Home Loan FAQs

What is a Home Loan?

Home loan is a loan disbursed by a bank or financial institution (lender) to an individual specifically for buying a
residential property. Here, the lender holds the title of property until the loan is paid back in full along with
interest.

What is the tenure of a home loan?

Home loans are long term borrowing instruments with a minimum tenure of 5 years and a maximum tenure of 30
years. The tenure offered to you for your personal loan depends on the loan amount that is sanctioned to you by
the lender along with other factors.

What is the Eligibility Criteria for a Home Loan?

Anyone — whether self employed or salaried individuals/professionals — with a regular source of income can
apply for home loans. One must be at least 21 years old when the loan period begins and should not exceed an age
of 65 years when the loan ends or at the time of superannuation. This is the generic eligibility criteria and specifics
such as the minimum and maximum age limits, minimum income level, etc. may differ from one lender to another.

What do banks consider when granting a home loan?

Once repayment capacity determines your eligibility to apply for home loan, lenders consider the following factors:

 Income level of the applicant

 Age of the applicant
 Qualification (stability and occupation continuity)
 Resident status (maximum limit for an Indian resident differs from that of a non-resident)
 Spouse’s income (household income is taken into account when there is a co-applicant)
 No. of dependants (it is a measure of repayment capacity)
 Credit history and score (past repayment track record)
 Status of existing loans

Can I apply for a joint loan with my friend?

No. A lender would only allow you to apply for a joint home loan if the application is co-signed by one or more
members of your immediate family. Thus, your friend does not qualify.

Who can be joint borrowers in case of a home loan?

Immediate family members such as your parents, spouse and children are allowed to be joint borrowers in case of
a home loan.

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What is the maximum number of joint borrowers for a home loan?

The maximum number of joint borrowers in case of a home loan is fixed at 6. However, only family members such
as parents, siblings and spouse can be co-borrowers for a home loan in India. Additionally, having a co-borrower
who has a robust credit history and good credit score is preferable as compared to one with a low credit score.

What is floating rate home loan?

If the interest rate on the loan varies periodically over the loan tenure, then it is called a floating rate home loan.
Lenders have their own base rate which determines the rate of interest charged on a home loan. The base rates of
banks are revised from time to time based on RBI directives as well as other factors, which leads to an increase or
decrease in the EMI amount payable.

What is a fixed rate home loan?

Fixed rate home loans are offered at a predetermined interest rate during the loan period and these remain
unchanged during the loan period irrespective of market conditions. This can be a huge benefit when market
volatility starts affecting interest rates. For instance, if the RBI increases interest rates on loans, then people with
fixed rate home loan will not be affected by any increase or decrease in the market interest rates and the EMI
amount will remain unchanged. This type of home loan is less popular these days.

How is the MCLR method going to affect my current home loan?

As per recently updated RBI rules, banks are required to use the MCLR (Marginal cost of lending rate) method to
determine the interest rate on home loans. In case of a floating rate home loan, the banks are now required to
change the interest rate either yearly or every six months. In case you have a fixed rate home loan, you can get in
touch with your bank to get information regarding conversion of your fixed rate home loan to the new MCLR-based
floating interest rate. At present, introduction of the new MCLR regime has led to a reduction in applicable home
loan interest rates.

Can I switch from a floating rate home loan to a fixed rate?

Yes. A few lenders do offer you the option of switching from a floating rate to a fixed rate home loan and the other
way around. However, this is not applicable to all home loans and there are a few charges involved in
implementing this conversion. Get in touch with your lender to get details regarding the procedure and
requirements.

How do I repay my home loan?

There are different ways to pay off your loan such as issuing post-dated cheques for the tenure of the home loan,
getting the amount deducted automatically from your salary or by issuing standard instructions to the lender for
ECS (Electronic Clearing System) wherein the EMI is automatically deducted from your bank every month.

Should I apply for a home loan with a public or private bank?

Before zeroing in on a home loan, it is best to compare the various interest rates that would be applicable to you.
When you apply for a home loan through Paisabazaar, you get the opportunity to apply for a home loan through
both private and public-sector banks. Also take into account, the fact that banks charge various processing and
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other related fees when you apply for a home loan and you should also consider these, when applying for a home
loan.

Is prepayment of home loan allowed?

Yes, one can repay the loan amount before completion of the scheduled loan tenure by making a lump sum
payment towards paying off the loan. In such cases, the bank may decide to apply some penalties in the range 2-
3% of the principal amount outstanding. Some banks and NMFC (non-banking financial companies) do not charge
any penalty on making prepayment of a home loan.

What are the key charges associated with a home loan process?

 Processing Fee- When applying for a loan, a fee is paid to the lender known as processing fee. The amount
paid could be either a percentage of the loan amount or a fixed amount that is paid in lieu of carrying out
the loan sanction formalities.
 Commitment Fee- It is essential to avail the loan within a stipulated time period after it is processed and
sanctioned otherwise some financial institutions levy a commitment fee. By paying the commitment fee,
you are assured that you can access the loan at the interest rate and for the tenure that was initially agreed
on. Most banks no longer charge this fee.
 Pre-payment Charges- Banks/ financial institutions might charge a penalty if the entire loan amount is paid
off before completion of the loan tenure. The penalty amount also known as foreclosure/pre-payment
charges could be a maximum of 5% of the loan amount that is paid off before the completion of loan
tenure.
 Miscellaneous charges- Documentation, stamp duty, credit bureau report issuance charges and consultant
charges are generally considered as miscellaneous charges by few lenders.

What documents do I need to submit with my home loan application?

The documents that need to be submitted may vary from one lender to the other. Some of the necessary
documents to be submitted include the following-

 Completed loan application form

 Passport size photographs
 Identity proof – PAN card/Passport/ DL/ Voters ID
 Residence proof- telephone or electricity bill/ passport/ voter ID / property tax receipt
 Bank statement for at least past 6 months and salary certificates/ latest acknowledged ITR
 Copy of plan approved for the proposed construction/extension
 Cost estimation/ valuation report from Bank’s (or finance company) authorised surveyor/evaluator.
 Allotment letter of housing board/ NOC of the society/Builder etc. as well as any other land use
certificate/other

Is there any tax benefit available on home loans?

The tax benefit on home loan is divided into two sections-

 Tax exemption on repayment of the home loan principal: This is the deduction allowed under Tax Section
80C with a maximum annual tax deduction of Rs, 150,000 under the section.

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  Tax benefit on the interest rate for home loan- Under Section 24 of the Income Tax Act, you can avail the
tax benefit on the amount of interest paid on a home loan to the maximum limit of Rs. 2 lakhs for a self
occupied property.

Tax benefit for Joint Borrowers: In case of joint home loans, each of the co-borrowers is eligible to receive a total
of Rs. 3.5 lakhs (1.5 lakhs under section 80C + 2 lakhs under section 24) as tax exemption. Hence, if a married
couple co-signs for a home loan, they can claim a total tax exemption of Rs. 7 lakhs on their home loan.

What is a top up loan?

If you have an existing home loan and have made timely repayments towards the existing home loan, you may get
the option of borrowing an additional loan equal to the amount you have paid off on your current home loan. This
is termed as a top up loan. The interest rates on a top up loan are less than a personal loan and it requires little or
no paperwork to process this loan and the money can be used for a range of expenses.

Can I have a co-applicant when I sign up for a home loan?

Yes. You can have a family member like your spouse or your parents co-sign with your when you apply for a home
loan. Having a co-signor for your home loan improves your chances of being approved for a larger home loan
amount. A co-signor is specially recommended if the primary applicant has a low credit score or has had problems
when applying/paying off a loan in the past.

Is having a good credit record important in case of a home loan?

A home loan is a long term loan (5 to 30 years tenure), hence lenders want to ensure that they will get their money
back in the long term. Therefore, the loan sanctioning authority will definitely check your credit history before
sanctioning a home loan to you. By having a good credit record/history you would be classified as a low risk
borrower and you may be able to get preferred (low) interest rates and waivers on various bank fees on the basis
of your credit history.

I have low credit score. Can I still apply for a home loan?

In case you have a poor credit score, you will find it difficult to get a home loan. However, you can improve your
chances by getting a co-borrower. The co-borrower needs to be a family member like your spouse or parents.
Ideally, you should choose a co-borrower who has a regular source of income and good credit history to bolter
your chances of a successful application.

What is pre-EMI Interest?

When banks sanction you a home loan, the EMI payments may not start immediately. In such a situation, the bank
is liable to charge a pre-EMI interest on your loan. This interest is payable monthly from the time the loan is
disbursed till the time the EMI payments start off. The pre-EMI interest amount is lower than the home loan EMI as
the principal payment portion is excluded for pre-EMI interest payments.

What is the margin on a home loan?

The margin on a home loan refers to the percentage of the cost of the home that is not covered by the lender
providing you with the home loan. On an average, lenders implement a 20% margin on home loans i.e. the home
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loan amount sanctioned to you will be 80% of the actual cost of the property. The remaining 20% of the home loan
cost will have to be borne by you. Though the 20% margin is the industry average, lenders may increase or
decrease their home loan margins on a case by case basis.

What costs are not covered by a home loan?

Apart from the margin, some other costs will have to borne by you. Some of the key expenses in this regard include
the initial down payment, stamp duty costs, registration costs and transfer charges among others.

What is an amortization schedule?

Amortization is a table with details of interest payment and periodic principal of a loan along with the amount
outstanding after each payment and the decrease of loan balance till zero.

 Rate of Interest differs according to the profile of the customer i.e. company name, salary.
 Loan amount varies from 50,000 to 35,00,000
 Processing Fees is the charges which bank incur while processing of Loan. These fees range from 1% to 4%
of the loan amount.
 Personal loan has a specific repayment schedule 1 to 5 years
 Equated monthly Installment (EMI) comprise of Principal and Interest it is a fixed payment owed each
month to repay the Loan

What are the different types of home loan?

There are various types of home loans depending upon your specific requirement. Some of the key ones are as
follows:

Land purchase loans: These loans are granted to individuals for the purchase of land on which they intend to build
a house.

Home purchase loans: These are the most common type of home loans that is granted to individuals and they are
granted for the purchase of an apartment.

Home construction loan: This type of loan is granted to individuals for the construction of a house on a plot of land
that is already owned by the applicant.

Home Expansion/Extension Loan: This loan is specifically granted to individuals who want to expand their current
home to include a new construction such as an additional floor, room, bathroom, etc.

Home Improvement Loan: Existing home owners who lack sufficient funds to renovate their existing home can
apply for this loan to upgrade their home with a new paint job, electrical wiring, water proofing, etc.

Home conversion loans: Using this type of home loan, an existing home owner can add to their existing loan so
that they can purchase a new house. This type of loan is only applicable to existing home owners.

NRI Home Loans: These home loans are specifically designed to provide non-resident Indians with financing so that
they can purchase a home in India.

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If I have a current home loan and want to move to a new house, what option do I have?

You best option is to apply for a home conversion loan. Using this type of loan, you can add to your existing home
loan and purchase the new one without having to opt for a second home loan.

What is Home loan pre-approval?

Home loan pre-approval is a facility provided by banks and NBFCs to their customers, which allow those interested
in purchasing a house with the particulars regarding their eligibility even before they have decided on a property to
purchase.

How long is the home loan pre-approval valid?

The pre-approved home loan offer is valid for only a limited period, which varies from one bank to another as per
the lender’s internal rules and regulations. However, these pre-approvals are usually valid for no more than 6
months.

How do home loan requirements vary for an apartment and a plot of land?

When you take a home loan for an apartment, you technically apply for a home purchase loan. This type of loan is
the most common one that is provided to individuals and is eligible for tax benefits under section 24 and section
80C. In case you want to purchase a plot of land for building your house at a later date, you have to apply for a land
purchase loan and there is currently no tax exemption benefit for this type of loan.

What are the top home loan providers in India?

Due to the huge demand of home loans, banks and NBFCs across India provide home loans to their customers.
Some of the leading banks who provide home loans to individuals include HDFC Bank, Axis Bank, ICICI Bank, State
Bank of India and associates, Bank of Baroda, RBL Bank and many others. Leading NBFCs in India that provide home
loans in India include India Bulls, Bajaj Finance, Financiers, LIC Housing Finance and may others.

Documents Required For Home Loan

Sooner or later everyone needs a place of their own, and the best way to achieve that goal for a person from a
mid-income household in India is to get a home loan. Government of India has schemes in place to assist house
buying/building for the citizens. Nowadays, home loans are easy to come by. But only if all your documents in
order.
To secure a home loan, an applicant must submit a number of documents that establish their KYC, the antecedents
of the property they wish to purchase, their income background etc. depending on which category of customers
(salaried/professional/businessman/NRI) they belong to.
The documents required vary from bank to bank. Below are some lists of document which are most commonly
required to apply for a home loan in India.

List of Property Documents Required For Applying Home Loan By All Applicants

 Loan application form.

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  3 photographs passport sized.
 Identify proof (acceptable documents listed below).
 Residence proof (acceptable documents listed below).
 Bank Account Statement/Pass Book for last 6 months.
 Signature verification by bankers of the applicant.
 Liabilities statement and Personal Assets.

Documents For Guarantor (Wherever Applicable)

 Liabilities Statement and Personal Assets.
 2 photographs passport sized.
 Identify proof.
 Residence proof.
 Proof of business address.
 Signature identification from present bankers.

List of Documents for Salaried Individuals

 Salary Certificate (original) from employer.
 Form 16/IT Returns for the past 2 financial years.

List of Documents Required for Self – Employed Professionals

 IT Returns/Assessment Orders copies of the last 3 years.
 Challans as proof of Advance Income Tax payment.
 Proof of business address for non-salaried individuals.

List of Documents Required for Self – Employed Businessmen

 IT returns/Assessment Orders copies of the last 3 years.
 Challans as proof of Advance Income Tax payment.

List of Property Documents:

 Deed of Sale or Sale Agreement or Share Certificate (original) in case of a cooperative society.
 Receipts for taxes paid for Building and Land, certificate of possession, and certified sketch of the location of
property from revenue authorities.
 Allotment Letter from Society/Housing Board/Private builder.
 Receipts of advance payments for flat purchase.
 Certificate of Non encumbrance encompassing the last 12 years/30 years.
 Receipt of land tax payment and certificate of possession issued by revenue authorities.
 Permission letter from Appropriate Authority.
 Approved building plan (showing floor plan for flat purchase).
 Original No Objection Certificate issued under the ULC Act, 1976.
 Copy of relative order if agricultural land is being converted.
 No objection certificate (NOC) from Builder/Housing Society.
 Detailed estimate of construction cost.
 Letter from Society/Builder/Housing Board mentioning their bank and account details, for installment
remittance.
 Applicable for purchase of land plot, a declaration by loan borrower stipulating the date by which to construct a
house.
 Report from lawyer as per standard format.
 Report stating the valuation of property in standard format by an empanelled valuer.
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 Post closure of loan, documents required for handover of original Property documents
 Power Of Attorney for collecting original documents of Property.
 In event of demise of the loan borrower:
 Letter requesting handing over of Property documents from Legal Heir/Nominee(s).
 Letter relinquishing the right to Legal Heirs/Nominees for Property documents handover.

List of Home Loan Documents Required for Non Resident Indians (NRIs)
 Document establishing KYC.
 Salary Certificate from employer stating in English the name (as per passport), designation, passport number,
date of joining, latest salary.
 Last 3 to 6 months’ salary slips reflecting variable components like incentives, overtime, etc.
 Latest IT Returns (for applicants filing IT returns in the country).
 For Self Employed NRIs, business documents like Trade License, Sponsor Agreement, Power of Attorney, etc.
 Copy of Passport showing the page of residence visa.
 Proof of employment by the Government of the residing country like work permit, labour contract, etc.
 Documents related to the Property with cost estimates from an Indian Architect or Engineer.
 For Salaried NRIs, income documents attested by embassy official required if there’s no documented evidence
for salary credit or fund remittance to India is available.
 Bank statements copies from overseas of the past 6 months.
 Last 6 months’ NRO/NRE bank statement.
 If applicant is unavailable in the country at the time of signing documents, Power of Attorney needs to be
produced by the person acting on their behalf.

List of Documents Needed for KYC Compliance

Some of the usual documents admitted as KYC are mentioned below:
Photo Id Proof (Any One Required):
 Passport
 PAN Card
 Driving License
 Voters ID Card
Residence Proof (Any One Required):
 Electricity Bill
 Ration Card
 Telephone Bill
 Employment Letter
 Passbook or Bank Statement with address
Proof of Age:
 PAN card
 Passport
 Birth certificate
 Driving license
 Bank passbook
 Marksheet from 10th class
Besides the ones mentioned above, the banks have the right to ask for any document they deem necessary to the
loan sanctioning and verification process.

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