What is a Home Loan?
A Home Loan is a secured loan wherein the bank or lender lends you money to help you purchase your dream home. It is given for a longer tenure than the Personal Loan and Business Loan because the Home Loan amount is higher than other unsecured loans.
Perpose of a home loan
Buying Under-Construction / New
or Resale Property
Renovation and Extension of Exiting
Refinance of Existing Home Loan
Loan Service Providers associated with 3M
As per norms, all the banks and NBFCs finance 80% to 90% of the agreement value of the property. As per RBI circular, banks do not fund Stamp Duty and Registration Charges anymore. This means that your Down Payment will have to be at least 10% – 20% of the agreement value of the property plus 100% of other costs such as Stamp Duty, Registration Charges etc.
The final loan amount is dependent on the factors like income and regular outgoings, existing loans, repayment track record, valuation of the property by the bank or lender etc.
To increase the eligibility amount, you can add the earning of your parents / spouse / children and in some cases, earning of brothers, as co-borrowers to the loan or your rental incomes etc.
Current rate of interest is @ 6.65% to 7%
Some of the financial institutes offer pure ‘Fixed’ interest rate that remains fixed for the entire tenure of loan or for certain period. Nowadays, some lenders offer ‘Dual Rate’ where the interest rate remains fixed for certain tenure like 1 – 10 years and then gets converted to floating rate of interest.
In ‘Floating’ rate, the interest rate fluctuates with market conditions. The rate of interest is tied up with the Base Rate (BR) of the bank or Prime Lending Rate (PLR) of the Housing Finance Companies and gets affected whenever there are changes in the Repo Rates announced by RBI or any changes in Base Rate / PLR of the lender.
Almost all the banks and NBFCs are offering maximum tenure of 30 years but it is also restricted by the borrower’s age at the end of the tenure so as to ensure that the loan repayment ends on or before the retirement age of the borrower which is usually 65 years for salaried and 70 years for self-employed borrowers.
Foreclosure Charges are NIL as per RBI Circular if the loan applicant is an individual and if a company or a firm is involved, it may be applicable. Again, this depends from lender to lender.
To initiate the loan process, the lender will require the Loan Application Form signed by the applicant and co-applicants along with a photograph
- Proof of Identity – PAN / Passport / Driver’s License / Voter ID Card / Aadhaar Card etc.
- Proof of Address – Passport / Aadhaar Card / Landline Telephone Bill / Electricity Bill / Ration Card etc. if Rented, Rent Agreement along with the owner’s Electricity Bill
- Latest 3 months pay slips
- 2 years form 16 or 2 years Job Continuity Proof
- Statement of bank account for the last six months’ salary credits
- If any previous loan, then Loan A/c. Statement for last 1 year with sanction letter
- IT returns – last 3 years
- Audited Balance Sheet & Profit & Loss A/c Statement – last 3 years
- Proof of Turnover vide latest sales / service tax returns
- Proof of Continuity of Business (Trade License / Establishment / Sales Tax certificate)
- Office Address Proof
- Qualification or Registration Proof required for Self-employed Professionals
Chain of Sale Agreements if it is a resale property with Draft Agreement if it is a builder purchase. Occupancy Certificate and Approved Plan or Commencement Certificate.
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Home Loan is an amount funded by a bank or lender to an individual or a firm for buying a residential property. Here, the lender keeps the original title and the original relevant documents until the loan is repaid. It is generally of a longer tenure from 5 to 30 years.
Anyone — whether self-employed or salaried professionals — with a regular source of income can get the Home Loan. One must be 21 years old when the loan period begins and should not exceed an age of 70 years when the loan period closes. The loan tenure for Home Loan is 5 to 30 years.
To determine your repayment capacity, the lender considersa few factors which decide your eligibility and the tenure.
- Income (savings history)
- Age Proof
- Qualification (stability and continuity occupation)
- Resident Status (maximum limit for an Indian resident is Rs. 50,00,000)[Rs. Symbol]
- Spouse's Income
- Number of Dependents
- Credit History (history of past repayment)
- Existing Loan Status
Floating Rate of interest fluctuates with the market condition and is linked with the base rate of bank. Interest rate keeps changing as per the changes in bank base rate.
Fixed Rate Home Loan are at a predetermined interest rate during the loan tenure, irrespective of market conditions. For instance, if the bank reduces or increases their base rate, your Interest rate doesn’t get affected. Youdon’t get the benefit of reduction in rates nor have you to suffer if the rates increase. Your rate of interest remains fixed.
There are many ways to repay your loan like by issuing PDCs (Post DatedCheques) for the entire tenure or by giving standing instructions to the lender for ECS which automatically deduct your EMI from the bank.
Yes - you can do the prepayment as per the circular given by RBI.If the loan is taken in the name of an individual there is no pre-payment charges. Few lenders have lock-in period for Home Loans like 6 -12 months and after that there are no charges. If the loan is taken by self-employed and a company is involved in the loan, there are pre-payment charges. This depends from lender to lender.
Processing Fee – Initially, while applying for Home Loan, you need to give a Cheque of Processing to the lender. It could be either a percentage of the loan amount or any fixed amount.
Pre-payment Charges - Bank or lender might charge you pre-payment charge,however, if it is on an individual's name there is no charge for the loan.
Franking Charges - Once you sign the agreement of approval of your Home Loan, there is a Stamp Duty charge.To make your agreement authentic, the bank or lender does franking on the agreement. Franking charge is between 0.2%-0.3% of the loan amount.
The tax benefit on Home Loan is divided into two sections-
Repayment of the Principal Amount- It is considered under Income Tax Section 80C with a maximum tax deduction of Rs. 1,50,000.
Repayment of the Interest Rate- Under Section 24 of Income Tax Act, you can avail the tax benefit on the amount to interest paid on Home Loan to a maximum limit of Rs. 2 Lakhs.