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  • Home Loan Guide for First Time Home Buyers

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  • 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.

    While the internet is already rife with plenty of guides to help you through a home loan process, the ones available simply aren’t effective enough as they don’t cover all the bases. However, you can count on this page to give you all the information you need. From the mundane to the magnificent, you will learn all that you need to about a home loan.

    So, let’s begin with the essentials.

    Home Loan: What is it?

    A Home Loan is basically a form of financial reinforcement availed of to fund the purchase or construction of a house. In the present times, a home loan can also be used to refinance an already existing home loan or simply reimburse the cost of buying a second-hand property.

    Home Loan and Its Basic Types:

    There are several different types of home loans, depending on the purpose they are used for. Some of the most commonly seen ones are:

    • Home Purchase Loans

      Home purchase loans are, by far, the most popular types of home loans in India. This is where an individual uses the disbursed loan amount to purchase a newly built apartment or an already constructed property. Nearly every bank and financial institution in India offers this type of loan. Each of the banks, however, follow their own interest rate policy and loan terms.

    • Land Purchase Loans

      Land purchase loans, as the name suggests, are used to fund the purchase of a land where an individual is planning to construct their home. Lenders usually provide a maximum of 85%-90% of its cost, while the other 15% should be put together by the applicant.

      All the major banks and NBFCs like HDFC Bank, Axis Bank, Punjab National Bank, and DHFL among many other offer land purchase loans, albeit under a different names.

    • Home Construction Loans

      These type of loan is available for individuals who are planning to build a house of their own land. The application and approval process to avail this loan though is a little tricky. Take for example, if the individual wants the cost of land to be included as a component for the total price of the house, they must have bought the property within the previous year.

      Again, every major bank in India like HDFC, Axis, State Bank of India, Canara Bank, UCO Bank et al offer this type of loan.

    • Home Improvement Loans

      Home improvement loans are taken by individuals who are unable to mobilise enough funds to renovate the house they are living in. The maximum home improvement loan an individual is eligible for depends entirely on their debt-to-income ratio and their financial standing.

    What Is The Eligibility Criteria for a Home Loan?

    All banks and NBFCs in India have their own eligibility criteria a prospective home loan buyer has to meet. Here’s a list of the primary requirements.

    1. You need to be aged between 18 and 60 years.
    2. You need to be a salaried or a self-employed individual with a steady income.
    3. You need to earn more than the minimum income quoted by the banks.

    These three aspects qualify you for a loan. However, there are a few other factors on which your application hinges. They are:

    1. Your monthly income: When you apply for a home loan with any lender, you need to prove to them that you have at least 50% of your income ready to serve the EMIs.
    2. Other loan commitments: Having a high monthly income doesn’t necessarily guarantee you a home loan. Also, if you are in the pursuit of repaying any other loans, the total loan amount you’ll be eligible for will significantly decrease. This is why you need to make sure to clear every other loan commitment before applying for a home loan.
    3. Your down payment capability: A lender never gives out the entire loan amount you’ve applied for. In fact, the most they will give you is 80% of the value of the property. The other 20% funds should be mobilised by you. If you are applying for a new home loan, you should make sure to have the down payment fund ready so that your application doesn’t get rejected.

    What are The Documents Required to Apply for a Home Loan?

    Every home loan provider more or less follow the same documentation process before signing off on the loan application. Here are a list of documents you need to keep ready when you decide to take a home loan.

    1. Fully filled and signed application form along with a photograph.
    2. Identification proof and residence proof: For ID proof you can provide anything like your PAN Card and for residence proof, you need to provide a copy of your passport/driving license or any of the latest utility bill.
    3. Cheque for the processing fee.
    4. Bank statements of the previous 6 months.

    Besides these, there are also a few other documents you need to provide depending on whether you are a salaried or a self-employed professional.

    Salaried professionals need to provide their pay-slips for the last three months along with their Form 16 or Income Tax Returns (ITR) filing.

    Self-employed professionals, on the other hand, need to provide proof of education qualification certificate and proof of their business’ existence. Apart from this they need to provide proof of ITR for the previous three years which should also include the computation of income. Lastly, they need to provide a CA audited/certified balance sheet and profit-loss account for the previous three years.

    What are The Different Types of Home Loan Interest Rates in India?

    Before we head into home loan interest rates in India, let’s first ascertain how a rate is fixed. An interest rate on a home loan is dependent on two policies: Marginal Cost of Lending Rates (MCLR).

    MCLR policy is a policy brought into effect by the Reserve Bank of India (RBI) from April 2016 in place of Repo Rate policy. It plays a featuring role in determining the home loan lending rates set by financial institutions. Under this policy, banks need to fix a base rate based on their cost of running business based on which which they can quote an interest rate as per the borrower’s risk factor.

    If RBI increases or decreases the repo rate significantly, banks and financial institutions need to follow suit to correct the base rate as per guidelines.

    Now, that the basics of how an interest rate is set is ascertained. Let’s talk about the different types of interest rates available in India, of which they are two.

    1. Fixed Interest Rate Home Loan:

      A fixed interest rate home loan is a type of home loan rate, wherein the interest rate is fixed for the entire tenure of the loan. This means that the interest rates aren’t likely to change even if there are significant changes in the economic market. Under this type of loan, a major component of EMIs in the beginning go into servicing the interest while the principal repayment only comes in the latter half.

      Some of the advantages and disadvantages of Fixed Interest Rate Home Loan include:

      Advantages Disadvantages
      Interest rate stays the same through the tenure, which brings a level of certainty for the borrower. These loans usually workout a good 1%-2.5% more than floating rate loans.
      Helpful for good budgeters as it comes with a fixed monthly repayment schedule. Borrowers cannot take the advantage of an interest rate cuts during their loan tenure.
    2. Floating Interest Rate Home Loan:

      A floating interest rate home loan is a home loan where in the rate of interest varies according to the market conditions. This means that interest can either go up or down depending on how the market is performing.

      Some of the advantages of floating interest rate home loan include:

      Advantages Disadvantages
      Comparatively cheaper than fixed interest rate home loans, as long as the market remains stable. Market is volatile and any unexpected downturn can increase the interest rates and in turn EMIs significantly.
      This type of loan is cyclical as interest go up and come down often. This helps a borrower save a considerable sum on interest paid. If the rate goes beyond 11.5% or so, this type of loan can become an expensive burden for the borrower.

    Things That Affect Your Home Loan Application and Approval Process

    There are plenty of factors that will have a bearing on how your loan application fares with a a lender you have chosen to apply with. They are:

    1. Age
    2. Income bracket
    3. Property type and its location
    4. Market value of the property

    After you submit the required documentation to the lender, they will thoroughly vet the details you’ve provided to ensure that they check out. Depending on their findings, you will be offered a loan deal. One important thing you should understand here is that their findings will be directly proportional to the term and conditions you get.

    What Are The Home Loan Deals Offered By Some of The Leading Banks?

    Here are some of the best home loan deals offered by some of the leading banks in the country.

    • State Bank of India:

      SBI, one of the largest banks in the world, currently offers a floating rate home loan deal with a base rate of 9.75% per annum. The lending rates, however, are slightly higher. For a loan of up to Rs. 30 lakhs, the interest rate stands at 0.25% above the base rate, effective bringing the overall interest to 10%. For loans above Rs. 30 lakhs, the rate stands at 0.40% above the base rate, which brings the rate to 10.15%. The maximum tenure SBI offers goes up to 30 years.

    • HDFC Bank

      HDFC Bank, one of the largest financial institutions in India with regards to market capital to market capitalization also has an extensive home loan offering. The bank uses the Retail Prime Lending Rate (RPLR) - Spread formula to determine the interest rate, where in RPLR is the minimum rate at which the it lends and spread is discount or markup offered on the loan.

      It basically offers 3 different variants of home loans. They are:

      1. Called the Adjustable Rate Loan, this loan offers any amount at a rate that goes between 9.45%-9.95%. Here’s a table that lists the rates.
        Loan Amount Interest Rate (p.a.) RPLR - Spread
        For Women* (Any Loan Amount) 9.40 to 9.90 RPLR - (6.90 to 6.40)
        Any Loan Amount 9.45 to 9.95 RPLR - (6.95- 6.45
      2. Known as the TruFixed Loan, this loan comes with 2 and 3 year fixed rate variant. In this case too, the bank is ready to offer any loan amount.
        Loan Amount Interest Rate during 2nd and 3rd year of fixed rate term (p.a.) Interest rate after the end of fixed rate term
        For Women* (Any Loan Amount) 9.50 to 10.00 RPLR - (6.80 to 6.30)
        Any Loan Amount 9.55 to 10.05 RPLR - (6.75- 6.25)
      3. This is yet another offering, known again as TruFixed Loan, is available for 10 year fixed variants.
        Loan Amount Interest Rate after the 10 year fixed rate term (p.a.) Interest rate after the end of fixed rate term
        For Women* (Any Loan Amount) 9.70 to 10.20 RPLR - (6.60 to 6.10)
        Any Loan Amount 9.75 to 10.25 RPLR - (6.55- 6.05)
    • ICICI Bank:

      ICICI Bank, also among the leading banks in the country is offering a good home loan deal too. Here’s are a few tables that list out ICICI bank’s offering for salaried and self-employed individuals.

      For all intents and purposes I-MCLR- 1Y is the home loan benchmark set by the bank.

      1. Fixed Interest Rate for full tenure:
        Loan Amount Effective Rate of Interest (p.a.)
        Upto Rs. 30 lakh 9.75%
        Above Rs. 30 lakh 9.85%-10.10%
      2. Floating Interest Rate Loan:
        Loan Amount Effective Rate of Interest (p.a.) Rate
        Upto Rs. 5 crores 9.45% I-MCLR-0.30%
        Above Rs. 5 crores 9.75% I-MCLR-0.55%
      3. Fixed Interest Rate for 2,3 years:
        Loan Amount Fixed rate for 24/36 months Floating rate from 25th/37th month
        Upto Rs. 5 crores 9.35% I-MCLR-1Y +0.35%
        Above Rs. 5 crores 9.70% I-MCLR-1Y + 0.60%
      4. Fixed Interest Rate for 5,10 years:
        Loan Amount Fixed rate for 60/120 months Floating rate from 61st/120th month
        Upto Rs. 30 lakhs 9.45% I-MCLR-1Y +0.35%
        Above Rs. 30 lakhs 9.55%- 9.80% I-MCLR-1Y + (0.45% to 0.70%)

    What Are The Things You Should Keep in Mind Before Applying For a Home Loan?

    A home loan can be a massive burden if you don’t consider all the details that go into it. Here are a few things you should keep in mind before applying for one.

    1. Your Borrowing Capacity:

      You shouldn’t opt for a higher loan amount just because you draw a bigger paycheck. Before applying for a home loan, you should carefully understand your borrowing capability. But, how can one exactly find out the loan amount they are eligible for? It’s fairly simple.

      First things first, you need to keep in mind all the expenses you incur in a month. These may include your regular household expenses, travel, kids’ fees, utility bills, pending loan payments, and miscellaneous expenses. Once you’ve listed down all these expenses, the amount you are left with is what you can use to make the EMI payments on the home loan.

    2. Credit Score:

      You may not feel the importance of credit scores all that much, but it is the most crucial determinant of the interest rate you are likely to get. For a good home loan rate, you will need to maintain a credit score of 750 or above. Having a score such as this would endear a lender to you as they are less likely to be a liability for them. This will also help you get an interest rate which is a which basis points lower that what they officially claim.

    3. Loan Tenure:

      Home loans can often go on for over 20 years, and up to 30 years, in the case of SBI. Analyse the loan tenure you’ve been offered and see if the tenure works out for you. If you think you need more room, negotiate a better term with the bank or reduce the total loan amount you have applied for instead.

    4. The Terms and Conditions of The Loan:

      The terms and conditions you sign when borrowing a home loan is legally binding, which suggest that you have read all the terms and conditions laid out by the bank and comply with the offer. What you may not know, however, is that this is also one of the places where lenders tend to add draconian clauses and enforce them. So, avoid falling into such rabbit holes and make sure to go through all the clauses and sub clauses mentioned in the loan agreement before signing on the dotted lines.

      In the current market, purchasing a home is nothing short of an achievement. To make the best out of the situation always make sure to take a well-informed decision.

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    Home Loan Guide for First Time Home Buyers Reviews

    • ICICI Bank Home Loan
      "Excellent Loan"
      0.5 5.0/5 "Blown Away!"
      I have taken home loan from ICICI Bank, my loan was sanction on time and its going to be disbursed soon. The amount of the loan is 18 lakh . the bank informed me that for construction plan I have to pay for 3 lakh. The interest rate is 8.65% but the bank will be reducing the rate by 1.5% from next month.
      Was this review helpful? 0
      , new delhi
      Reviewed on Mar 21, 2020
    • IndusInd Bank
      IndusInd Bank Home Loan
      "Not good loan"
      0.5 3.0/5 "Satisfactory"
      I have taken INDUSIND home loan because my friend suggested it to me.The tenure of the loan is for 17 years with an interest rate of 11.5%. For submission of documents i have to run up and down apart from that it was fine.But it would have been good if the procedure is little short and not to deduct any installment from account without clearing the check first.
      Was this review helpful? 0
      , ahmedabad
      Reviewed on Mar 20, 2020
    • LIC Housing Home Loan
      "Best housing loan "
      0.5 5.0/5 "Blown Away!"
      Before 4 years ago, purchased my home loan from LIC Housing finance. Due to the low interest rates, i have selected LIC Housing. Taken the loan amount of Rs. 14 lakhs and i am paying the EMI amount of Rs. 12940 per month. Total duration of the loan is 15 years.
      Was this review helpful? 1
      , tirupur
      Reviewed on Mar 20, 2020
    • Tamilnad Mercantile Bank Home Loan
      "Average Service"
      0.5 2.0/5 "Expected more"
      I have taken home loan directly through Tamilnad Mercantile Bank.The rate of interest and the processing fee was high .This loan was sanctioned on time and i have uploaded the documents through online . The service was average according to my concern.
      Was this review helpful? 3
      , surat
      Reviewed on Mar 15, 2020
    • Syndicate Bank Home Loan
      "Easy loan approval"
      0.5 5.0/5 "Blown Away!"
      I have taken home loan directly through SYNDICATE BANK. The rate of interest and the processing fee was nominal.This loan was processed on faster basis without any hassles.They gave a clear picture about the loan process .There was proper notification from bank end and i am satisfied with the service .
      Was this review helpful? 3
      , bangalore
      Reviewed on Mar 14, 2020
    • ICICI Bank Home Loan
      "Disappointed with ICICI"
      0.5 0.5/5 "Unacceptable"
      I hand applied for the Home construction loan @ Rabakavi Branch, Karnataka. We provided all the legal & Income documents. Loan got approved but they dragged it for 4 Months for the final steps and did not disburse finally saying legal issues which are absurd.
      Was this review helpful? 1
      , rabkavi banhatti
      Reviewed on Mar 14, 2020
    • review Home Loan
      "Supporting finance"
      0.5 5.0/5 "Blown Away!"
      Long back ago, i have taken the home loan from GIC Housing finance. Its because of the immediate process, i have selected this bank. Interest rates were normal because it was 8.35%. I bought the loan amount of Rs. 2.5 lakhs and the documentation process was hassle free. I have chosen a duration of 10 years to close this loan. I have already close the loan 5 years before and they have given me a NOC letter also.
      Was this review helpful? 1
      , chennai
      Reviewed on Mar 13, 2020
    • SBI Home Loan
      "Easy loan approval"
      0.5 4.0/5 "Great!"
      I have taken home loan directly through SBI .The rate of interest was nominal and this loan is still active .Everything was good to me when availed this loan .The loan process was clearly shared by the agent .I am really satisfied with the service . Without any hassles got this loan.
      Was this review helpful? 5
      , indore
      Reviewed on Mar 13, 2020
    • Indiabulls Home Loan
      "Need to improve customer service "
      0.5 2.0/5 "Expected more"
      At an Initial I took home loan from DHFL on sudden from their end transferred the process to INDIA BULLS without any intimation. But one issue was faced that my documents not submitted to INDIA BULLS hence I have submitted again. The amount sufficient was fine. EMI need to pay of 36K. The rate of interest is started with 8.35% gradually increased hence on last months was 8.90%. Their service is not good coordination with me.
      Was this review helpful? 1
      , thane
      Reviewed on Mar 12, 2020
    • review Home Loan
      "Home loan closer conditions"
      0.5 1.0/5 "Really Bad"
      Hi All, If any of the builder suggest to go for this bank don't ever go for it... For every 6 months they increase the ROI even RBI is decreasing... Pre closer is a hell for me ...bi have provided a cheque after 15 days they started processing the request to close... From my pocket I paid 30000 rs extra for closing...
      Was this review helpful? 1
      , bangalore
      Reviewed on Mar 11, 2020
    • Indiabulls Home Loan
      "Good service"
      0.5 4.0/5 "Great!"
      I took home loan from INDIA BULLS, some people suggested to take a loan from this bank so chosen it. They have sanctioned the loan amount of 15L with tenure period of 15 years. Rate of interest is nominal. EMI need to pay of 17K. The processing fee is applicable. Since I am going to buy a plot so taken this loan offer.
      Was this review helpful? 1
      , hyderabad
      Reviewed on Mar 11, 2020
    • LIC Housing Home Loan
      "Very good home loan and need to improve the interest rate"
      0.5 5.0/5 "Blown Away!"
      My home loan was taken from LIC Housing because their processing time and charges are less but interest rate is little bit high when i compared to other Government banks. They have taken 1 week to sanctioned the loan. Documentation process is as usual like other banks. They have provided me a interest rate of 8.45%.
      Was this review helpful? 4
      , kolkata
      Reviewed on Mar 10, 2020
    • Union Bank of India Home Loan
      "Average Service"
      0.5 3.0/5 "Satisfactory"
      I have taken home loan directly through Union Bank Of India .The rate of interest and the processing fee was nominal and submitted documents through the agent ,This loan is still active and i have taken this loan for home construction. There are more hidden charges which was informed later this was the only issue. I have been informed that will receive Rs.7000 to 8000 due to good credit score but it was not happened.
      Was this review helpful? 0
      , chennai
      Reviewed on Mar 09, 2020
    • HDFC Limited Home Loan
      "Excellent service"
      0.5 5.0/5 "Blown Away!"
      HDFC people guided to take Pradhan Mantri scheme for the home loan. The amount was sanctioned of 25L and subsidiary amount of 2.67L. The tenure period of 20 years. An interest rate was fine of 8.5%. Pre closure is applicable with nominal charge. The process was good hence they have sanctioned the loan within 20 days. EMI need to pay of 22413 rupees.
      Was this review helpful? 4
      , kanchipuram
      Reviewed on Mar 09, 2020
    • LIC Housing Home Loan
      "Need to decrease the interest rate"
      0.5 4.0/5 "Great!"
      From LIC, they offered a home loan and the loan amount was Rs. 27,00,000. The rate of interest was high 9.15% with the duration period of 20 years and i am paying EMI of Rs.24,000 and they given this loan very faster . LIC have a good customer service.
      Was this review helpful? 1
      , lucknow
      Reviewed on Mar 09, 2020
    • HDFC Limited Home Loan
      "Comfortable process "
      0.5 5.0/5 "Blown Away!"
      I got home loan offer from HDFC Limited on one year back. I applied via online, the amount was sufficient with tenure period of 15 years. The rate of interest is moderate. I took this loan to buy an apartment. EMI need to pay of 36K. Pre closure is applicable but there is locking period of 6 months. Their service is good.
      Was this review helpful? 1
      , alleppey
      Reviewed on Mar 07, 2020
    • HDFC Limited Home Loan
      "Best Service"
      0.5 4.0/5 "Great!"
      I have taken home loan directly through Hdfc Ltd.The rate of interest and the processing fee was nominal.This loan was processed on faster basis without any hassles.The agent gave a clear picture about the loan process .There was proper notification from bank end and i am satisfied with the service .
      Was this review helpful? 2
      , chennai
      Reviewed on Mar 06, 2020
    • review Home Loan
      "Good service"
      0.5 3.0/5 "Satisfactory"
      I took home loan from MAGMA HOUSING FINANCE on 6 months back , the loan duration of 20 years for the amount of 18L. The amount was sanctioned by one month. To buy the flat taken this loan. EMI need to pay of 15,600 rupees. There is pre closure is applicable. The customer service is good.
      Was this review helpful? 1
      , vadodara
      Reviewed on Mar 06, 2020
    • review Home Loan
      "Average Loan Service"
      0.5 3.0/5 "Satisfactory"
      I bought my home loan from Fullerton but an interest rates are high. In the call centre, there is no proper response for any kind of inquiry and if I sent a mail only they will send the reply after 48 hours. They have sanctioned the loan amount of Rs. 10L and they have not provided the loan as per their committed time.
      Was this review helpful? 0
      , chennai
      Reviewed on Mar 06, 2020
    • HDFC Limited Home Loan
      "Good Loan Service"
      0.5 5.0/5 "Blown Away!"
      In HDFC, they were forcing me to taking a home insurance when i availed my home loan. Its just because of my landlord person since he was having their existing loan with HDFC hence have continued the same. They have offered me an interest rate of 9.25% and i need to pay the EMI amount of Rs. 10000 for the loan amount of Rs. 10 lakhs.
      Was this review helpful? 0
      , rajkot
      Reviewed on Mar 05, 2020
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