Home Loan. Types of Home Loan, Eligibility, Credit Score, and Other Information on Home Loans

Updated: Aug 30,2019 14:02 IST

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Home Loan is one of the major type of loans being availed by individuals who are looking forward to buy or renovate or extend a house. Home Loan also comes as a major source service provided by banks across India. Home Loans are of different types and more details on Eligibility of home loan, its Advantages, CIBIL Score, etc are given in the article.

Overview of Home Loan 

Owning a property or a house is a dream for every individual due to many reasons. The constant and steady purchase of properties in the past few decades has resulted in a drastic increase the price of properties. This in turn makes the dream of buying a own property seems impossible. To overcome this, many have opted to go in for home loans offered by banks and NBFCs (Non Banking Financial Company).   Many banks have provided bank loans with attractive interest rates. Nowadays, it is easy to obtain a home loan through minimal procedures. The loan tenure are also flexible these days, helping more people purchase their own house. 

What are the Types of Home Loan?

Those who are looking forward to buy a new property i.e. a house or plot or a land with the aid of bank home loans can avail any of home loans offered by banks. Banks have come up with broad categories of home loans to meet the specific needs of the customers. An individual can compare the rates and offers of each home loan and opt the suitable loan. Check the few of the home loans offered by banks below.
  • Home Purchase Loans
    • This loan is availed for buying residential property and loan of 80-85% of the market value of land is sanctioned. 
  • Loans for Land/Plot Purchase
    • Loan given to buy a land or plot purchase upon which the applicant is looking forward to build a house.
  • Home Loan for Construction
    • Those who own or co-own a plot and looking forward to built a house on that plot can avail Home Loan for Construction.
  • Home Loan for Extension/Renovation
    • Residents who wishes to extend or renovate their existing house can go in for Home Loan for Extension/renovation.
  • Home Conversion Loans
    • Those having an existing home loan and also wish to move to a new property avail a home conversion loan to buy a new house.
  • NRI Home Loans
    • This loan is being availed for the non resident Indians who are willing to buy residential property in India. It is more or less same as regular home loan but paperworks being much complicated.

What is the Eligibility Criteria to Avail a Home Loan?

There are number of banks who come forward with good offers and provide home loans. But, they set certain eligibility on which they approve the home loan applied. Eligibility to avail Home Loan is determined by the bank and differs for each bank. Here are some Home Loan Eligibility Criteria that are most common in most of the banks. The eligibility criteria is based on the following factors.

  • Age of the Applicant

  • Income of the Applicant and Co-applicant

  • Family Details

  • Employment/Business

  • Qualification

  • Professional Experience

  • Past Loan Record

  • Details of Assets

  • Investments

The bank checks the above given criteria before approving home loan and only eligible candidates are sanctioned with loan. Apart from all these, bank checks the CIBIL Score of an individual. The eligibility criteria for the salaried and self- employed applicants are provided in the below table.

Eligibility Criteria

Salaried applicants

Self-employed applicants

Age

21 years to 60 years

24 years to 65 years

Employment

Minimum 2 years of experience

Minimum 5 years of experience

Co-applicant

Not mandatory. If needed, then the family members can be mentioned

Not mandatory. If needed, then the family members can be mentioned

Credit score

750 or above

750 or above

Maximum loan on property value

Upto 90%

Upto 90%

Maximum EMI per income percentage

Upto 65%

Upto 65%

What are the Documents Required to Apply for Home Loan?

If you are to apply for Home Loan you should be first aware that the paperworks play an important role. Before going on with the process make sure you hold all the necessary details that are required and to be submitted in the bank. The main documents required for applying for a home loan are listed below.

  • Photo ID

  • ID for Age Proof

  • Passport size photograph of the applicant

  • Filled in Application along with the Applicant’s photograph and signature

  • Cheque for the Processing Fee

  • Bank Statement - Last 6 months

  • For Salaried Employees - (i) Pay Slip of Last 3 months; (ii) Form 16 or Income Tax Returns

  • For Self-Employed Applicant - Income Tax returns of last three years

  • Applicants should furnish details about investment details like fixed deposits, shares, etc.

One can submit any one of the proof which are given below.

For Identity Proof:

  • Driving license

  • Ration card

  • Passport

  • PAN Card

  • Voter ID

  • Employee ID

  • Bank passbook

For Proof of Age:

  • PAN Card

  • Birth certificate

  • Bank passbook

  • 10th class marksheet

  • Driving license

  • Passport

For address proof:

  • Ration card

  • Voter ID

  • Bank passbook or bank statement

  • Passport

  • Electricity bill less than two months old

  • Water bill less than two months old

  • Gas bill less than two months old

  • LIC policy receipt

  • Letter from authorized public authority showing applicants’ residential address

For income proof:

  • Form 16

  • Certified letter from the current employer

  • Pay slip of last two months

  • Promotion letter

  • IT Returns of last three year

What are the Types of Home Loan Interest Rates?

Applicant who is applying for Home Loan should be well informed on the Interest Rates of Home Loans by each bank. Interest rates on Home loan is based on the economic conditions, eligibility, and also personal credit history. There are banks which provide lower interest rate offers and but make other charges like processing fees, pre-closure charges, etc to be more. So before availing for Home Loans a good market research on Interest rates and other charges should be made by the applicant and then go forward to apply. Home Loan Interest rates are of two types and the borrowers can choose the one which suits his or her need.

  • Fixed rates of interest- constant throughout the tenure

Fixed rate of interest means that rates of interest related to the home loans remains the same throughout the tenure of the loan. The amount to be paid towards the interest is constant throughout the loan period. Fixed rate of interest is always 1 to 2.5% high when compared to the floating rate of interest.

  • Floating rates of interest- gets reset with the altering market conditions

Floating rates of interest of home loans changes based on the market conditions. Mostly borrowers prefer floating rates of interest as it is low comparatively with fixed rates. It comprises of the base rate plus floating rates. When there is change in the base rate, then the floating rates also changes.

Home Loan Checklist

The applicant before applying for Home Loan should check for few common parameters.  By satisfying all the eligibility criteria and providing all the necessary details and documents, one can easily obtain a home loan. The home loan checklist are given below for your easy reference.
  • First, the CIBIL Score 
  • Second, the Interest Rates and other charges
  • Third, the individual’s eligibility, necessary documents, etc. 

What is the CIBIL Score for Availing Home Loan?

The first major criteria a bank looks up on before processing your loan application is your CIBIL Score. The CIBIL Score is issued by  Credit Information Bureau of India Limited (CIBIL). CIBIL score is the numerical representation of your credit worthiness. It ranges between 300 and 900 with 300 being the lowest range and chances of loan approval is minimal with this score. A CIBIL score of 750 and above puts you in good credit worthiness zone and loans applied for are easily approved by bank. You can always improve your creditworthiness and increase your CIBIL score by paying all EMI amount promptly on time. Increase your CIBIL score and enjoy the benefit of hassle free loan processing in the future.

What are the Advantages of Home Loan? 

Obtaining a home loan helps you to achieve your dream of owning a property. Many banks and financial institutions are now providing varied home loans and people have a choice to select according to their necessity. The advantages of home loan are listed below.
  • With wide range of Home Loans provided one can opt a suitable home loan.
  • Home Loan Interest rates are lower than Personal loans
  • Home loans have certain tax exemptions and an individual can save an amount of income tax that is being paid.
  • Home loans of up to 80% are being sanctioned by banks.

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