[2022] What is Home Loan? And It’s Types

What is Home Loan?

This is a type of loan, which is taken for the construction or purchase of a house. Home loan is also available for home improvement or repairs. Also to buy land or plot to build a house. Banks or financial institutions issue home loans. Home loans can be availed for a maximum tenure of up to 30 years. Later it has to be returned with interest. You can return it in installments. You can also return the lump sum after a certain period as per your convenience.

What are the Types of Home loan

According to the purpose of the home loan

Home Purchase Loan

You can take a home loan to buy a pre-constructed house or flat. The house can also be taken from an individual, or from a builder or developer or even from government housing construction agencies. This is the most popular type of home loan. You buy a house by taking money from the bank and later pay it off with interest.

Home construction loan

If you do not want to take a ready-made house, but want to build a house of your own kind, then a home loan is also available for this. This is called home construction loan. Since the house is not yet built, the quantum of this home loan is decided according to the estimated cost of construction of the house.

Composite Home Loan

In a composite home loan, you are issued a loan for two types of home related work at the same time. Like you have to buy some land and also need money to build a house. So the bank issues a lump sum loan for both the works. It is called composite loan as it is used for multiple purposes at the same time.

Land purchase loan

Yes, even if you are not thinking of buying or building a house now, then you can buy land for it and put it. Banks also give home loans to buy such land. And it is not necessary that you should build a house on it later. You can also buy it as an investment and later sell it at a good price. This is called land purchase loan.

Home Loan For Home Repair

You are looking to get a new improvement done in your old house itself. For example, if you want to build a bathroom, a kitchen or a garage or a room, you can also take a home loan for that. This is called home extension loan. Similarly, if you want to get any part of your house repaired, then a home improvement loan is also available for that.

Joint Home Loan

When two or more people take a home loan together, then it is called joint home loan or joint home loan. You can take a joint home loan only with your husband, wife, parents or son or daughter. That is, it is mandatory to have a marriage or blood relation between the two.

Top Up Home Loan

If you have already taken a home loan, but later you understand the need for some additional loan, then you can also extend some additional loan. This is called top up home loan. Top up loan, you can take for home renovation or extension of the house. Apart from these, you can also top up your home loan for any domestic work. For example for child’s education.

Home Loan Balance Transfer

You can also transfer your home loan to another bank if you are not happy with the terms of your previous home loan or the interest rate or lending institution. Most of the banks offer home loan transfer facility. Once the loan is transferred, you will have to pay the loan installments as per the interest rate and rules of the new bank. However, the new bank will also charge some charges for loan transfer.

Bridge home loan

If you want to get a new house before selling your old house, then banks also give bridge loan for this. Based on your old house, the bank releases some amount as a loan to meet the down payment and initial expenses for the new house. When the old house is sold, you pay the cost of the new house. And return the bridge loan received from the bank with interest and other expenses. Bridge loans are available for a short period of time and the interest rate is much higher than that of a normal home loan.

NRI Home Loan

Home loans are also given by banks to citizens living abroad to buy and build property in India. For this, the applicant must have any one of the following status-

  • Non Resident Indian (NRI)
  • Person of Indian Origin (PIO)
  • Overseas Citizen of India (OCI)

One has to produce suitable passport, visa, employer ID card, work permit, foreign residence certificate, etc. as proof of one’s own NRI.

According to interest rate of the home loan

  • Fixed Rate Home Loan
  • Floating Rate Home Loan

Fixed Rate Home Loan

In this, the interest rate of your loan remains the same at all times. Whatever is the interest rate at the time of home loan issuance, you have to pay the same interest rate till the entire home loan is repaid. In the market, it is not affected by the fluctuating interest rates.

The advantage of a fixed rate home loan is that you do not have to pay much interest when the interest rate increases in the market and the disadvantage is that you cannot get the benefit of a cheaper rate of interest when the interest rate decreases in the market.

However, there are only a few banks that offer home loans at a fixed rate for the entire tenure. Most banks change the home loan interest rates over a fixed period (3 to 5 years).

Floating Rate Home Loan

The interest rate of this type of home loan is not always the same or fixed. These keep on changing according to the fluctuations in the interest rates in the market. When the interest rate increases in the market, then you will also have to pay your installments with the increased interest rate. Similarly, when the interest rates are low in the market, you will also have to pay your home loan installments with a lower interest rate.

The advantage of a floating rate home loan is that you will also have to pay a lower interest rate when the interest rate drops in the market. Interest rates have come down in the last few years. However, you may be at a loss when interest rates rise in the market, as this will also result in you paying your home loan installment with higher interest.

Home Loan Benefit

If you get both the work done by the same organization then you will not have to go round different institutions. The bank from where you had taken the home loan, the same bank will also complete your rest of the formalities. In this way this process will become very easy.

Along with giving the home loan, the bank or financial institution will pay your premium to the insurance company. This way you will not need to pay a separate premium.

The process is much easier than buying insurance separately.

Your bank will assist your family in making the claim (completing the application process and submitting the required documents) if needed.
Now after knowing all this, it is very important that before signing the home loan insurance paper, read the terms and conditions of the home loan insurance paper carefully and also understand what are the benefits and the expected loss to you on the home loan. could be from.

Protection against unfortunate circumstances, a simple insurance can provide you protection against fire, but a life insurance covers you against death and disability.

Flexibility in premium payment, a one-time single premium provides protection for the tenure of your home loan. It is cheaper in the long run, on the other hand, regular premium paying plans may be easy on your pocket, but not paying the premium on the due date can be costly.

Linked to home loan, loan for under construction house is repaid in a phased manner. The insurance cover should be at least equal to the sanctioned home loan amount and tenure so that not only does the house become complete, but your family also gets it on time.

Security in Home Loan Tenure You might want to take insurance cover of lesser amount and tenure in the hope of prepaying the home loan, but remember if your policy expires before your home loan, you may get a new home loan May have to take cover. In that case you may have to pay a very high premium.

Documents Required to Get Home Loan

Along with the Home Loan Application Form, you also have to provide some important documents. These documents are generally the same for all banks and loan institutions.

However, certain documents may increase or decrease depending on the specific loan schemes, the purpose of the loan and the credit profile of the applicant. The details of the home loan documents required for home loan are given below:

Home Loan Application Form

  • Passport size photo
  • Proof of Identity: PAN Card, Passport, Aadhar Card, Voter ID and Driving License (photocopy of any one)
  • Proof of Age: Aadhar Card, PAN Card, Passport, Birth Certificate, 10th Class Marksheet, Bank Passbook and Driving License (copy of any one)
  • Proof of Residence: Bank Passbook, Voter ID, Ration Card, Passport, Utility Bill (Telephone Bill, Electricity Bill, Water Bill, Gas Bill and LIC Policy Slip (Copy of any one)
  • Income Proof (For Recruitment) – Copy of Form 16, Fresh Payment, IT Returns (ITR) for the last 3 years and Investment Proof (if any)
  • Proof of Income (For Self Employed): Income Tax Return of last 3 years, Balance Sheet and Profit and Loss information of Company/ Firm, Business License and
  • Proof of Business Address
  • Documents related to the property: NOC from the society/builder, detailed estimate of the cost of construction, registered sale agreement, allotment letter and copy of approval to the building plan

How to increase your eligibility for home loan?

Home loan applicants can increase their eligibility by following the steps given below:-

  • Improve Credit Score: A good credit score increases the chances of your loan application being accepted as well as the chances of getting a loan at low interest rates. Pay EMIs and credit card bills on time to improve your credit score. Keep the credit utilization ratio below 40%.
  • Give more down-payment: Banks give loans from 75% to 90% of the value of the property being purchased. This means that the remaining 10% to 25% will have to be arranged by the borrower himself as down payment. So try to pay as much down payment as you can. With this you will have to take less loan amount from the bank and the risk of the bank will be reduced and your loan eligibility will increase.
  • Add a Co-Borrower Together: Add a co-borrower to your loan application who earns and has a good credit score. This will increase your eligibility for the loan. By taking a joint home loan, you can get more amount at lower interest rates.

What is the credit score required to get a home loan?

Banks and loan institutions consider a credit score of 750 or more to be good. Applicants with a credit score above 800 are more likely to get home loans at lower interest rates. The higher your score, the higher the chances of getting the loan application accepted.

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