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What's an average Indian's most cherished dream? A world trip with Aishwarya Rai would seem to be the answer as seen from the various episodes of Kaun Banega Crorepati (KBC)! Jokes apart, moving into their dream house would rank among the top three things on the wish list of most people. After all, there's nothing like having a roof, particularly one's own, over one's head. All that house hunting every few years, grumpy landlords, killing rents would be a thing of the past. Hey, you even get to use nails to hang your favorite paintings and pictures. |
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What all can I take a loan for?
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There are different types of home loans tailored to meet your needs. Here are of some of them:
Home Purchase Loans : This is the basic home loan for the purchase of a new home.
Home Improvement Loans : These loans are given for implementing repair works and renovations in a home that has already been purchased by you.
Home Construction Loan : This loan is available for the construction of a new home.
Home Extension Loan : This is given for expanding or extending an existing home. For eg: addition of an extra room etc.
Home Conversion Loan : This is available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required. Through home conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need of pre-payment of the previous loan.
Land Purchase Loans: This loan is available for purchase of land for both construction or investment purposes.
Bridge Loans : Bridge loans are designed for people who wish to sell the existing home and purchase another one. The bridge loans help finance the new home, until a buyer is found for the home.
Balance Transfer Loans: Balance transfer loans help you to pay off an existing home loan and avail the option of a loan with a lower rate of interest.
Refinance Loans : This loan helps you pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present home
Stamp Duty Loans : This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.
Loans to NRIs: This is tailored for the requirements of NRIs who wish to build or buy a home in India. EMI is the Equated Monthly Installment payable till the loan is paid back in full. It consists of a portion of the interest as well as the principal. Some of the incentives offered by lending institutions are : |
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Some companies sanction the loan without requiring you to identify property as a pre-requisite for eligibility.
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Free accident insurance
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Discounts
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Waiving of pre-payment penalty
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Waiving of processing fee
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Free property insurance
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Maximum amount that you can borrow
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Home loans are generally provided from 75%-85% of the asset or property value. The amount of loan varies from institution to institution and may vary from Rs.1 lakh to Rs.1 crore. The maximum amount which one can borrow, depends on number of factors which includes primarily the purpose of taking the loan. In addition, residential status (whether resident in India or non-resident) of an individual also effects the bearing of amount of the loan that one individual can borrow from various institutions. Generally, if the individual is a resident Indian, then he can borrow upto 85% of the asset value. |
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Repayment period options ranges from 1 to 20 years. There are few lenders who offers a 30-year repayment period but at a higher interest rate. As a non-resident, you can avail the loan for a maximum period of 15 years. |
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The interest rates may vary from institutions to institutions and generally range from about 10.25% to around 16%.
Basis of interest rates calculation
The interest rates on home loans in India is calculated either on monthly reducing or annual reducing balance. |
- Monthly reducing :In this the principal amount on which you pay interest reduces every month as you pay your EMI.
- Annual reducing : In this the principal amount is reduced at the end of the year, that means you will continue to pay interest on a certain portion of the amount (principal) which you have already paid back to the lender.
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You can also opt for Floating rate of interest or fixed rate of interest. It all depends on your needs and requirements, hence banks are more willing to lend loans on floating rates. |
Documents required at the time of application for home loans
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The documents that you have to show to the money lenders at the pre-approval stage are: |
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Proof of Age
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Copy of Bank A/C statements for the last 6 months
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Copy of latest credit card statement
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Passport size photograph
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Signature verification from your banker
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If you are salaried, you need to produce- Salary and TDS certificate, latest pay slip, letter from employer.
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If you are self-employed, you need to produce- Your business track record and Copy of audited financial statements for the last 2 years.
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If the property already allocated to you then the following documents are required: |
- Allotment letters
- Photocopies of title deeds
- Agreement to sell
- Encumbrance certificate
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For self-construction: Approved plans and clearance certificates from different authorities along with the fund estimates. |
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- Under Section 80C of the IT Act, deduction is available in respect of repayment of the principal amount of a loan taken to buy or construct a residential house. The maximum deduction of Rs 1 lakh allowed per year.
- Under Section 24B of the IT Act, a maximum interest deduction of Rs 30,000 is allowed to the tax payer in respect of interest paid if a self-occupied property is acquired, constructed, repaired, renovated or reconstructed with borrowed money under Sec 24B, in Income from housing loan.
- Under Section 24B of the IT Act, if the loan is taken after 1 April 1999, to purchase or construct a self-occupied house, an enhanced interest deduction of Rs 1.5 lakh is allowed, only if the purchase or construction is completed within a period of three years from the end of the year in which the loan is taken.
- You can also claim deduction under Section 80C towards payment made for stamp duty, registration fee and other expenses for the purpose of transferring the property in the name of the assessee.
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