Home loan is a secured type of loan, offered only for purchasing a new/old property or construction of the house on a self-owned property. On approval, an eligible applicant receives from 75% to the maximum upto 90% of the home loan amount as per the total loan amount he/she has applied for earlier. Moreover, unlike personal loan, home loan comes with repayment holiday where borrower doesn’t need to make EMIs until the construction of the house have started.
| Interest Rates | 8.35% to 15% per annum |
| Loan Amount | Rs. 1 Lac to Rs. 5 Crores |
| Tenure | Maximum 30 Years |
| Charges | Processing Fee: 0.50% to upto 5% of the loan amount Foreclosure Charges: 0% to 5% of the outstanding amount.Part-Payment Charges: 0% to 5% of the prepaid amount.Default Charges: 2% per month |
| Lock-in Period | First 12 Month after disbursal |
Home Loan Eligibility
The current eligibility of a borrower for home loan, is what decides how much loan amount he/she will be able to lend from banks or financial institution. So, when it comes to calculating the eligibility of the borrower, banks and financial institutions use some principal factor to determine the eligibility of a borrower at the time of loan approval process. The principal factors which affects your home loan eligibility are as follows –
Minimum Income
The income of the borrower is one of a crucial aspect which directly impacts home loan eligibility. In case of home loans, banks and financial institutions consider net-monthly income of the borrowers unlike personal loans where average monthly income is preferred. And, based on that, banks and financial institutions defines the FOIR norms for the home loan. As per the guidelines of the banks and FIs, the borrower can only lend between 45% to 60% of his/her current income. However, if the borrower is earning a high salary figure, then the banks/FIs can consider upto 75% depending upon the internal policies.
The borrower should know that the lender may avoid a home loan approval, if there is a lot of fluctuations in the monthly income unless it’s only upward. Since the net-income is considered, the salaried borrower sometimes struggles to reach the income eligibility criteria because only salary components like Travel Allowance, Dearness Allowance and Medical Allowance. However, government employees are most preferred in this case, since they get guaranteed salary hike in particular intervals.
Moreover, the minimum income criteria for a borrower may vary depending on their residential location. The income criteria tends to be higher for applicants living in Tier-I cities as compared to Tier-II cities. Additionally, it can also be different depending upon the nature of your profession such as doctors, chartered accountants and engineers.
Although, a borrower can consider adding a co-applicant in the loan, to increase home loan eligibility or give their thoughts to home loan products like Step-up Home Loans which comes with 20% higher loan eligibility.
Maximum Age
Since, the home loan tenure stands between 8 years to 20 years as per the most disbursal cases, the age of the borrower at the time of loan application plays an essential role in deciding how much can be lent to a borrower at a given point of time. Since, as per the regulations of the banks and financial institutions, the loan amount must be paid in full by the time the borrower reaches the age of 70 to 75 years, including the retirement age in case of salaried and pensioners. On an average, the maximum age to apply for a home loan is between 55 to 60 years for salaried and 60 to 65 years for self-employed, and it differs from lender to lender as well as loan schemes.
For an example, if the lender has stated that the minimum maximum age of the borrower must not be more than 70 years, then a salaried borrower of the age 42 years, can only avail a maximum tenure of 28 years. And, if the pensioner of age 63 years, can only avail a home loan for as long as 7 years only.
Moreover, the minimum age criteria to avail a home loan also help deciding if the borrower would be approved or not. As per the general guidelines of any kind of lending, an individual borrower must not be a minor (below the age of 18) at the time of loan application. However, some banks and financial institutions consider the minimum age to be 21 years for salaried, and between 23 years to 25 years.
Apart from that, the lender may avoid the approval of home loan if the borrower’s current age is 24 months or less close to the retirement age.
Loan-to-Value Ratio (LTV)
As per the guidelines of the banks and financial institutions, they offer a home loan amount between the ratio of 75% to a maximum of 90% of the property cost whereas the rest if covered by the borrower. The home loan ratio paid by the borrower is called “Margin Money” and is subject to be submitted at the time of loan sanction.
Therefore, a borrower must be selective when finalizing a lender to avail the loan amount, considering what is the maximum LTV the bank can offer.
Tenure
The tenure or total repayment period of a home loan, also helps the banks and financial institutions regarding how much they should lend to a particular borrower considering the higher loan amount and less tenure results in high monthly installments. So, they keep a note of borrower net-income and check if he/she is able to pay the monthly EMIs calculated based on the requested home loan amount.
The tenure of home loan varies from lender to lender; However, the maximum tenure for any type of home loan is 30 years as per the industry standards. Although, depending upon the type of borrower and according to offering provided by the lender, it can be less than it.
Home Loan Interest Rates
| Banks/FIs | Annual Interest Rate |
| HDFC Bank | 8.80% – 10.15% |
| SBI | 8.70% to 12% |
| Axis Bank | 8.35% – 8.75% |
| ICICI Bank | 9.10% – 9.30% |
| YES Bank | 9.35% – 13% |
| Indusind Bank | 8.65% – 15% |
| Bajaj Finance | 8.85% |
| Capital First | 8.60% – 8.65% |
| Citibank | 8.60% – 9.80% |
| Tata Capital | 8.35% – 12.50% |
| Kotak Mahindra Bank | 8.60% – 8.65% |
| Standard Chartered Bank | 8.35% |
| Canara Bank | 8.45% – 8.65% |
| PNB | 8.40% – 8.65% |
| Bank of Baroda | 8.35% – 9.35% |
| Bank of India | 8.45% – 8.50% |
| Andhra Bank | 8.65% – 9.70% |
| Syndicate Bank | 8.65% – 9.75% |
The Interest rates applicable on a home loan is a main component of its monthly EMIs and overall defines how costly it would be at borrowers’ end. The interest rate applicable on home loans is divided into two different types based on their calculation methods, Fixed Rate Home Loans and Floating Rate Home Loans. The difference between both is that the fixed rate home loans stays the same throughout the entire period of home loan, whereas the interest rate in floating rate home loans changes depending upon the current market conditions.
Therefore, the monthly EMIs of a floating rate home loan can be higher or lower than fixed rate home loans depending upon the current floating rates levied a certain bank periodically. Although, both fixed rate home loans and floating rate home loans are linked to the MCLR Rates defined by the banks periodically.
The minimum interest rate offered by any bank is 8.75% as per the current interest rate offerings in the banking industry. The interest rate on home loans can be slightly lower in case if the primary borrower is a woman, hadicapped or pensioners due to the 0.50% concession offered to borrowers from these categories.
Home Loan Charges
In case of home loans, there are a number of charges applicable apart from the interest rate. Here are the charges applicable on home loans, explained.
Processing Charges
The processing charges are levied by the banks and financial institutions in order to process the loan application. It includes the cost in respect of the expenses the bank/financial institution has to make in order to do the assessment of the home loan such as manpower used for verification, maintenance of the documents, and checking the credit history of the applicant etc. Hence, processing charges for home loan are necessary to be submitted upfront at the time of loan application.
The borrower needs to submit a post-dated cheque for the processing fee. Although, the bank or financial institution may or may not return the processing fee as per their internal guidelines. Thus, the borrower must verify the documents and requested loan amount as per the eligible income, so the rejection can be avoided. Otherwise, he/she may lose the processing charges, which are to be higher in case of home loans.
The typical processing charges levied by the lenders ranges from 0.50% to as high as 5% of the loan amount. However, few of the banks and financial institutions charge a flat amount, such as Citibank charges a flat fee of Rs. 5,000 maximum to process home loans.
Pre-closure Charges
The Preclosure charges are levied by the banks and financial institutions to the borrower if he/she wants to close his/her loan account before the tenure decided at the time of loan agreement.
Pre-closing a home loan results in changing the previously agreed terms and conditions and mainly loss of the interest at the lender’s end. Hence, to settle the damage, the borrower of a home loan is to be paid an additional cost in regards to pre-closure of the loan account.
Typically, a borrower is pre-close his/her loan account anytime after serving the first 12 EMIs. The preclosure charges usually ranges between 1% of the principal outstanding to as high as 5% of the principal outstanding. However, very few of the lenders, offer zero pre-closure charges such as Andhra Bank and Allahabad Bank.
Default Charges
The default interest applicable on a home loan are to be charged if the borrower fails to pay the EMI by the payment due date. The default charges levied by the banks and financial institution usually is 2% per month or 24% per annum. However, some lenders also charges a flat amount in addition to the default interest such as Standard Chartered Bank charges an additional flat fee of Rs. 495 along with 2% penal interest per month. Although, very few lenders like Citibank, which doesn’t charge any cost against the late EMI repayment.
Home Loan Subsidy
As per the affordable housing programme, launched by the government of india under Pradhan Mantri Awas Yojana, a borrower can save upto maximum Rs. 2.67 on his/her home loan. Depending upon the total household income a borrower has, government of india offers this subsidize amount to help build houses between carpet area of 30 square meters to 150 square meters.
An eligible applicant has been divided into four different categories – EWS (Economically Weaker Section), LIG (Lower Income Group) and MIG (Middle Income Group). MIG is further subcategories into MIG-I & MIG-II with a difference that applicants earning Rs. 6 Lacs to upto Rs. 12 Lacs per annum are considered under MIG-I category and applicants earning Rs. 12 Lacs to Rs. 18 Lacs per annum are to be considered under MIG-II category.
An applicant eligible under EWS and LIG category respectively, can avail home loan at interest rate concession of 6.5% for a house with carpet area of 30 square meters for EWS category and 60 square meters for LIG category. The applicants under MIG-I category can avail home loan at interest rate concession of 4% for a house upto 110 square meters. Whereas ,only 3% interest rate concession is provided under MIG-II category for house upto 150 square meters.
Home Loan Documentation
For Salaried Borrowers:
- Loan Application with Photographs
- Proof for Identity & Residence
- Bank statements for the last 6 months
- Salary Slip/Certificate for last 3 months
- Post-dated Processing fee cheque
- Latest Form 16 / ITR
- Documents for any existing obligation.
For Self-Employed Professionals:
- Loan Application with Photographs
- Proof of Business Existence
- Copy of highest professional qualification
- Proof for Identity & Residence
- Bank statements for the last 6 months
- Post-dated Processing fee cheque
- ITR for Last 3 Years showing income computation
- Balance Sheet and Profit & Loss Account Statement for Last 3 Years, audited by certified CA
- Documents for any existing obligation.
For Self-Employed Businessmen:
- Loan Application with Photographs
- Proof of Business Existence
- Proof for Identity & Residence
- Documents for Business Profile
- Bank statements for the last 6 months
- Post-dated Processing fee cheque
- ITR for Last 3 Years showing income computation
- Balance Sheet and Profit & Loss Account Statement for Last 3 Years, audited by certified CA
- Documents for any existing obligation.
For Pensioners:
- Copy of Pension Fund Documents
- Proof for Identity & Residence
- Documents for any existing obligation.
- Bank statements for the last 6 months
For Agriculturists:
- Loan Application with Photographs
- Proof for Identity & Residence
- Bank statements for the last 6 months
- Copies of Title Documents of Agricultural Land depicting Land holding.
- Copies of Title Documents of Agricultural Land depicting crops being cultivated.
- Post-dated Processing fee cheque
- Latest Form 16 / ITR
- Documents for any existing obligation.
For Property:
- Allotment letter from builder
- Agreement of Sale
- Registration and stamp duty receipt
- Index- ii
- NOC from builder
- Own Contribution Receipt
- All builder linked documents
- Development Agreement
- Tripartite Agreement
- Partnership Deed
- Sale Deed
- Title Search Report
- NA order
In case of death of the primary borrower:
- Letter requesting handing over of Property documents from Legal Heir/Nominee.
- Letter relinquishing the right to Legal Heirs/Nominees for Property documents handover.
For Co-Applicants/Guarantors:
- Latest Photographs
- Proof of Identity & Residence
- Proof of Business/Profession
For NRIs:
- Proof of Identity & Residence
- Proof of work permit
- Copy of VISA Documents & Passport
- NRE / NRO Bank Account statements for the last 6 months
- Documents for any existing obligation.
Home Loan Tax Benefits
A borrower availing home loan, can benefit via certain amount of income tax rebate offered to home loan borrowers from government of india. This tax benefits can be availed under only three sections of income tax, section 80C, section 24 and section 80EE.
An eligible borrower can avail a maximum tax benefit of Rs. 1.50 Lacs per five financial years under section 80C against principal amount paid towards home loan repayment.. However, this tax rebate under 80C is valid if the home loan is availed to purchase a newly built property / construction of new house.
A home loan borrower can available a maximum tax benefit of Rs. 2 Lacs each financial year under section 24, offered only against the interest component of the home loan EMIs paid. This benefit of upto Rs. 2 Lacs under section 24 can be availed even if the borrower own more than one house. The maximum number of houses valid for tax rebate is limited to two houses, irrespective of any of the two houses are vacant or self-occupied. Although, if the borrower have rented out any of the two houses or both, representing that the borrower is living on rental income, then he/she is allowed to get income tax rebate equal upto the entire amount of interest paid on the home loan.
Apart from it, if one is a first-time home owner, then he/she can avail a maximum income tax rebate of Rs. 50,000 under section 80EE.