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Home Loan : All You Need to Know About Getting Home Loans

If you’re one of the millennials, you’d know that owning a home has long since been the quintessential Indian dream. But in the 21st century, where an entire world’s economy hinges on a volatile stock market, buying one doesn’t come easy. If you are a first-time home buyer in particular, you need to be equipped with the know-hows of how a home loan works in the current scenario.

The regulatory authority has some home loan rules to protect borrowers from potential risks associated with fluctuating interest rates. It’s crucial for prospective homebuyers to comprehend these changes to make informed decisions regarding their home loans. This comprehensive guide breaks down the key aspects of the new rules, eligibility criteria, and the application process.

Here’s what you need to know about new home loan rules from the regulatory authority:

  • Lenders must assess repayment capacity at a higher rate, ensuring borrowers can meet their obligations even if interest rates rise.
  • Fixed-rate loans are not widely offered by banks due to short-term deposits. If provided, a markup is added to mitigate interest rate risks.
  • Lenders are mandated to consider borrowers’ repayment capacity, preventing undue elongation of tenor and possible underlying stress in loans. Extensions must be reasonable and are at the discretion of the banks.
  • Borrowers have the option to switch to fixed-rate loans when interest rates change, with associated charges outlined in loan sanction letters.

Home Loan Eligibility

if you want to borrow money for a home, you may not be able to borrow as much and you may have to pay back more each month for some home loans when interest rates go up due to new rules from the Regulatory Authority. Banks will now have to give you the option to switch to a fixed rate loan when the interest rates change.

In the future, loan sanction letters sent to you will include the charges for changing a loan from a floating to a fixed rate. If interest rates go up a lot, your lender must make sure that your EMI (Equated Monthly Installment) still covers the monthly interest on the loan and that the loan amount doesn’t increase after EMI is paid.

To secure a home loan, consider the following points:

  1. Maintain a high credit score (above 750) by paying bills on time.
  2. Compare market rates to secure favorable loan terms.
  3. Factor in all expenses, including penalties and processing fees, when evaluating loan options.
  4. Use online EMI calculators to assess your repayment ability beforehand.

Read more:10 financial planning rules to manage money in your life

Eligibility Criteria for Different Types of Home Loans

Home purchase loans

  • Meant for buying a flat, row houses or bungalows
  • Can also be taken to build a house from scratch if you already own a piece of land
  • Maximum loan amount offered is usually 90% of the market value of the property
  • Eligibility criteria include age proof, address proof, income proof, identity proof, existing loan documents (if any), property documents, and home construction loan

Note: If you already own a piece of land and want to design the house according to your preferences, the cost of the plot is also considered during the approval process. The loan amount is decided based on a rough estimate of the construction cost and can also be taken to complete the construction of an unfinished house.

Home Improvement Loans

  • Age proof, address proof, income proof, and identity proof required
  • Estimated renovation cost and property title deed required

Home Extension Loan

  • Age proof, address proof, income proof, and identity proof required
  • Property extension documents and property title deed required
  • Anyone can avail of this loan, but you must not be over 70 years old at the time of loan maturity

Land Purchase Loans

  • Age proof, address proof, income proof, and identity proof required
  • Property documents required
  • Loan is used for purchasing land for building a home or other investment purposes
  • Eligibility criterion: must not be over 70 years old at the time of loan maturity

NRI Home Loans

  • Valid work permit proof, passport and work visa copy, copy of employment contract, last 3 months salary slip, and last six months salary account statement required
  • General power of attorney and property papers required
  • Previous year ITRs required (except for NRIs living in the Middle East or merchant navy employees)
  • Loan tenure can go up to a maximum of 30 years, and the lending rate can be kept fixed or floating

Balance Transfer Loans

  • Age proof, address proof, income proof, and bank statements showing repayment of current loan required
  • Property-related documents and loan statement and property documents in possession of the current lender required
  • Loan can be transferred to other lenders who can offer lower interest rates
  • Most profitable during the initial loan tenure when the loan EMIs are the highest

A step-by-step guide to applying for a home loan

  • Step 1: Check your eligibility criteria.
  • Step 2: Decide the particulars of your home loan.
  • Step 3: Compare offerings from different lenders.
  • Step 4: Fill in the loan application form.
  • Step 5: Attach necessary documents.
  • Step 6: Pay processing fee.
  • Step 7: Finalize loan terms.
  • Step 8: Get your documents verified.
  • Step 9: Get final approval for your loan.

Read more: Gold Loan or Personal Loan – Which one is better?

What are the prevailing home loan interest rates?

Banks’ lending rates vary between 6.5% to 12% due to inflation, repo rate changes, and other factors. Borrowers can choose a fixed or floating rate, with the former maintaining a consistent rate throughout the loan tenure and the latter subject to market fluctuations. Some banks offer special privileges, such as a 0.05% interest rate concession, to women borrowers, senior citizens, and bank staff.

Disclaimer: The article or blog or post (by whatever name) in this website is based on the writer’s personal views and interpretation of Act. The writer does not accept any liabilities for any loss or damage of any kind arising out of information and for any actions taken in reliance thereon. Also, and its members do not accept any liability, obligation or responsibility for author’s article and understanding of user.



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