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Everything To Know About Home Loan – Step-By-Step Guide to Home Loan

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Everything To Know About Home Loan

Everything To Know About Home Loan For the majority of people, owning a home is a lifelong dream come true, but it’s also a costly endeavour. To make such a dream come true, buyers must put in a lot of effort, and the best way to do so is to get a home loan. It is possible to use a home loan to buy a new house, flat, or plot of land, as well as to renovate, extend, or repair an existing home. Most people who want to buy a house do so using this type of loan. You can get a home loan from a housing finance company, a public bank, or a private bank, and pay it back in monthly instalments to get the house of your dreams. Depending on the market value of the home, you may be able to finance between 80% and 90% of the purchase price. The lender will keep the house as collateral until the loan is fully repaid.

Types Of Home Loan

  • Home Construction Loan

If you already own a plot of land and need financing to build a house on that land, this is the right type of home loan for you.

  • Home Extension Loan

For example, you already own a home and you want to expand it to accommodate your growing family. This can be done with a home extension loan.

  • Home Improvement Loan

A home improvement loan can be used to pay for a variety of home improvement projects, such as repainting the interior or exterior of the house, installing new plumbing or electrical wiring, or waterproofing the ceiling, among other things.

  • Home Loan Balance Transfer

Transferring the outstanding balance of a home loan to a new lender can save you money if your current interest rate is too high or your current lender’s service is subpar. You can even look into the possibility of getting a top-up loan on your current one when you transfer.

  • Composite Home Loan

Building a house on your plot of land is possible with this kind of home loan because it covers both your land purchase and construction costs.

Benefits Of Taking Home Loan

  • Tax Benefits

Sections 24, 80C, and 80EEA of the Income Tax Act provide a number of tax deductions for home loans, making them one of the most tax-efficient financial instruments. If a home loan borrower meets the eligibility criteria, he or she can deduct up to Rs 5 lakh in total interest and principal repayments from his or her taxable income under Section 80C, Section 24, and Section 80EEA, which can reduce their taxable income by up to Rs 1.5 lakh if they are in the 30% tax bracket.

  • Opportunity To Grow Your Fund

To save money on taxes, even if you can afford to buy a house with your own money, you may prefer to get a home loan. As a result, you’ll be able to put your money to work for you. Floating rate home loans, for example, have interest rates currently ranging from 7.9% to 8.3% per year, depending on your credit score, loan amount, and term. Currently, lenders are offering record low-interest rates as a result of the RBI’s instruction to connect retail loan rates to an external benchmark such as the repo rate.

  • Liquidity Benefit

With an 8 percent interest rate, let’s say you have a home loan with an annual interest of Rs 3.5 lakh, and you’re able to claim all of Section 24 and Section 80EEA deductions for that year’s interest. To put it another way, if you fall into the 30% tax bracket, you can save up to Rs 1.05 lakh. So, your home loan interest rate would be just 5.6 percent per year. It is possible to earn an annual return of 7.5% – 10% by investing your own money in a variety of financial instruments. It’s possible to lower your home loan interest rate by saving tax and increasing the return on your own money, which means you’ll have more money in your pocket to invest in the future.

Personal loans and collateralized loans carry higher interest rates than home loans when you’re short of cash. So, what’s the point of using your own money and being strapped for cash in order to buy a house? In the face of life’s unexpected twists and turns, your money will be there for you.

  • Due Diligence Of Property

To minimise your risk, banks conduct thorough due diligence before approving a loan. Prior to approving a loan, they check the project’s title, legal clearances, and related documents. Because the bank has already given its blessing to the project, getting a mortgage from them is safer than getting one from an unapproved lender.

  • Long Repayment Tenures

Home loans, in contrast to other types of debt, have a much longer repayment period, often ranging from 25 to 30 years. This is because purchasing a home necessitates a substantial loan.

The burden on the borrower is reduced when the loan amount and interest are spread out over a longer period of time.

  • No Penalty For Prepayment.

It’s possible to prepay your floating-rate mortgage whenever you have a large sum of money available without incurring a penalty. A shorter loan term is an advantage in this situation.

  • Facility For Transferring Financial Assets And Liabilities

A variety of factors, including the interest rate, fees, and customer service, can lead you to transfer your home loan from one lender to another.

Home Loan Interest Rates

As of March 2021, the average interest rate on a home loan in India is between 6.5 percent and 12.00 percent. Since the RBI-prescribed repo rate, inflation, and economic activity are all factors that affect rates, they can be quite variable.

Women, bank employees, and the elderly are all given a 0.05 percent discount on their home loan interest rates by some banks.

A home loan’s interest rate can be fixed or floating, depending on the type of loan. For as long as the bank specifies, the interest rate on a fixed-rate mortgage will not change. This type of mortgage is not affected by changes in the market.

Floating-rate home loans have an interest rate that fluctuates with the market. The borrower may or may not benefit from this arrangement.

Home Loan Eligibility

For home loans, banks have a list of requirements. Banks use a person’s credit history to get a sense of their ability to pay back loans. A credit score of at least 750 is generally considered desirable for a loan application. Other important considerations include the following:

  • Age
  • Employment Type
  • Minimum Annual Salary
  • Collateral Security
  • Margin Requirements
  • Liabilities, Assets, stability, and continuity of occupation
  • Residency status

Documents Required For Taking A Home Loan

  • Application form of home loan
  • 3 passport sized photographs.
  • Id proof
  • Address proof
  • Bank Passbook (atleast last 6 months).
  • Signature of the applicant.
  • Personal Assets.
  • Documents of property
  • Salary Certificate
  • Form 16/IT Returns for the past 2 financial years.
  • IT Returns/Assessment Orders copies of the last 3 years. (self–employed professionals)
  • Challans as proof of Advance Income Tax payment. (self–employed professionals)
  • Proof of business address for non-salaried individuals. (self–employed professionals)
  • IT returns/Assessment Orders copies of the last 3 years. (Self – Employed Businessmen)
  • Challans as proof of Advance Income Tax payment. (Self – Employed Businessmen)

Home Loan EMI Calculator

To put it another way, an EMI calculator is a simple but useful tool for determining how much money a borrower must pay back each month to the lender (bank). Using Home Loan EMI Calculator, you can get an idea of how much money you’ll have to put down each month for a specific loan amount, which will help you figure out how much you can afford to pay.

To use the home loan calculator, simply enter the desired principal loan amount (P), the desired loan term (N), and the desired interest rate (I) (R).

How To Apply For A Home Loan?

Thanks to the various channels now available as a result of technological advancement, getting a home loan has never been easier. There are two ways to apply for a home loan: in person at a bank branch or online.

In order to process your application, the bank will require you to provide copies of the necessary documentation. CIBIL score, the value of the asset, eligibility calculation based on your income and liabilities, and more are all included in the initial processing of your application.

Banks make a decision on whether or not to approve a loan after thoroughly examining and verifying all supporting documentation.

Frequently Asked Questions [FAQs]

Q1. In the case of a home loan, who can be joint borrowers?

Answer: An immediate family member, such as a spouse or children, can be a co-borrower on a home loan.

Q2. What is the floating interest rate?

Answer: Floating interest rates mean that the interest rate changes with changes in the repo rate of the Reserve Bank of India.

Q3. How to use a home loan EMI calculator?

Answer: Input the loan amount, term, and interest rate into any EMI calculator to get an estimate of your monthly payment.

Q2. What are my options for making the loan repayments?

Answer: If you have a home loan, you must repay it in Equated Monthly Installments (EMIs).

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