Home Loan Guide for the Millennial

If you are an upwardly-mobile millennial in India, you would have already realized the importance of worthwhile investments that you have to start making now. Having a home of your own is surely one of them. However, you would have also realized that buying a home is not that easy a job. If you are planning to buy your first home, considering that you are young, you may require some sort of financial assistance to help buy your first home. Many banks and other financial institutions provide loans to eligible individuals which would help them buy their houses. If you are at this juncture in your life, you must obtain a clear idea about how home loans and mortgages work in India. Committing hasty mistakes can cost you a great deal of money as home loans run for 20 to 30 years. This simple home loan guide will provide you with some basics that will help you when applying for a home loan in India. What is a Home Loan? A home loan is the amount of money that you borrow from any financial institution or bank of your choice at their specified rate of interest. The institution usually requires that you pay back the borrowed sum in the form of equated monthly instalments (EMIs) in a mutually agreed period. In most cases, the borrower offers the property that they intend to purchase as collateral security against the money borrowed. In case you, the borrower, fail to pay off the loan as specified, the institution would sell the collateral security property to recover the outstanding amount. Advantages of taking a home loan Availing of a home loan is surely a long-term commitment for you. However, there are several advantages you enjoy in the longer term. • Over time, the value of your house will appreciate and not depreciate. This means it can be a source of wealth for you in your later years. • A home loan falls under the category of good debt as it is linked to the acquisition of an asset, unlike credit card loans. When you pay off the loan on time, your creditworthiness swings positively. • A home loan comes with tax benefits. The payments that you make as interest towards a home loan, the interest you pay during the pre-construction period, the principal amount that you have repaid, the registration and stamp duty charges, etc., can all be used as deductions during the payment of taxes. Different Types of Homes Loans in India Home Loan This is a loan using which you can buy a property under construction, a unit that is ready to move into, or one put up for a second sale. Typically, you can avail up to 85% of the cost of the dwelling when you take this loan. Land Purchase Loan Banks may provide loans to buy plots of land within the corporation/municipal limits. The interest rates are similar to that of regular home loans and the processing also follows the same steps. The usual limit for the loan amount is 70% of the plot value. Home Construction Loan If you want to construct a home and not buy a readymade dwelling unit and you want financial help for this, you should apply for a home construction loan. The application procedure and the processing of the documents are different in this case. You should have already purchased the plot where you plan to construct the house and the house should be built within a year. Home Renovation/Expansion Loan If you already own a home but want to remodel a room or expand the size of your home, you have to apply for a Renovation/Expansion loan. Institutions lend up to 75% of the expansion or renovations costs involved. The amount of loan sanctioned depends on many factors such as your age, your creditworthiness, your repayment ability, etc. The term of this type of loan is usually 15 years and you should be at least age 21 or above to apply for this type of loan. NRI Home Loan This loan is a variant of the regular home loan that helps non-resident Indians to buy property in their home country. The compliance aspects and application procedures are different for this type of loan. Other loan types include home improvement loans, bridged, loans, home conversion loans, etc. Eligibility and Documentation required for Application of Home Loans The eligibility criteria for applying for home loans include: • In India, you can be salaried, self-employed, or a business person to become eligible for applying for a home loan. • You must have completed 18 years of age at least. Most banks/financial institutions offer home loans to salaried/self-employed in the age group of 18/21 years to 70 years. • You should have a regular income to prove that you can repay the loan on time. • Your savings history and professional stability are important. • A bad credit history within three months before the application month can have a negative effect. • The type of residence you currently stay in is taken into account. Documents Required when applying for a Home Loan When applying for a home loan, you are required to submit the following documents: Checklist 1.0 Completed loan application form with photos 2.0 Proof of identification (any one of the below) Driving licence/ration card/passport/PAN card/ Voter’s ID card/ employee ID/bank passbook 3.0 Proof of age (any one of the below) PAN card/birth certificate/10th standard mark sheet/bank passbook/passport/driving license 4.0 Proof of address (any one of the below) Bank passbook/Bank account statement/Voter’s ID card/Ration card/Passport/Utility bill/LIC policy 5.0 Income Proof: Salaried individuals (any one of the below) • Form 16/Letter from employer (Appointment letter also required if you have been with the current employer for less than a year)/Last three months’ pay slip/Three years’ IT returns/Six months’ bank statement Self Employed Businessmen (any one of the below) • Last three years’ income tax returns /Last two years’ Balance Sheet and Profit and Loss Account None of these lists is exhaustive and vary according to the lender’s requirements. A home loan is a long-term commitment, and you should choose the loan wisely after clearly understanding your commitment during the term of the loan.