Home loans provide a pivotal financial solution for individuals aiming to own residential property or land. Available through banks and Housing Finance Companies (HFCs), these loans cover up to 75% to 90% of a property’s value, tailored to the borrower’s credit profile and adhering to lender and RBI guidelines on Loan to Value (LTV) ratios. With potential repayment terms extending up to 40 years and featuring competitive home loan interest rates starting at 8.40% p.a., home loans also include various special schemes designed to meet diverse homeowner needs.

At Credit Dharma, we assist you in navigating these options, helping you compare and choose the most favourable rates and terms based on your financial standing.

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Current Home Loan Interest Rates 2024

Bank/ HFCs	Interest Rate	Maximum Loan Amount	Tenure
HDFC Bank	8.75% p.a. onwards	Up to Rs. 15 Crore	30 years
ICICI Bank	8.75% p.a. onwards	Up to Rs. 5 Crore	30 years
SBI	8.50% p.a. onwards	Up to Rs. 15 Crore	30 years
Kotak Mahindra	8.75% p.a. onwards	Rs. 20 lakhs – Rs. 75 lakhs	25 years
Bajaj HFL	8.50% p.a. onwards	Up to Rs. 5 Crore	40 years
LIC HFL	8.50% p.a. onwards	Up to Rs. 5 Crore	30 years
Punjab National Bank	8.50% p.a. onwards	Rs. 8 lakhs onwards	30 years
Bank of Baroda	8.40% p.a. onwards	Up to Rs. 20 Crore	30 years
IDBI	8.55% p.a. onwards	Up to Rs. 10 Crore	30 years
Tata Capital HFL	8.75% p.a. onwards	Up to Rs. 5 Crore	30 years
Canara Bank	8.55% p.a. onwards	No Upper Limit	30 years
Bank of India	8.40% p.a. onwards	Up to Rs. 5 Crore	30 years
Karur Vysya Bank	9.00% p.a. onwards	As per applicant’s repayment capacity	30 years

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Types of Home Loans offered by Banks and HFCs in India

In India, banks and Housing Finance Companies (HFCs) offer a variety of home loans to cater to different needs. Each loan type is designed to meet specific financial requirements. Here’s an overview of the common types of home loans available:

1. Home Purchase Loan: This is the most common loan type, offered for purchasing a new or pre-owned residential property.
   
2. Home Construction Loan: Ideal for individuals looking to build a home on a plot of land, this loan covers the cost of construction.
   
3. Home Renovation/Improvement Loan: This loan helps you finance repairs, upgrades, or renovations to an existing property.
   
4. Home Extension Loan: For those looking to expand their home by adding rooms or extra floors, this loan covers the cost of extensions.
   
5. Land Purchase Loan: This loan is specifically for buying a plot of land on which you plan to build a home.
   
6. Under Construction Home Loan: This loan is specifically designed for purchasing a property that is still under construction. The loan disbursement is done in stages, based on the progress of the construction, ensuring that the borrower pays for the property as it’s being built.
   
7. Senior Citizen Home Loan: Tailored for senior citizens, these loans come with flexible terms, such as lower interest rates or extended repayment periods, depending on the lender’s policy. 
   
8. Pre-Approved Home Loan: A pre-approved loan offers conditional approval for a specific loan amount based on the borrower’s financial profile, even before the property is finalised. 
   
9. Balance Transfer Home Loan: This allows you to transfer your existing home loan from one bank or HFC to another for better interest rates or terms.
   
10. Top-Up Loan: A top-up loan is an additional loan amount that can be borrowed over your existing home loan for purposes like renovations or other financial needs.

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Eligibility Criteria of Home Loans

Before applying for a home loan, it’s essential to understand the eligibility criteria set by banks and Housing Finance Companies (HFCs). These criteria help lenders assess your financial capability and repayment potential. 

Here’s a breakdown of the common eligibility criteria most lenders look for when processing home loan applications.

Criteria	Requirements
Age	21 – 65 years
Income Criteria	Stable income is required
Employment Profiles	Salaried Self employed non professionals Self employed professionals
Credit Score	750+
Nationality	Indian residents NRIs

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Documents Required to Apply for a Home Loan

Banks and financial institutions require various forms of identification, financial statements, and property-related documents to assess your eligibility and process your loan application.

General Requirements 

Category	Documents Required
Application Form	Duly filled and signed along with three photographs
Proof of Identity	PAN CardDriver’s License / Voter ID / Passport / Aadhar Card
Proof of Residence	Driver’s License / Ration Card / Voter ID / Passport / Aadhar Card / Registered Rent Agreement
Proof of assets held	LIC, NSC, KVP, Mutual Funds, Property

Proof of Income

Salaried	Self Employed	Farmers / Agriculturists
Latest 3 months salary slips (latest 1 month for guarantors).	Balance Sheet, Profit & Loss A/C, and Income Computation for the last 2 years.	Revenue officer certificate for the past 2 years’ income.
Form 16 and ITR of the last year.	ITR for the last 2 years (with Form 26 AS and Traces).	Land revenue records (Form 6, 7/12, 8A).
Copy of employee identity card provided by the employer.	Business proof (Gumasta License, Registration Certificate, Service Tax Registration, etc.).	Bank account statement for the last 12 months.
Employment-related documents (Appointment / Confirmation / Promotion / Increment letter).	IT assessment and clearance certificate, IT challans, TDS certificate (Form 16A).
6 months bank account statement (salary account or individual account).	Bank account statement for the last 12 months (for individual or business).

Property Documents

For Ready Property	For Property Under Construction
Agreement for Sale	Agreement for Sale
Non-Agriculture (NA) Certificate	NA Certificate
Commencement Certificate (CC)	Approved blueprint and plan copy
Completion Certificate (if applicable)	Commencement Certificate
Occupancy Certificate (if applicable)
Latest property tax paid receipt
Society Registration Certificate (if applicable)
Share Certificate (if applicable)
All payment receipts to the builder or seller
Chain of old agreements (for resale flats)
Title clearance report from an approved advocate
Valuation report from the bank’s approved valuer

Post Loan Closure – Documents for Handover

1. Power Of Attorney: For collecting original documents of Property.
2. Letter requesting handing over of Property documents: From Legal Heir/Nominee(s).
3. Letter relinquishing the right to Legal Heirs/Nominees: For Property documents handover

Additional Documents for NRI/PIO/OCI

Category	Documents Required
Identification and KYC Documents	Document Establishing KYC: Basic KYC requirements. Copy of Passport: Showing the page of residence visa.
Employment and Income Verification	Salary Certificate: Issued by employer, stating details like name (as per passport), designation, passport number, date of joining, and latest salary, all mentioned in English. Salary Slips: Last 3 to 6 months’ slips reflecting variable components like incentives, overtime, etc. Proof of Employment: Documents like work permit, labour contract, etc., provided by the Government of the residing country. Income Documents Attested by Embassy: Required if there’s no documented evidence for salary credit or fund remittance to India. Email ID of HR (Employer): To verify employment details. Employment Profile: Documenting the last 5 years of employment history.
Business Documents for Self-Employed NRIs	Business Related Documents: Includes Trade Licences, Sponsor Agreements, Power of Attorney, etc. Credit Report: From Overseas credit agencies (except for Merchant Navy). CDC: Required in case of Merchant Navy.
Financial Statements	Overseas Bank Statement: Copies from overseas banks for the past 6 months. NRO/NRE Bank Statement: Last 6 months to trace the financial transactions in India.
Property Related Documents	Property Documents: Including cost estimates from an Indian Architect or Engineer.
Legal and Power of Attorney	Power of Attorney: If the applicant is unavailable in the country at the time of signing documents, a Power of Attorney needs to be produced by the person acting on their behalf.

Additional Documents for Loan Takeover from Another Bank/ HFC

1. Existing loan account statement for the last 12 months.
2. List of property documents submitted to the previous bank.
3. Sanction letter.
4. Foreclosure letter (if available).

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A Comprehensive Guide to Applying for a Home Loan

Applying for a home loan can feel overwhelming, but knowing the process makes it much easier. Whether you prefer the convenience of applying online or the traditional approach of visiting a bank branch, both methods are straightforward and accessible.

Here’s how:

Online Method:

1. Visit the Bank’s Website: Go to the official website of the bank or financial institution offering home loans.
2. Fill the Application Form: Select the home loan section, fill in the required details like personal information, loan amount, and property details.
3. Upload Documents: Submit digital copies of necessary documents such as identity proof, address proof, income proof, and property documents.
4. Complete KYC: Some banks offer e-KYC (Know Your Customer) where you can complete verification online.
5. Loan Processing: After submission, the bank will process your application, verify the documents, and assess your eligibility.
6. Approval and Disbursal: Once approved, the bank will disburse the loan to your account or the seller’s account as applicable.

Offline Method:

1. Visit the Bank Branch: Go to the nearest branch of the bank offering home loans.
2. Collect the Application Form: Request the home loan application form from the bank.
3. Submit Documents: Provide self-attested copies of necessary documents such as identity proof, address proof, income proof, and property documents along with the filled application form.
4. KYC and Verification: Complete the KYC process by submitting required identity and address proofs.
5. Loan Processing: The bank will process your application, verify the documents, and evaluate your eligibility.
6. Approval and Disbursal: After approval, the loan will be disbursed either to your account or the seller’s account.

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Dos and Don’ts While Applying for a Home Loan

Check your credit score	Don’t borrow more than you can repay
Compare loan offers	Don’t make large financial commitments
Calculate your EMI affordability	Don’t ignore the fine print
Maintain a stable income history	Don’t miss EMI payments
Prepare all required documents	Don’t delay in submitting documents
Choose the right loan tenure	Don’t change jobs during the application
Keep a good debt-to-income ratio	Don’t apply with multiple lenders at once
Ensure property documents are clear	Don’t hide existing debts
Opt for a co-applicant if needed	Don’t forget to check loan eligibility
Understand prepayment options	Don’t rush into choosing a lender

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What Happens Between Submitting Your Home Loan Application and Disbursement?

1. Document Verification: The lender will review and verify the documents you provided, such as identity proof, income statements, property papers, and others to ensure all information is accurate and complete.
   
2. Credit Evaluation: Your credit score and repayment history are thoroughly examined to evaluate your creditworthiness. A good credit score increases your chances of approval and better loan terms.
   
3. Property Valuation: The lender will conduct a legal and technical assessment of the property to check its market value, legality, and overall condition. This helps in determining the loan amount that can be sanctioned.
   
4. Loan Approval: If everything is satisfactory, the bank will approve your loan and issue a sanction letter, outlining the loan amount, interest rate, tenure, and other terms and conditions.
   
5. Loan Agreement and Signing: Once the loan is approved, you’ll need to sign the loan agreement, which formalises the loan terms and your acceptance.

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How is a Home Loan Disbursed?

Once your home loan is approved, the disbursement process begins. Here’s how it typically works:

1. Signing the Loan Agreement
   After receiving the sanction letter, you will need to sign the loan agreement. This document includes the terms and conditions of the loan, such as the interest rate, tenure, and repayment schedule.
   
2. Submitting Post-Dated Cheques or Setting Up Auto-Debit
   You may need to provide post-dated cheques or authorise auto-debit instructions for monthly EMI payments as part of the disbursement process.
   
3. Disbursement of Funds
   • For Ready-to-Move Properties: The loan amount is disbursed in full, directly to the seller or builder’s account.
   • For Under-Construction Properties: The loan is disbursed in stages based on the progress of the construction. Each stage requires a site inspection to ensure the funds are used correctly.
   • For Self-Construction: Disbursement happens in phases depending on the construction progress.
     
4. Final Confirmation
   The lender may require a final property inspection or valuation report before disbursing the loan.
   
5. Receipt of Loan Amount
   The funds are either transferred directly to the seller or builder or deposited into your account, depending on the agreement with the bank.

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Home Loan Repayment Options

When it comes to repaying a home loan, flexibility and convenience are key. Banks usually offer two distinct EMI plans to suit different financial situations. Here’s a closer look at both options to help you choose the one that best aligns with your income and financial goals.

1. Standard EMI Plan

• Consistent Payments: Pay a fixed EMI amount every month until the loan is completely repaid.
• Ideal for Fixed Incomes: Suitable for individuals who prefer stable and predictable monthly payments over the loan tenure.
  

2. Step-Up Flexi EMI Plan

• Start Small, Grow Gradually: Begin with lower EMIs and increase them progressively as your income grows.
• Save on Interest: This plan helps reduce interest costs and enables quicker loan repayment.

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How is EMI on Your Home Loan Calculated?

Your home loan EMI (Equated Monthly Instalment) is calculated using a standard mathematical formula that factors in the loan amount, interest rate, and loan tenure. Here’s how it works:

EMI = [P x R x (1+R)^N] / [(1+R)^N – 1]

Where:

• P = Principal loan amount
• R = Monthly interest rate (Annual interest rate divided by 12)
• N = Loan tenure in months

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Understanding Down Payments for Home Loans 

In India, the standard down payment for a home loan usually ranges between 10% to 25% of the property’s cost. Here’s a breakdown of what to expect:

1. Minimum Requirement: Most banks and financial institutions in India require a minimum down payment of 20% of the property’s value.
   
2. Loan-to-Value Ratio (LTV): The Reserve Bank of India (RBI) has guidelines on LTV ratios which affect the minimum down payment. For loans up to INR 30 lakhs, the LTV can be up to 90%, meaning the minimum down payment could be as low as 10%. For loans between INR 30 lakhs and INR 75 lakhs, the LTV is generally up to 80%, and for loans above INR 75 lakhs, the LTV is usually up to 75%.
   
3. Developer and Bank Offers: Occasionally, developers tie up with banks to offer lower down payments to attract buyers. These offers can sometimes reduce the down payment requirement to below the typical ranges.

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Home Loan Prepayment and Foreclosure

When it comes to home loans, borrowers have the flexibility to repay their loans faster through prepayment and foreclosure options. Both of these methods allow you to reduce the overall interest burden and repay the loan ahead of schedule.

1. Prepayment:

Prepayment refers to making additional payments towards your home loan, beyond your regular EMIs. This can either reduce the overall loan tenure or lower your monthly EMI burden, depending on the lender’s policy.

• Partial Prepayment: You can pay a lump sum amount at any point during the loan tenure, which will reduce either your outstanding principal or EMI.
• Benefits: It helps reduce the interest paid over time and offers financial relief by shortening the loan term or reducing EMIs.
• Fees: Some banks may charge a (2%-3%) prepayment fee (especially for fixed-rate loans), while others may allow it without penalties.
  

2. Foreclosure:

Foreclosure refers to paying off the entire outstanding loan amount before the tenure ends. This option is beneficial when you have excess funds and wish to clear the loan early, avoiding future interest payments.

• Complete Loan Repayment: By paying off the loan before the tenure, you save on the interest you would have paid over the remaining period.
• Benefits: Significant savings on interest, and you become debt-free sooner.
• Fees: Lenders may impose foreclosure charges, especially for fixed-rate loans. For floating-rate loans, foreclosure is often allowed without penalties as per regulatory guidelines.

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What Happens After You Fully Repay Your Home Loan?

Once your home loan is fully repaid, the lender will issue a No Objection Certificate (NOC) or No Dues Certificate (NDC), officially confirming that you have paid off the loan in full. It’s essential to collect this document as it releases you from any future liabilities concerning the loan. 

Additionally, the bank will remove the lien on your property and return all original property documents that were submitted as collateral. Make sure to verify that these documents are in good condition and complete. 

Lastly, ensure that the loan closure is updated with the credit bureaus, which will positively impact your credit score. With the repayment complete, you now have full ownership of your property, free from any legal or financial encumbrances.

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Key Factors Affecting Home Loan Approval

When applying for a home loan, several factors influence whether your loan will be approved and the terms you’ll receive. Here are the key factors:

1. Credit Score
2. Income Stability
3. Employment History
4. Loan Amount and Tenure
5. Existing Debts
6. Age of the Applicant
7. Property Value and Location
8. Down Payment Amount
9. Interest Rates
10. Lender’s Internal Policies

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Home Loan Tax Benefits

Home loan tax benefits can significantly reduce the financial burden of owning a home. In many cases, borrowers can claim deductions on both the principal and interest paid on their home loans, helping to save on taxes while investing in property.

1. Deduction for Interest Paid on Housing Loan (Section 24)

• Eligibility: Loan must be for purchase or construction, completed within 5 years from the loan’s financial year.
• Deduction Limits:
  • Self-Occupied Property: Up to Rs 2 lakh.
  • Let Out Property: No upper limit on interest deduction.
  • Exceeding Construction Time: Deduction limited to Rs 30,000 if construction exceeds 5 years.

2. Deduction on Interest for Pre-Construction Period

• Eligibility: Applies to under-construction properties; deduction starts upon completion.
• Calculation: Interest paid during pre-construction divided into 5 equal instalments, claimable from the year of completion, capped at Rs 2 lakh.

3. Deduction on Principal Repayment (Section 80C)

• Limit: Up to Rs 1.5 lakh annually.
• Condition: Property must not be sold within 5 years of possession; otherwise, the deduction will be reversed.

4. Deduction for Stamp Duty and Registration Charges (Section 80C)

• Claim Period: Only in the year these expenses are incurred, within the overall Rs 1.5 lakh limit.

5. Additional Deduction (Section 80EE)

• Limit: Up to Rs 50,000.
• Eligibility: First-time homebuyers, loan amount up to Rs 35 lakh, property value up to Rs 50 lakh, loan sanctioned between April 1, 2016, and March 31, 2017.

6. Additional Deduction for Affordable Housing (Section 80 EEA)

• Limit: Up to Rs 1.5 lakh.
• Eligibility: Property stamp value under Rs 45 lakh, loan sanctioned from April 1, 2019, to March 31, 2022, and must be the first-time homebuyer.

7. Deduction for Joint Home Loan

• Benefit: Each co-owner and co-borrower can claim deductions independently.
• Limits:
  • Interest: Up to Rs 2 lakh each.
  • Principal: Up to Rs 1.5 lakh each under Section 80C.

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Conclusion

Securing a home loan is a significant step towards achieving your dream of homeownership. By understanding the intricacies of home loan interest rates, eligibility criteria, and the application process, you can navigate this journey more confidently. Remember, the right home loan can not only make purchasing a home more feasible but also ensure you are set up for financial success in the long term.

If you’re looking for personalised advice or need help choosing the best home loan option, Credit Dharma is here to guide you every step of the way. Our experts are dedicated to helping you find the most suitable loan that fits your financial landscape.

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Frequently Asked Questions