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The idea of settling down goes hand in hand with owning a home. However, owning a home is a huge commitment and quite expensive. Therefore, banks offer home loans for helping people to buy or build their dream homes. A home loan is one of the best ways to finance your home and save tax. We will talk delve into the details further in this article. Keep reading to know more.
Types of Home Loans
Some of the popular types of home loans are listed below:
- Loans for the purchase of land
- For a home purchase
- For the construction of a house
- For House Expansion or Extension
- For Home Improvement
- Bridged Loans
- Balance Transfer Home loans
- NRI Home loans
Let’s discuss these in detail.
Loans for the purchase of a land
As the name suggests, a loan for the purchase of land is offered by banks solely to buy empty land for construction. The borrower can purchase the land to construct a home in the future or use the loan to simply buy the land as an investment.
Up to 85% of the land’s cost is covered by the loan.
For a home purchase
These loans are provided by the banks to individuals who are looking to purchase a pre-owned newly constructed home. Banks charge interest rates as fixed or floating for this particular loan. In most cases, the entire loan amount is disbursed in one go.
For the construction of a house
Specifically designed for people who wish to construct their dream home from scratch, this loan has a different approval and application process. If you already have a plot in place, the bank will take into account the plot cost too if it was purchased last year. Since there’s no fixed cost for the construction of a house, banks consider a rough estimate, usually provided by the architect and contractor, for deciding the loan amount. In most cases, the loan amount is disbursed in multiple installments according to the stage of construction. The interest rates can be floating and fixed.
For home expansion or extension
Need a new balcony or want to add an extra bedroom? Choose a home expansion or extension loan for financing the latest alteration to your home. However, only select banks offer this type of loan. Please check with various banks for more information.
For home improvement
This type of loan can be used for repair and renovation work like painting, major repairs, and more.
Balance Transfer Home loans
If an individual wants to transfer his loan to another bank for reasons like lower interest rates, and better customer experience, a balance transfer loan is the best choice. Once the loan is transferred, the interest rate is revised for the rest of the loan tenure.
NRI home loans
Even Non-Resident Indians can get a home loan for purchasing a property in India. The application process and the document verification process are a little different from a traditional home loan.
Bridged loans
A Short-term home loan, bridged loans are designed to cater to the needs of an existing homeowner who wishes to purchase a new property. The loan is only issued for 2 years or less.
Also Read: How to get a personal loan with low CIBIL score?
Eligibility Criteria for Home Loan
Every type of home loan has a different set of eligibility criteria. Here are a few common ones that every house loan requires:
- Age Limit – 18 to 70 years (can vary for each bank)
- Credit Score – 750 or above for lower interest rates
- Employment – Minimum 2 years of experience for salaried and minimum 5 years of stable business for self-employed
Additionally, you have to furnish all the relevant documents as per your case to the bank for speedy approval.
Hope this guide helped you understand home loans and their types better. Go through each one of them and try to understand which option works for you best. Make sure to understand more about interest rates, foreclosure charges, and more before taking a home loan. Good Luck!
Also Read: Personal Loans for Housewife
