Three different types of home loans

Housing for all has become the motto of each government in power. This, together with falling interest rates on loans and tax benefits available on home loans have made borrowing for your home convenient and cost-effective.

A home is a big investment. In fact, for most it is the largest investment made in a lifetime. Collecting money and buying a home can be an overwhelming task. It makes sense to spread your money burden over time by availing of a home loan.

Three different types of home loans

There are broadly three types of home loans on offer.

> Loans for purchase of a new house,
> Loans for repair/renovation and
> Loans to finance a new home until a buyer is found for the present one.

Irrespective of the type of home loan, the lender tests the loan eligibility of the borrower based on various parameters. The basic parameter for a home loan is your repayment capacity.

Broad eligibility criteria

Loans can be applied for home loan by individuals, either solely or jointly. One should be at least 21 years of age and the maximum age of applicant is usually 65 years at the time of loan maturity. A maximum of 2 incomes of joint applicants can be clubbed to the income of the main appli cant.

Cost of the loan

Availing a loan has significantly dropped over the last few years. But the scene is however expected to change and interest rates might move north. Experts say that banks would have little option but to raise the rates, given that the current inflation has already crossed 7.5%. Rates have already increased by about 25 basis points (from a minimum of 7.5% to 7.75%). There are oth er charges such as processing and administrative charges, which increase the cost of the loan. These are normally in the range of 0.5% to 2%.

Loan limits

Banks offer a variety of features and a range of options flexible enough to fit all the home finance needs i.e., home loans ranging from Rs.2 lakhs to Rs.1 crore for ready-for-occupation property, under-construction property, plot of land, self-construction and home improve ment.

One can borrow up to 85% of the cost of the property. However in case of an existing property one can borrow up to 55% of the cost of the property.

Loan security

Cases, itself, bought or intended to be bought, becomes the security till the entire loan is repaid. In some cases additional security such as life insurance policies or fixed deposits with banks/the post office (if available) can be provided.

Other add-ons

Icing on comes in the form of other benefits offered i.e., free personal accident cover with the loan, credit card, discount on processing charges for existing bank customers and the convenience of paying through post dated cheques as well as direct debit to your bank account.

Documents

For the purpose of credit appraisal, you will need to furnish, along with your completed application:

Proof of age and residence (copy of passport, birth certificate, driving license, school leaving certificate).

Passport size photographs of all applicants.

Processing fee (which may be fixed or a percentage of the loan amount requested).

In case of a salaried applicant, the latest salary slip, NOC from the employer and Form 16.

In case of a self-employed person, tax returns to show income proof and accounts (profit and loss account and balance sheet) for the previous 2-3 years certified by a chartered accountant are a must.

Lenders also require property details: Registered Agreement for Sale / lease deed, if any. Registration receipt. Payment receipts. Share certificate of the society, if formed. NOC from the builder / society / MHADA /CIDCO. Title clearance / search re port. Valuation report from an approved valuer.