What is a Home Loan? Explain Types, Eligibility, and Features.

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Everyone dreams of purchasing a new house. Being an owner of the house sets your status in society, and it reflects your financial accomplishment in India. Fulfilling this dream requires much of your hard work. A house loan helps you fulfilling your dream of buying a house, as it provides you financial assistance needed to buy a new house.

What is a home loan?

A home loan is an amount a financial institution provides you to help you buy a new house. Here the property that you are buying becomes the collateral for the loan. The amount borrowed from the bank has to be returned with interest in the form of EMIs within the specified time period.

You can purchase a home loan to buy a new house/flat or a plot where you will construct a new house and also for the renovation, repair, and extension of your current house. Many banks and housing finance companies offer home loans.

Types of home loans:

The various types of home loans offered by various financial institutions are as follows:

1) Home construction loan:

This type of loan is helpful when you have a plot of land and are planning to construct a new house on that plot. A home construction loan will provide you with financial assistance in the construction.

2) Home extension loan:

Suppose you already own a house and are willing to expand your existing house by constructing another floor or adding an extra room to accommodate your expanding family day by day, then the home extension loan will be of great help. This type of loan provides financial support when you are in need of extending your existing house.

3) Home improvement loan:

When you are planning to renovate your house, and you need financial support, then you can apply for a home loan, that is for a home improvement loan. Renovation of a house includes painting the interior or exterior, changing the electrical system, waterproofing the ceiling, doing any plumbing work, etc.

4) Home loan balance transfer:

Suppose you find the interest rate of your existing home loan too massive, or maybe you are not satisfied with the service provided by your existing lender, then you can transfer the outstanding balance of your home loan to one of the best home loan lenders that offers you with the best interest rate and satisfactory services.

5) Composite home loan:

When you need a loan to purchase a plot of land and also to build your house on that land, then a composite home loan provides you with financial support for both purposes just with a single loan.

Eligibility for a home loan:

Every home loan finance company and the bank maintains a list of eligibility criteria for home loans. The criteria that are looked into are as follows:

  • Age of the applicant
  • Type of employment, whether self-employed or salaried
  • Minimum annual salary
  • Mortgage 
  • Margin requirements
  • Assets and liabilities
  • Financial stability
  • Occupation security
  • The residential status, that is, whether Indian or non-resident of India
  • Your credit history. In order to get your home loan sanctioned, your credit score has to be 750 or above.

Being aware of the eligibility criteria when a home loan is applied online or offline makes the journey hassle-free.

Documents required for a home loan:

The documents required for the best housing loan are as follows:

For agriculturist:

  • Filled application form along with a photograph
  • Identity proof
  • Address proof
  • Bank statements for the last six months
  • A cheque for the processing fee
  • Copies of title documents of agricultural lands that will represent the landholding 
  • Copies of title documents of agricultural land representing the crops that are cultivated
  • Loan statements for the last two years. 

For salaried borrowers:

  • Application along with a photograph
  • Identity proof 
  • Address proof
  • Bank statements for the last six months
  • A cheque for the processing fee
  • Newest salary slip
  • Form 16

For self-employed professionals:

  • Application form with a photograph 
  • Identity proof
  • Address proof
  • Bank statements for the last six months 
  • Educational qualification certificate
  • Business proof
  • Income tax return for last three years and business profile
  • Last three years’ profit/loss 
  • Balance sheet

Features of home loan:

When you apply for a housing loan following features should also be considered in addition to the interest rate 

  • Redraw facility: With this facility, you can have access to additional funds in your loan; if in case you require extra money, it will be up to the amount of additional repayments. Byt the fixed rate home loans do not provide this facility.                                            
  • Parental leave: With this feature, you can reduce or defer the repayments of the loan for a certain time period that is agreed on after the birth of a child or the adoption of the child. During this time period, interest is usually charged on your home loan, and there can be an extra fee to enjoy this facility.
  • Additional repayments: With this facility, you can increase your repayment of the home loan, and this, in turn, will reduce the interest rate of your best home loan, and even the term of loan repayment will reduce. Few lenders apply a limit to the additional repayment for a specified time period or do not have the provision for additional repayment.
  • Repayment holiday: Many financial institutions provide either full or partial repayment holidays that are for a specified time period. During this repayment holiday period, you do not have to make the payment, but the interest rate is still applicable to your home loan amount. In order to avail of this facility, you need to either make an advance payment or increase your repayment amount. 

Be aware of some of the features mentioned above in order to opt for a satisfactory and instant home loan.

Conclusion:

Thus, a home loan plays a major role in your life to help you fulfil your dream of purchasing a house by providing you with financial support. And the above information provides you with a comprehensive guide to the selection of the best house loan as per your requirements.

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