What is a Home Loan or a Housing Loan?
A home loan or housing loan is the sum of money borrowed by individuals from the Banks or the Financial Institutions for a fixed period of time.
i.e., Home loans or housing loans are the advances made to borrowers who require funds to purchase houses/flats/land. They can also be availed of for construction, extension and renovation of houses.
The Lenders charge an interest on the amount borrowed, which has to be paid by the borrowers along with the principal amount.
Owning a home of their own is a major decision in an individual’s life. But the construction or the purchase cost affect the buying process. At this period of time, Banking or Non-banking financial institutions play a vital role in lending loan to majority of home buyers.
Thus, Home loan or housing loan is one of the well-known Bank product offered by Banks or NBFCs to the customers.
Home Loan Interest Rates
|Interest Rate (Monthly reducing balance)||8.35% to 18%|
|Processing Fees||Varies with bank|
|Loan Tenure||1 Year to 30 Years|
|Partial pre-payment Charges||Varies with bank|
|Pre-closure Charges||Varies with bank|
Home Loan Interest Rates till May 2018
Interest Rate is the percentage of principal amount charged, by a lender to it’s borrower for the use of money. It is one of the important feature of any Home loan scheme.
There are two types of interest rates: Fixed rate of interest and Floating rate of interest where, the Banks ask the customers to choose from at the time of Home loan application. Below table help you examine the best Floating interest rates from different Banks or Financial Institutions in India as per the Home loan tenure:
|Home Loan Interest Rates from Top Banks as on 09 May 2018|
|Bank Name||Floating Interest Rate||MCLR Rates|
|Axis Bank||8.35% – 11.75%||8.70%|
|HDFC LTD||8.80% – 9.05%||8.60%|
|ICICI Bank||8.90% – 9.10% *||8.55%|
|Bank of Baroda||8.35% – 9.35%||8.55%|
|Bank of India||8.45% – 8.60%||8.65%|
|Canara Bank||8.45% – 8.65%||8.65%|
|Yes Bank||9.35% to 10.50% *||9.70%|
|Indian Overseas Bank||8.55% to 9.05%||8.70%|
|Karnataka Bank||8.60% to 9.00%||8.90%|
|Oriental Bank||8.45% to 8.55% *||8.65%|
|Citi Bank||8.60% to 8.70%||8.95%|
|Kotak Mahindra Bank||8.50%||9.05%|
|Corporation Bank||9.05 to 9.30%||8.95%|
|United Bank of India||8.65%||8.85%|
|HSBC||8.25% to 8.90%||9.20%|
|Federal Bank||9.59% to 9.84% *||9.20%|
Types of Home Loans
On the basis of type of property being purchased and the home loan requirements, Home loans can be classified into the following different categories. In India, the Banks and NBFCs offer home loans under any one of the following listed variants of housing loans.
- Home Purchase Loans
As the name itself suggests, home purchase loans are specifically given for the purchase of flats or homes. These are the most well – known type of home loan and are availed by most of the home loan borrowers. Almost all banks and Non-Banking Financial Corporations offer home purchase loans.
- Home Loan for Construction
Home loan for construction is the loan given to customers who want cash to construct their own house on an existing piece of land. The important point is that the land for construction should have been bought within one year of availing the loan for the cost of land to be counted as part of this loan. In case the land was bought earlier than one year, then the cost of land is excluded from the loan amount. The formalities for construction loan are slightly different than those for regular home loans. The loan applicant needs to give a lump-sum construction cost estimate to the lending entity and thereafter the lender evaluates and decides to sanction or reject the loan.
- Plot Loans
Plot loans are the loans given by banks for the purchase of land or plot. These loans are not necessarily offered by all banks or NBFCs.
- Home Extension/Renovation Loans
Home loans for extension or renovation of home are offered to those home loan borrowers who already have a house but are looking for the further construction, extension or renovation on their existing piece of property. For example: Renovating a staircase etc.,
- Home Conversion Loan
If an Individual has already taken a home loan for purchasing the house, but wish to shift to another house, then he/she can opt for a home conversion loan. It will help him/her in transferring the current loan to their new house.
- Balance Transfer Home Loan
This type of loan is for the Individuals who can use the balance transfer option to transfer their home loan from one bank to another. Most people opt for this loan to avail better interest rates.
- NRI Home Loan
NRI Home Loans are specially designed for Non-Resident Indians (NRI) who wish to purchase a Residential property in India. The requirements and procedures involved in availing this type of loan is different from the regular home loans.
- Stamp Duty Loans
Stamp Duty Loans are the loans offered by Banks to customers to cover the stamp duty charges, which is incurred during the property purchase.
- Bridged Loans
Existing homeowners who are willing to buy a new house can apply for a Bridged Loan, which will fund the new house. The tenure of this loan is below 2 years and it requires the borrowers to mortgage the new property with the lender until the loan is repaid.
Home Loan Eligibility
Home loans are secured advances and therefore the eligibility criteria for these loans is laid out differently by different banks. Here are some of the most important factors that feed into determining home loan eligibility criteria for almost all banks in India.
- Age: The minimum age at the time of application should be 21 years. Repayments have to be completed before the age of 60 or 65.
- Employment: Borrowers should:
- Be salaried employees or self-employed persons (professional/non-professional)
- Have been in employment/business for at least 3 years of which current employment should account for at least 1 year.
- Income: A minimum income varying between Rs.5 – 7 lakhs would be required. This depends on the nature of employment i.e. salaried or self-employed.
- Residence: At least one year of stay at the current residence is required to display stability with respect to employment as well as financial. This is an indirect indicator but is taken into account by almost all banks while calculating home loan eligibility.
- Credit Rating: A good credit score is required (a score of 750-900 from CIBIL is considered good). Besides this, a healthy financial background is vital for approval and to determine the interest rate and loan amount.
- Parallel debt channels: While sanctioning home loan to customers, banks also look into the current credit standing of the loan applicant. If a borrower has other home loans, personal loans or car loans in-progress then the lending entity calculates the loan quantum eligibility accordingly. Banks do this to make sure that the loan applicant is able to pay the minimum monthly instalment towards his/her home loan.
Every Individual’s dream is to have his/her own dream home and the best way to achieve that goal for a Middle-income household in India is to get a home loan. The government of India has schemes in place to assist house buying/building for the citizens. Nowadays, home loans are made easy. But only if all your documents are in order.
To secure a home loan, an applicant must submit a number of documents that establish their KYC, the antecedents of the property they wish to purchase, their income background etc. depending on which category of customers (salaried/professional/businessman/NRI) they belong to.
The documents required vary from bank to bank. Below are some lists of document which are most commonly required to apply for a home loan in India.
List of Property Documents Required For Applying Home Loan By All Applicants
- Loan application form.
- 3 photographs passport sized.
- Identify proof (acceptable documents listed below).
- Residence proof (acceptable documents listed below).
- Bank Account Statement/Pass Book for last 6 months.
- Signature verification by bankers of the applicant.
- Liabilities statement and Personal Assets.
Documents For Guarantor (Wherever Applicable)
- Liabilities Statement and Personal Assets.
- 2 photographs passport sized.
- Identity proof.
- Residence proof.
- Proof of business address.
- Signature identification from present bankers.
List of Documents for Salaried Individuals
- Salary Certificate (original) from employer.
- Form 16/IT Returns for the past 2 financial years.
List of Documents Required for Self – Employed Professionals
- IT Returns/Assessment Orders copies of the last 3 years.
- Challans as proof of Advance Income Tax payment.
- Proof of business address for non-salaried individuals.
List of Documents Required for Self – Employed Businessmen:
- IT returns/Assessment Orders copies of the last 3 years.
- Challans as proof of Advance Income Tax payment.
List of Property Documents:
- Deed of Sale or Sale Agreement or Share Certificate (original) in case of a cooperative society.
- Receipts for taxes paid for Building and Land, certificate of possession, and certified sketch of the location of property from revenue authorities.
- Allotment Letter from Society/Housing Board/Private builder.
- Receipts of advance payments for flat purchase.
- Certificate of Non-encumbrance encompassing the last 12 years/30 years.
- Receipt of land tax payment and certificate of possession issued by revenue authorities.
- Permission letter from Appropriate Authority.
- Approved building plan (showing floor plan for flat purchase).
- Original No Objection Certificate issued under the ULC Act, 1976.
- Copy of relative order if agricultural land is being converted.
- No objection certificate (NOC) from Builder/Housing Society.
- Detailed estimate of construction cost.
- Letter from Society/Builder/Housing Board mentioning their bank and account details, for instalment remittance.
- Applicable for purchase of land plot, a declaration by loan borrower stipulating the date by which to construct a house.
- Report from lawyer as per standard format.
- Report stating the valuation of property in standard format by an empanelled valuer.
- Post closure of loan, documents required for handover of original Property documents.
- Power Of Attorney for collecting original documents of Property.
In event of demise of the loan borrower:
- Letter requesting handing over of Property documents from Legal Heir/Nominee(s).
- Letter relinquishing the right to Legal Heirs/Nominees for Property documents handover.
List of Home Loan Documents Required for Non-Resident Indians(NRIs)
- Document establishing KYC.
- Salary Certificate from employer stating in English the name (as per passport), designation, passport number, date of joining, latest salary.
- Last 3 to 6 months’ salary slips reflecting variable components like incentives, overtime, etc.,
- Latest IT Returns (for applicants filing IT returns in the country).
- For Self Employed NRIs, business documents like Trade License, Sponsor Agreement, Power of Attorney, etc.,
- Copy of Passport showing the page of residence visa.
- Proof of employment by the Government of the residing country like work permit, labour contract, etc.,
- Documents related to the Property with cost estimates from an Indian Architect or Engineer.
- For Salaried NRIs, income documents attested by embassy official required if there’s no documented evidence for salary credit or fund remittance to India is available.
- Bank statements copies from overseas of the past 6 months.
- Last 6 months’ NRO/NRE bank statement.
If applicant is unavailable in the country at the time of signing documents, Power of Attorney needs to be produced by the person acting on their behalf.
List of Documents Needed for KYC Compliance
Some of the usual documents admitted as KYC are mentioned below:
Photo Id Proof (Any One Required):
- PAN Card
- Driving License
- Voters ID Card
Residence Proof (Any One Required):
- Electricity Bill
- Ration Card
- Telephone Bill
- Employment Letter
- Passbook or Bank Statement with address
Proof of Age:
- PAN card
- Birth certificate
- Driving license
- Bank passbook
- Marksheet from 10th class
Besides the ones mentioned above, the banks have the right to ask for any document they deem necessary to the loan sanctioning and verification process.
* GST Rate of 18% Applicable for All Financial Services Effective July 1, 2017
Pradhan Mantri Awas Yojana
The Pradhan Mantri Awas Yojana(PMAY) has been the talk of the town since it was introduced by Prime Minister, Narendra Modi on 1 June 2015. PMAY Scheme is an initiative provided by the Government of India which aims at providing affordable housing to the urban poor. The mission of this initiative is to provide housing for all by the year 2022.
Under this scheme, affordable houses will be built in selected cities and towns using eco-friendly construction methods for the benefit of the urban poor population in India. Also, under the Credit-Linked Subsidy Scheme, beneficiaries under PM Awas Yojana are eligible for interest subsidy if they avail a loan to purchase or construct a house.
Features of Pradhan Mantri Awas Yojana
- Under PMAY Scheme, subsidy interest rate is provided at 6.5% on housing loan for the term of 15 years to all the beneficiaries.
- Differently abled and senior citizens will be given preference in allocation of ground floors.
- Sustainable and eco-friendly technologies would be used for construction.
- The scheme covers entire urban areas in the country which includes 4041 statutory towns with the first priority given to 500 Class I cities. This will be done in 3 phases.
- The credit linked subsidy aspect of the PM Awas Yojana gets implemented in India in all statutory towns from the initial stages itself.
Current Updates on Pradhan Mantri Awas Yojana
- PMAY may get a 50 percent raise in the Upcoming Budget
- The government’s housing for all initiative, known as Pradhan Mantri Awas Yojana (PMAY), is quite likely to get a 50 per cent raise in the upcoming budget allocation this year. This surge is driven by the government’s plan to build more than two crore houses in urban and rural areas.
The PMAY scheme is divided into two components – rural and urban.
- In the first case, the government plans to construct one crore new housing units by the end of March 2019 and of these, 51 lakh houses need to be built by March 2018. The government has set a similar target for PMAY Urban as well.
- Considering that the housing scheme is moving at a slow pace, allocating additional funds likely help it accomplish its goals.
- In the previous budget, Rs. 23,000 crore was allocated for the PMAY Rural while Rs. 6,042 crore was allocated for its urban counterpart.
- To achieve its target of constructing 51 lakh houses in rural India, the Ministry of Rural Development is working together with the government of different states.
- Month-wise targets have been set up to complete the construction of the houses and so far, the government appears to be on track.
Eligibility Criteria for PMAY Scheme
The government will use The Socio-Economic and Caste Census of 2011 (SECC 2011) to identify and select the list of PMAY beneficiaries. The village panchayats along with tehsils will be considered for consultation of beneficiaries before making the list under the rural housing scheme. This is going to be done in order to ensure transparency of the project and also make sure that only the deserving receive the aid in housing.
- Any household with total annual income between Rs.6 lakh to Rs18 lakh can apply for the PM Awas Yojana. The applicant is allowed to include the income of the spouse while applying for this scheme.
- Indian citizens who are women may apply. No other demographic will be considered as long as they are women.
- The beneficiary can only buy a new house in order to enjoy Pradhan Mantri Awas Yojana benefits. People who already own a house are not eligible to apply for this scheme. No pucca should be owned by the beneficiary or member of the family, in any part of the country.
- People will be allowed to buy/construct new houses only. One cannot avail PMAY benefits on already built house.
- People who belong to the low income group i.e. LIG and economically weaker sections also known as EWG in the society, may also apply.
- Scheduled tribes and castes will also be eligible.
- Senior citizens and differently abled will be given special priorities for ground floor housing.