What is a Home loan? Types, Eligibility & Benefits

Buying a home is a big dream for many people but it can be expensive. This is where a home loan becomes important. A home loan helps you buy or build your own house without needing to pay the entire amount upfront. Instead, you can repay the loan in smaller amounts over time.

Home loans are quite helpful as they make owning a house easier and more affordable. They also come with tax benefits and flexible repayment options, so they are a popular choice for many.

In this guide, we will explain what a home loan is, the types of home loans, eligibility for a home loan, how to apply for one, and more. So, let’s get started!

What is a Home Loan?

A home loan is a type of loan given by banks or housing finance companies to help in constructing, purchasing or renovating your house. The house or property you buy serves as security for the loan. So, if you are unable to repay the loan, the lender has the right to sell the property to recover the money. Home loans are generally repaid over several years, depending on the loan tenure you choose.

Types of Home Loans

There are different types of home loans for various needs:

1. 1. Home Purchase Loan

   This kind of loan is used to buy a new or resale house. It is the most common type of home loan.

2. 2. Home Construction Loan

   If you already have a plot of land and wish to build a house on it, then you can take the help of a home construction loan to do so.

3. 3. Home Renovation/Improvement Loan

   As the name suggests, a home renovation loan is for upgrading or repairing your existing house.

4. 4. Plot Loan

   You can take this type of loan to buy a piece of land where you plan to build a house later.

5. 5. Balance Transfer Loan

   If another lender offers a lower home loan interest rate, you can transfer your existing home loan to them. This would be called a balance transfer loan.

6. 6. Top-Up Loan

   This is an extra loan you can take on your existing home loan for other expenses.

Eligibility for Home Loan

Your eligibility for home loans depends on numerous key factors like:

• Age: Most banks give home loans to people aged between 21 and 65.
• Income: Your monthly income helps the lender decide how much loan you can afford.
• Employment Type: Salaried employees, self-employed individuals, and business owners can apply for a home loan.
• Credit Score: A good credit score is usually preferred by banks or financial institutions as it shows that you are responsible with money. This increases your chances of approval.
• Existing Debts: If you already have other loans, the lender will check if you can handle any additional financial burden.

Documents Required for a Home Loan

To complete the home loan process, you would need the following documents:

• Identity Proof: Aadhaar Card, PAN Card, Passport or Voter ID.
• Address Proof: Utility bills, rental agreements or government-issued documents.
• Income Proof: Salary slips, bank statements and Form 16 (for salaried individuals) and income tax returns (ITRs), bank statements and proof of business(for self-employed individuals)
• Property Documents: Sale agreement, property registration papers and approved building plan.
• Photographs: Recent passport-sized photos.

Home Loan Interest Rate

The home loan interest rate is the extra money (apart from the loan amount) that you pay to the bank or lender for borrowing the loan. It is usually of two types: fixed interest rate, wherein the rate stays the same for the entire loan period, and floating interest rate, where the rate changes based on market conditions.

So, make sure you compare these home loan interest rates to choose the best option when applying for a loan.





Benefits of a Home Loan

Here are some of the significant benefits of a home loan:

• You can buy your dream home with the approved loan amount without any hassle.
• You can also enjoy tax benefits and save money on taxes for both the principal and interest amounts paid. You can claim a tax deduction of up to ₹1.5 lakh per year on the principal amount under Section 80C and up to ₹2 lakh per year on the interest paid under Section 24(b).
• You can repay the loan over a long period, such as 20-30 years, making it easier to manage.
• If you make regular and timely repayments of your home loan, then it will also improve your credit history.
• A home loan helps you buy your own house, which can also become an asset for the future.

Home Loan Process

Here’s how the home loan process usually works:

Step 1: Find the best bank or lender for home loan options by comparing interest rates and terms.

Step 2: Check your home loan eligibility.

Step 3: Fill out the form and provide the required documents.

Step 4: The bank will then check your documents, income, and property details.

Step 5: If everything is fine, the bank will approve your loan.

Step 6: The loan amount gets transferred to the seller or builder after completing legal formalities.

Things to Consider Before Taking a Home Loan

• Make sure to read all terms and conditions carefully before signing.
• Plan your budget and use a home loan EMI calculator to plan your monthly expenses.
• If you can, do save for a down payment as banks usually finance 75-90% of the property cost. Hence, you may need to arrange the rest.
• Research to find the best bank for home loans with good customer support and flexible terms.

Conclusion

A home loan can help make your dream of owning a house come true. So, make sure you are aware of the fundamentals of a home loan before applying for it.

Now, if you are looking for a small home loan, then download the CASHe app. We offer home renovation loans at competitive interest rates and easy repayment schedules. Download the app and explore the options today.