Introduction
Types of Home Loans:
- Basic Home Loan: It is the most common type of home loan to purchase residential property. As the name suggests, this financial tool can be used to purchase a house that can be newly constructed, under-construction or even pre-owned. The lender will finance a maximum 80% of the property value or agreement value (whichever is lower). The rest has to be paid as down payment by the borrower.
- Home Extension Loan: It may be possible that you already own a home. However as the family grows, there will be a need to add extra rooms or extend the hallroom or bedrooms. For this purpose, Home Extension Loan is a possible financing solution. A subcategory for this is the Home Renovation or Home Improvement loan which can be used to fund the repair of tiles, fixing of pipes or even painting the walls.
- Home Construction Loan: If you do not wish to buy an existing residential property, there is an option for home construction loan. With this type of financing, the borrower can construct a house on land pre-owned by them. The monthly payments are divided as per the progress of construction.
- Balance transfer Home Loan: Suppose, you have an existing loan with Bank A, and you’re paying a high interest rate. Bank B offers you a lower interest rate and better repayment options. Instead of starting a new loan, you can switch your existing loan to Bank B by transferring the outstanding balance. Bank B might be providing you with better customer support that will remove the burden of repaying the home loan. They can even have an option to pay at your convenience or with lower interest rates. But this should be a calculated decision as the new lender might even charge you with processing fees that will lower your overall benefits.
- Plot or Land Loan: Just as you can opt to buy a residential property, you can also purchase a plot of land (Non Agricultural land) to construct a house according to your needs. To finance this purchase of Land, a Plot loan is taken. You can apply for it alongside a Home Construction Loan and hence secure lower interest rates.
Benefits of Home Loan:
- Property value appreciation: Taking a home loan and purchasing a residential property is not just an emotional decision – It is also a financial investment that is likely to grow in value a few years down the lane. The capital appreciation of house property can be significant especially in high-demand or developing areas. In many cases, the value of the property after a few years is considerably higher than the cost of the loan, giving you excellent returns on investment.
- Allows the borrower to have liquid assets: If you buy a home without a Home Loan, you might be putting a lump sum amount of money in an illiquid asset. Any unforeseen circumstances can lead to cash crunch and there will not be any savings left for emergencies.
- Improve your CIBIL or credit score: Taking a Home Loan builds financial discipline. That being said, if all the installments of a Home Loan are repaid on time, it can have a positive influence on the Credit or CIBIL score. Lenders assess your creditworthiness by checking at your past records of debt repayment.
- Plenty of Tax benefits:
One of the most significant advantages of taking a home loan in India is the array of tax benefits available:
- Under Section 80C: You can claim a deduction of up to ₹1.5 lakh per year on the repayment of the principal amount.
- Under Section 24(b): You can claim a deduction of up to ₹2 lakh per year on the interest paid on your home loan.
These deductions significantly reduce your taxable income, thereby lowering your annual tax liability and resulting in substantial savings over the loan tenure.
- No prepayment charges: Most banks and financial institutions do not levy any prepayment penalties on home loans with floating interest rates. Borrowers can repay the full or part amount ahead of the schedule without incurring any additional costs. Early repayment can shorten the loan tenure and give significant financial benefits in the long run.
Documents required for a Home Loan:
HOME LOAN / LAP
1. PAN CARD
2. AADHAR CARD
3. ELECTRIC BILL(IF APPLICANT IS ON RENT THEN RENT AGREEMENT AS WELL AS PERMANENT RESIDENCE PROOF)
4. 1 YEAR BANK STATEMENT
5. LEGAL TECHNICAL CHEQUE
IF SALARIED
1. 3 MONTHS SALARY SLIP
2. 3 YEARS FORM16
IF SELF EMPLOYED
1. 3 YEARS ITR
2. GST CERTIFICATE
3. 1 YEAR GST RETURN
IF PURCHASING PROPERTY FROM SOMEONE ELSE THAN BUILDER
1. FULL CHAIN SALE AGREEMENT
2. OC
3. CC
4. SHARE CERTIFICATE
5. MAINTENANCE COPY
6. APPROVE PLAN
7. INDEX 2
If you require any further details, you can reach out to us and we will be happy to guide you!