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About Home Loans by IndianMoney.com

What are Home Loans?
Home loans are financed by banks/other financial corporations to buy or repair/renovate a
house
One has to make a down payment of 10-20% depending on the cost of the house. The remaining
amounts mainly a loan to value ratio of 75-90% is sanctioned for the home loan for a house
ranging from 25-75 Lakhs
Home loan repayment tenures range from 20-30 years.
In case of a stand alone house, one can avail a home loan for the cost of the house as well as the
land that it is built on with a loan to value ratio of 80%
Banks do not consider other charges like Stamp Duty, Registration Charges and so on while
sanctioning the home loan


Things to know about Home Loans
Eligibility criteria
The minimum age for a salaried person to avail a home loan is 21 years and the maximum age at
loan closure is 60 years. For a self employed individual the minimum age is 21-23 years and the
maximum age at loan closure is 65 years.
Banks sanction a home loan up to 60 times ones net monthly income based on age and tenure
of the loan

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Documents required to avail the loan are
o Proof of age,
o Residence proof or an identity proof such as a passport, pan card, ration card , voters
card, water or an electricity bill
o Income proof is a six months bank statement or a salary slip of the past three months or
the form 16
o Banks check for the flat booking allotment letter
o For a self employed /businessman individual IT returns of the last 2 years, Profit and loss
account and the audited balance sheet of the past 2 years is a must
One needs to have at least a work experience of 2 years or is in the current job for at least 2
years

What conditions do banks consider while sanctioning a home loan?
Banks consider ones age while sanctioning the home loan as the time to retirement especially
for a salaried person influences the repayment tenure of the loan.
One needs to be aware that certain components of the salary such as medical allowance and
LTA which could be variable which would not be considered while calculating the home loan
eligibility.
Banks check ones past credit history based on the CIBIL score. Late repayments or defaults on
ones past loans, high utilization of credit limits, a high percentage of unsecured loans as well as
availing too many loans might lead to a rejection of the home loan.

Types of Interest rates on Home Loans:
Home loan in India can primarily be classified into two categories on the basis of interest rates
i.e. Fixed rate and Floating rate of interest
There are very few lenders in India who offer pure fixed rates where the rate of interest remains
constant for the entire tenure of the home loan
In a floating rate home loan the rate of interest on such loans is subject to change whenever
there are changes in base rate of the bank which are influenced by market forces in the
economy
Floating Rate of Interest
This is the rate of interest which fluctuates based on market conditions.
It is basically the sum of the banks base rate plus a spread which is the administration and
other charges of the bank as well as a profit.

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This means you would be benefitted in the event the rates go down or stand the risk of
paying more than you budgeted for in case the lending rate goes up.
Interest rates range from 10.25% - 12% for availing the home loan for a floating rate home
loan.

Fixed rate of Interest
The repayment of a home loan is done based on fixed equal installments over the loan
tenure. The interest rate is not affected by market forces and conditions. This brings a sense
of certainty and security when one avails this type of a home loan.

Transferring Home Loan to another bank under Balance Transfer
One can avail of a home loan balance transfer where the existing home loan in one bank is
transferred to another bank in order to avail the benefits of a lower interest rate
If you have an excellent credit score and you fall back on your home loan repayments you can
switch(balance transfer) the outstanding amount on the home loan to a bank with a lower
interest rate .A small processing fee might be charged for the process
You would require a letter of consent from the existing bank to give the go ahead to shift to a
new lender. You need to make sure that you get the necessary foreclosure statements, account
statements and the list of property documents from your existing bank

Taxation aspects of a home loan
Home loan Equated monthly installments have two components Principle and Interest. These
two are treated separately for the purpose of taxation.
The repayment of the principle amount of the loan up to INR 1 Lakh per annum is eligible for a
tax deduction under Section 80 C. The amount one pays as stamp duty when a house is bought
and the amount one pays for the registration of the documents of the house can be claimed as
deductions under section 80C up to INR 1 Lakh.
Under Section 24 one gets a tax deduction on the interest portions of the home loan up to an
amount of INR 1.5 Lakhs.

First Time Buyers
o Tax deductions can be claimed by first time buyers of a residential apartment only if
the loan amount taken is less than INR 25 Lakhs. Under Section 24 interest portions are
tax deductible up to an amount of INR 1.5 Lakhs per financial year and an extra INR 1
Lakh deduction is available under section 80EE.

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o The value of the residential apartment purchased should not exceed INR 40 Lakhs.
Only those individuals who obtain a loan between April 1st 2013 and March 31st 2014
are eligible.

Pre-EMI is the interest paid for taking an under construction house. One can use the home loan
for tax saving purposes only once the house is constructed. Once the house has been
constructed the total pre EMI is tax deductible within a period of 5 years. This may be divided
into five equal installments and paid out in five years.

Tips to know while availing a home loan
Check your eligibility criteria and the interest rate charged on the home loan.
Maintain a good credit score with CIBIL in order to get the home loan sanctioned as well as a
lower interest rate.
There is no prepayment penalty on the floating rate home loan.
Banks do not levy foreclosure charges on floating rate loans.
Banks charge around 0.5% -1% of the total home loan amount applied for as a processing fee.
This is a non refundable amount and is not returned in case the home loan is not sanctioned.
The bank charges a prepayment penalty which is basically 1-2% of the outstanding loan amount
if the fixed interest rate home loan is prepaid.
If your bank has reduced rates for new borrowers and you an existing borrower with a high
credit score are charged a higher rate you can approach the bank using the balance transfer as a
bargaining chip in order to secure a lower rate from the bank.
Banks conduct a legal check on your documents namely the title deed, the sale deed as well as
the encumbrance certificate to validate their authenticity and make sure the home/land does
not have any pending dues associated with it.
Have your home/apartment constructed by a reputed builder/developer as they are well versed
with the banks legal and due diligence processes which makes a home loan easier to avail.







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