loan Qualification: The criteria to be eligible for home loan are different in different banks. Factors like job profile, applicant’s age, employment stability, income, credit history is considered with other factors.
- Repayment Terms: Go through the terms and conditions for repayment, only few banks offer partial pre-payment and pre-payment. Do not settle with a bank that does not provide these offers. It can block your fund and growth for a fixed period.
- How much should be Repaid: Calculate the interest rate, tenure and EMI amount to understand how much would you be repaying at the end of loan tenure and accordingly decide with a bank that offers low interest for a decent period with less extra repayment.
- Fixed vs. Floating Rates: Rate of interest is always a worrisome factor. It is upto the applicant to decide whether to go for a fixed or floating rate of interest. In Fixed rates, the rate of interest is locked throughout the life of home loan, this cannot be changed at any time even if the market rate falls or goes up over the coming years. The latter is the right opposite, where the rate is subject to market volatility. If the interest rate in the market falls, you will have to just pay the reduced rates and vice versa.
- Hidden Charges: The thing that pricks the pocket of most money borrowers is this factor. While narrowing down your search to good home loan provider, it is crucial to consider all hidden charges which will be applied by default on the borrowers.
These factors differ from bank to bank, thus it’s essential to compare each of these factor to choose the best home loan provider.
Do’s & Don’ts of Home Loan
There are always dos and don’ts for everything that can be done. Here are few do’s and don’ts of home loan:
- Provide all necessary documentation related to the loan requirement, if you have any current home, including closing statement and sales contract is an add-on
- Keep all original documents handy like pay-slips, bank statements and other financial documents.
- Keep a close watch on your credit rating
- Continue to stay employed in same company or a different one if employment income is used as proof for loan approval.
- Ensure to make payment on all outstanding debt obligations
- Change employer or job without proper inquire about the impact regarding the change
- Huge purchases and outstanding debts will impact the loan approval, thus avoid the same.
- Change legal name, let it stay the same until the approval process is complete
- Don’t borrow from lenders, credit cards or banks during approval process
How can Finance Buddha help you with Home Loan?
Finance Buddha is not just a home loan comparison site, but you can directly apply for a home loan at the best bank. Here you just have to update your details such as current Company, take home salary, existing EMI amount, Salary account bank, loan requirement and tenure, and it will auto-calculate the amount that should be paid per bank interest rates, its processing fees, etc. Once this information is available, it helps you to decide the bank you wish to avail home loan, click on “Apply Now” and share your contact. Bank officials will contact you directly to make your interest executed.
Make use of this information while deciding to go for a house loan. House loans in India are a great way to turn dreams into reality. Also make use of this option to avail tax deductions. Enjoy living in the new property with striking a best home loan deal!
Top Rated FAQs
- Cumulative net monthly salary of the applicant and co-applicant.
- Quantum of loans and credit card outstanding that you already have. Typically a bank will not give a loan if the total EMI obligation (including the current home loan that your are trying to apply for) exceeds 50-60% of your total net take home salary.
- Loan to asset Value (LTV) ratio of 75% which means that the customer has to fund the remaining 25% through his savings or any other source.
- Possible Issue:
Already running several loans and hence a bank may not be comfortable with your existing leverage levels vis-a-vis your salary level.
- Possible Way Out:
a)If you have a spouse who is also working, you can add her as a co-applicant to boost the combined salary levels or
b) Try to pay off some of your debt so that your leverage levels can come down or
c) Do a balance transfer/debt consolidation/re-financing of your existing loans such that the rate of interest on loans can also come down and additional loan can also be provided
- Possible Issue:
Issues in your credit history as reflected in your CIBIL, Equifax reports.
- Possible way out:
a) If the issue is a minor one like some delay in payment of credit card due then we can try your application in some other bank who can possibly take a lenient view on the deviation.
b) If you think that the credit report is erroneous and you have sufficient documentary proof we will represent the case to the bank and try to convince the credit team.
c) If the issue is a major one like write off, settlement of any past dues etc then it might be difficult to obtain a loan. Certain mitigation factor like if you/your spouse/your parents have an own house in India can give comfort to certain banks to give you a loan.
- Possible Issue:
Most banks have certain internal credit parameters to evaluate a loan which is kept confidential and not shared with us. Several demographic, financial and credit aspects go into these internal evaluation. You might not have met the minimum cut off for obtaining a loan.
- Possible way out:
Finance Buddha can re-apply for your loan in one of the other 10 plus lenders that we are affiliated to
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