Jean Chatzky says, "Debt certainly isn't always a bad thing. A mortgage can help you afford a home. Student loans can be a necessity in getting a good job. Both are investments worth making, and both come with fairly low-interest rates".
Having one's own home is one of the biggest dreams of every individual. However, buying a home requires effort, time, and money. Buyers may need to collect cash for the down payments for their dream house first. Among all the other ways to purchase a home on a budget, a home loan is one of the easiest methods.
One can leverage different types of home loans to purchase a flat, house, land, or for a home extension, renovation or repairs. But before taking a step forward to decide on a home loan, it's vital to understand the different types of home loans available in India.
Different Types of Home Loans Available In India
There are many types of home loans available for different purposes. The different types of home loans with their features and other vital information are described below. Keep reading!
1. Home Purchase Loan
One of the most popular types of loans available is the home purchase loan. As the name signifies, this home loan is available to help one purchase their dream house. This type of loan is usually offered by public banks, private banks, and housing finance companies. Individuals can borrow the amount from them and can then purchase the house of their choice without any extra effort.
Repayment of the loan is done in the later months via several instalments. Buyers who opt for a home purchase loan can get around 80-90% of the house price as the loan amount. In this type of loan, the mortgage rate of interest can be fixed, floating, or hybrid.
2. Home Construction Loan
Another type of home loan available in India is a home construction loan. This loan is suitable for individuals who own the land and require financing to construct a house. However, there are certain conditions that the individual needs to meet before taking this home loan, such as the land should be bought within one year, and the borrower needs to analyze and make an estimation of the cost he will incur in the house construction.
3. Home Extension Loan
As per the name, the home extension loan is offered to individuals looking to extend their existing house, whether by constructing another room or floor. Customers who have already obtained a house loan can add a home extension loan to their existing loan from the same lender.
4. Home Improvement Loan
If there's any fault in the existing house that needs renovation or repairing, the homeowner can apply for a home improvement loan. The financing offered in this type of case includes painting the interior and exterior of the home, plumbing, waterproofing the ceiling, upgrading the electrical system, and much more.
5. Home Loan Balance Transfer
Sometimes the homeowner needs to change the lender as he/she is not satisfied with the services or feels that another lender charges less interest rate. In such a case, the home loan balance transfer is the best option that one can choose. This type of transfer allows the individual to transfer the balance loan amount from one lender to another.
6. Composite Home Loan
This is a two-in-one home loan that helps the individual with double financing. With a composite home loan, one can not only buy the land for home construction but can also construct a home on the purchased land.
7. Home Conversion Loans
People looking to shift from their existing home to another can opt for home conversion loans. These loans help the individual with adequate financing to buy a new house.
8. NRI Home Loans
This type of home loan is specifically designed for non-resident Indians looking to buy a home in India. Even though the NRI home loan process is similar to regular home loans, these home loans require exhaustive paperwork.
What are the Benefits of a Home Loan?
Nowadays, many individuals take home loans to buy, construct, renovate, or repair their homes. However, many individuals resist considering home loans as a good and reliable financing option. Below are the advantages of a home loan that one must consider.
1. Tax Benefits
One of the most important benefits of a home loan is income tax deductions. Individuals can claim the deductions on both principal repayments and the interest. Claiming the tax deductions can help one save money in numerous ways.
- Under section 80C, one can claim around Rs.1.5 lakh on principal repayments.
- Under section 24B, one can take up to Rs. 2 lakh on the repayment of interest.
- Under section 24B, one is entitled to receive Rs. 1.5 lakh on special duty expenses.
2. Low Home Loan Interest Rate
The home loan interest rate is lower than the other types of loans. People who deal with cash crunch can even leverage the benefits of existing home loan top-ups. This way one can get a home loan at an even low-interest rate when compared with other finances.
3. Long Repayment Tenure
Another best part about a mortgage loan is that it comes with a long repayment tenure of around 25-30 years. This, in turn, will reduce monthly EMIs to a large extent along with reducing the burden on the borrower.
Around 87% of the potential home buyers financed their recent home purchase with the help of mortgage loans, says NAR, 2020.
Who Is Eligible To Get The Home Loan?
Different banks or financial providers follow different eligibility criteria. Among all the other things, the borrower's credit history is considered. Usually, a credit score of over 750 is preferable for receiving the finances at the best mortgage rates. Other factors that are taken into account to determine the eligibility for a home loan include the following:
- Age of the borrower
- Minimum salary per year
- Residency status
- Margin requirements
- Collateral security
- Assets, stability, and liabilities
- Stable occupation
- Employment type
The Bottom Line
Home loans are a saviour for those who wish to buy a new home but lack funds. However, before one decides to apply for a home loan, it is vital to understand your financial position. Recipe by Finology is one of the best tools to help one analyse their financial status and make informed decisions. So feel free to use the tool and get ready to buy your dream home.
We hope the article will help you to decide on the right home loan type. Drop your comments if you have any questions!