Jun 13, 2023

Basics of Home Loans for Beginners

by Godrej Properties Limited



A home loan is a straightforward means to transform your homeownership dream into reality. However, it's important to be mindful of potential mistakes during the home loan application process which could lead to delays in loan approval or disbursal, causing unnecessary inconvenience. Below is a basic home loan guide about how home loans work in India.

Fundamentals of Home Loans in India:

  • Purpose: Home loans are designed to help individuals and families finance the purchase, construction, or renovation of residential properties in India.
  • Eligibility Criteria: For a home loan, you must meet certain criteria such as age (between 21 and 65 years), income stability, creditworthiness, or credit score.
  • Loan Quantum: The loan amount depends on various factors, including your income, creditworthiness, repayment capacity, and the value of the property. Generally, lenders offer home loans covering up to 75% to 90% of the property's value.
  • Interest Rates: Home loans have either fixed or floating interest rates. Fixed interest rates remain constant throughout the loan tenure, providing stability in EMIs. Floating interest rates are linked to market conditions and may change periodically, which can increase or decrease your EMIs.
  • Loan Tenure: Home loans typically have tenures ranging from 5 to 30 years. Longer tenures result in lower monthly EMIs but higher overall interest costs, while shorter tenures reduce interest payments but increase the EMI amount.
  • Equated Monthly Installments (EMIs): Home loans are repaid through EMIs determined by the loan amount, interest rate, and loan tenure. Typically EMIs are fixed throughout the loan tenure. However, the borrower can adjust her EMI to pay more also and thus pay off the loan quicker.
  • Down Payment: This is a percentage of the property's value and is required to be paid upfront when booking the home. Home loans do not cover this amount. The down payment percentage varies but is typically around 10% to 25% of the property's value.
  • Processing Fees & Charges: Lenders charge processing fees for processing your home loan application. These are typically a percentage of the loan amount and payable at the time of loan application. There may be other charges such as administrative fees, legal fees, valuation charges, and documentation charges.
  • Tax Benefits: You can claim deductions under Section 80C of the Income Tax Act for the principal repayment up to a specified limit. Additionally, deductions can be claimed under Section 24(b) for the interest paid on the home loan, subject to certain conditions and limits.

Finally, knowing about home loans and the process enables you to apply for the best product in the market and makes you knowledgeable about your own home loan information.

Frequently Asked Questions

1.Can I apply for 2 home loans at once?

Ans: India has no legal restriction on the number of home loans you can apply for.

2.Can I change my loan amount after approval?

Ans: The loan amount can't be increased, but you may be able to apply for a top-up loan.

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