Frequently asked questions
What is a Home Loan?
It is a loan offered by a bank or housing finance company, (commonly referred to as lender) to home buyers (known as borrowers) for purchase of new property, construction of house or renovation of existing property. The borrower/customer availing home loan is required to submit the title document of the property with the lender till the loan repayment is completed by borrowers.
Which all property transactions are covered for home loan?
Individuals can apply for housing loan in below scenarios:
- For purchase of a new house or apartment from the developer or developing authority
- For purchase of house or apartment from existing owner in resale transaction
- For construction of house on pre-owned plot of land
- For purchase of plot of land for the purpose of construction of house for self-usage
- For renovation of existing house/flat
- Additional loan/Top-up loan on existing home loan
- Balance Transfer of Existing loan from one bank or housing finance company to another
What is the tenure of a home loan?
Home loans are long term loans with a minimum tenure of 5 years and a maximum tenure of 30 years. The tenure offered to borrowers usually depends upon the age at time of loan application and loan maturity. As a thumb rule the minimum age at the time of applying for home loan, borrower should be minimum 21 years of age.The norms at the time of loan maturity are as under:
- Salaried borrowers- The maximum loan tenor is limited to 60 years or age of retirement whichever is earlier.
- Self-employed borrowers- The customer should not be more than 65 years of age at the time of loan maturity.
What is the Eligibility Criteria for a Home Loan?
Applicants with regular source of income are eligible for home loan. Home-loan can be availed broadly by below category of customers:
- Salaried customers
- Self-Employed customers having their own business
- Salaried NRI customers working abroad.
What are the basic criteria considered for home loan eligibility?
- Income level of the applicant
- Age of the applicant
- Qualification & experience
- Availability of the basic documents-Age proof, Address proof, Signature proof etc.
- Property ownership
- Number of dependants and earning members in the family.
- Fixed monthly expenses
- Repayment track of existing loans.
Who can be joint borrowers in case of a home loan?
Immediate family members such as your parents, spouse ,siblings and children are allowed to be joint borrowers in case of a home loan.
What is the maximum number of co-applicants for a home loan?
The maximum number of joint applicants is usually limited to 5 or 6, depending on the lender.
What is EMI?
EMI is Equated Monthly Instalment and is the monthly instalment which needs to be paid by borrower to lender for repayment of the home loan. The EMI includes 2 components—Payment towards Principal loan & Interest on outstanding loan. This is a monthly payment to be made by borrower to lender till the time of loan maturity.
What are different modes of loan repayment?
There are different ways to pay off your loan such as issuing post-dated cheques for the tenure of the home loan, getting the amount deducted automatically from your salary or by issuing standard instructions to the lender for ECS (Electronic Clearing System) wherein the EMI is automatically deducted from your bank every month. In current scenario ECS is the most preferred and commonly used method for repayment of home loans.
Is prepayment/foreclosure of home loan allowed?
Yes, the borrower has an option to pre-close the loan by making a bulk payment before the completion of actual loan tenor. Most of the banks and Housing finance companies are currently not charging any penalty or fees on pre-closure of the home loan.
What is part-prepayment of the loan?
Instead of making the full payment of out-standing loan, borrowers also have an option of making the lump-sum payment on home loan and thereby reducing the outstanding principal.The bulk payment is adjusted towards deduction from outstanding principal and thereby helps in reducing the EMI or loan tenor as per customer choice.
What are the key charges associated with a home loan process?
Common charges associated with home loan are as under :
- Processing Fee- When applying for a loan, a fee is paid to the lender known as processing fee. The amount paid could be either a percentage of the loan amount or a fixed amount that is paid in lieu of carrying out the loan sanction formalities.
- Pre-payment/Foreclosure Charges- Although most Banks/ financial institutions no longer charge any penalty on foreclosure, however some institutions do charge fees, if the loan is closed before completion of min duration for example- 6 months to 1 year.
What are common documents required at the time of home loan application?
The documents that need to be submitted may vary from one lender to the other. Some of the necessary and common documents to be submitted include the following-
- Completed loan application form
- Passport size photographs
- Identity proof – Aadhar card/PAN card/Passport/ DL/ Voters ID
- Residence proof- Aadhar card/telephone or electricity bill/ passport/ voter ID card
- 3-6 months salary slip of for salaried customers
- Lat 3 years Income tax return with Profit & Less account, balance sheet
- Bank statement for at least past 6 months
- Title documents of the property being purchased, at least for last 13 years.
Is there any tax benefit available on home loans?
The tax benefit on home loan is divided into two sections-
- Tax exemption on repayment of the home loan principal: This is the deduction allowed under Tax Section 80C with a maximum annual tax deduction of Rs, 150,000 under the section.
- Tax benefit on the interest rate for a home loan: Under Section 24 of the Income Tax Act, borrowers can avail the tax benefit on the amount of interest paid on a home loan to the maximum limit of Rs. 2 lakhs for a self-occupied property.
Tax benefit for Joint Borrowers: In case of joint home loans, each of the co-borrowers is eligible to receive a total of Rs. 3.5 lakhs (1.5 lakhs under section 80C + 2 lakhs under section 24) as tax exemption.
Is it mandatory to have a co-applicant for the home loan?
All the owners of the property mandatorily need to be co-applicant to the loan.In case the property is owned by a single individual, then immediate family member-spouse,parents, children, sibling need to join as co-applicant to the loan. Usually, all the lenders insist on having a co-applicant or guarantor for loan, however, in exceptional circumstances, loan can be sanctioned to single borrowers/applicants.
What is pre-EMI Interest?
In case a loan is availed by customer for under-construction property then banks/hfc disburse the loan amount in tranches, as per the progress in construction stage of the property. In such cases, borrowers get an option to pay the simple interest on loan amount disbursed, which is known as pre-EMI. This interest is payable monthly from the time the loan is disbursed till the time the EMI payments start off. The pre-EMI interest amount is lower than the home loan EMI as the principal payment portion is excluded for pre-EMI interest payments.
What is the margin money/own contribution on a home loan?
Borrowers usually get loan to a maximum of 90% of the property value. The balance amount which the customer needs to pay upfront from his end is known as margin money or own contribution amount. The margin on a home loan refers to the percentage of the cost of the home that is not covered by the lender providing you with the home loan
What is an amortization schedule?
Amortization is a table with details of interest payment and periodic principal of a loan along with the amount outstanding after each payment and the decrease of loan balance till zero.
Is there any subsidy on home loan?
Interest Subsidy up to 2.67 lakh per house is admissible for Beneficiaries of Economically Weaker Section (EWS)/Low Income Group (LIG), Middle Income Group (MIG)-I- and Middle-Income Group (MIG)-II seeking housing loans from Banks, Housing Finance Companies and other such institutions for acquiring/constructing houses. The interest subsidies of 6.5%, 4% and 3% on loan amount up to Rs. 6 lakhs, Rs. 9 lakh and Rs. 12 lakh are admissible for a house with carpet area of up to 60, 160 and 200 Sq.Meter for EWS/LIG, MIG I and MIG II respectively. The benefit for EWS/LIG beneficiaries under CLSS works out to as high as Rs. 6 lakhs over a loan period of 20 years.
Also Read: Pradhan Mantri Awas Yojna
Can we convert personal loan to home loan?
If a borrower is running a home loan with a lender, he has the option to avail a top-up loan on existing property. A top-up loan is basically an additional loan over and above the existing loan without offering any additional security. This amount is offered to borrower in his account and can be used for closure of any existing personal loan. The rate of interest charged for Top-up loan is much lower than personal loan, hence its beneficial to avail top-up loan as compared to personal loan.
It may be noted that offering a top-up loan is subject to property valuation, eligibility and discretion of lender
How to reduce EMI on my loan ?
Existing borrowers have the option of reducing the ongoing rate of interest by pro-actively reaching out to their bank or lending institution. Banks usually charge a nominal conversion/switch fee (Rs 2500-Rs 5000) for reducing the loan tenor.The customer gets option of either reducing the loan tenor or reducing the EMI on reduction of ROI. Therefore, an aware and pro-active approach from customer can certainly help in saving money.
Which is better- to make a prepayment of the loan and foreclose it or keep paying EMI ?
Considering the tax savings and other advantages associated with home loan, foreclosure of the loan by making one time bulk payments is not wise decision. However, part pre-payments can be utilized for reducing the loan obligation, as these are deducted from the loan principal outstanding and not towards the interest. The borrowers get the option of either reducing loan tenor or EMI.
Also Read: How to Save Money on your Home Loan
Where to check online if home loan subsidy under PRADHAN MANTRI AWAS YOJNA is not received?
To check the status of your subsidy, pls write a mail to lending bank or housing finance company, clearly mentioning the loan account number. The mail ID of customer service department or nodal office of the concerned bank/HFC can be used for this purpose. Usually it takes 3-6 months’ time after the loan disbursement for subsidy to be credited in the loan account of the customer.
In case of any delay or complaint from your lender in release of subsidy, pls register your complaint with NHB online at the link mentioned below
Can I discard by home loan application after applying to my bank or HFC ?
Yes, after applying for a home loan if you decide not to continue with your loan application, you can cancel or withdraw the application using any of the below methods:
- Write a mail to your bank or HFC to stop the processing of your loan application, stating the reason for same
- Submit a written request in person for cancellation or to stop the processing of your loan application and obtain acknowledgement from the concerned official
What is the ongoing home loan ROI post covid-19 ?
The lowest home loan ROI available I s 6.95% which is being offered by lenders like SBI or HDFC. The ROI of 6.95% is being offered subject to criteria of loan amount, property ownership, CIBIL score etc.
Can I apply for home loan, if I am already running other loan like personal loan,car loan or business loan ?
Yes, you can apply for home loan as long as your property is not mortgaged or given as security for any other loan.The lending bank or HFC will assess the loan eligibility basis your income and obligations of the ongoing loans and sanction the loan accordingly.
Why is legal assessment and valuation of the property done after home loan sanction?
In case of a home loan, pre-sanction can be given to customer before the property is identified, this helps the customer in knowing his eligibility prior to going for purchase of property. The customer also has an option to change the property after sanction, in case he wishes to do so. Therefore, banks/HFC’s usually ask for property documents from customer after loan is sanctioned and do the valuation of the property accordingly. The sanction of the loan is always subject to clear title of the property in legal and technical.