Home Loan

Home loan is a secured loan offered by Banks, NBFCs and HFCs to help you buy a residential property. In this, the property you are buying is mortgaged to the lender as security till the full repayment of the home loan.

Currently, home loan interest rate starts as low as 6.40% per annum. Lenders usually sanction 75% to 90% of the property value as loan, which can be repaid in EMIs over flexible tenure usually up to 30 years. Other benefits that come with a housing loan include annual tax benefits, balance transfer facility and top-up loan facility.

With multiple lenders offering a home loan, finding the best home loan offer can be challenging. At Paisabazaar.com, we help you compare, select and apply for the best home loan from India’s largest Banks, NBFCs and Housing Finance Companies (HFCs). We provide comprehensive information on home loans along with the convenience to apply for a home loan online in just a few steps.

Interest rate can significantly influence the total cost of a housing loan. As home loans are usually of higher value and longer tenure, even a slight difference in its rate of interest can lead to long-term financial implications. Therefore, when looking for a home loan, you should choose the lowest rate on offer. Getting a housing loan at a lower rate of interest will not only reduce your outgoing EMIs but also the overall home loan interest payout.

Here is the list of top 10 lenders that offer the cheapest home loans in India:

Note: Home loan interest rates as of 11th November 2021. Home loan rates in the table are subject to the credit/ risk profile as assessed by the lender on the basis of parameters such as credit scores, age and repayment capacity of the applicant. Housing loan interest rates in the table are subject to change anytime without prior notice.

Prospective homebuyers, usually, are more concerned about the home loan interest rates and tend to overlook other expenses involved in taking a home loan. These additional charges also make up the total cost of your housing loan and hence must be factored-in when deciding on an offer. Below are some of the fees and charges that may be applicable to your home loan.

• Application Fee is charged by lenders to cover all the preliminary expenses that they bear for conducting verification.
• Processing Fee covers the cost of credit appraisal and depends on the borrowers’ credit profile, income and the home loan scheme. Also, not all lenders levy processing fees.
• Administrative fee is charged by those lenders who split the processing fee into two parts. The part charged after the loan sanction is known as the administration fee. Citibank is one of the banks to levy administrative fees.
• Foreclosure/Prepayment Charges are levied when a borrower prepays the home loan either fully or partially before the end of loan tenure. Earlier, lenders used to charge prepayment penalties and foreclosure charges on home loans. But RBI banned lenders from charging individuals with prepayment penalties on floating rate home loans. As far as fixed rate home loans are concerned, some lenders levy these charges.
• Repayment Mode Related Charges are levied when borrowers request their lenders to change their existing repayment mode during the loan tenure. The fee usually goes up to Rs. 500 per instance (swap) and varies from one lender to another.
• Rate conversion/switching fees are charged when borrowers request their lenders to switch or reduce their existing interest rates due to various reasons. The fee varies from one lender to another and usually goes up to 2% of the outstanding principal amount.
• CERSAI Charges (Central Registry of Securitisation Asset Reconstruction and Security Interest) is the central online security interest registry of India. Potential lenders visit CERSAI website to check whether the pledged property is not claimed by some other lender. For this process, the lenders pay a nominal fee, which they later collect from borrowers.
• Overdue Charges on EMI are levied when a borrower misses or delays timely payment of loan EMIs. It attracts penal interest rates on the outstanding dues or overdue instalment over the prevailing loan interest rates. Therefore, borrowers must pay loan EMIs on time.
• EMI Bounce Charges are levied when you fail to make timely loan payment due to insufficient funds in your bank account. Lenders usually levy Rs. 500 on such defaults which may vary from one lender to another.
• Legal Fee is usually included in the processing fee but some lenders charge it separately when they engage firms to scrutinise borrowers’ legal documents.
• Franking Fee, commonly referred to as stamp duty fee, is a tax levied by the state government on any form of monetary transaction involving the transfer of rights of a property. The amount varies from one state to another, and depends on state laws, type of property, etc.

The Government of India offers tax benefits on home loans under the Income Tax Act of 1961. These home loan tax benefits help borrowers save a substantial amount of money every year. Below are the tax benefits that you can get on your home loan EMI payments:

Note: In addition to the Section 24(b) of IT Act, you can claim tax benefit on home loan interest either under Section 80EEA or Section 80EE.

Home loan eligibility differs across lending institutions and loan schemes. However, common set of housing loan eligibility criteria is given below:

• Nationality: Indian Residents, Non Resident Indians (NRIs) and Persons of Indian Origin (PIOs)
• Credit Score: Preferably 750 and above
• Age Limit: 18 – 70 years
• Work Experience: At least 2 years (for salaried)
• Business Continuity: At least 3 years (for self-employed)
• Minimum Salary: At least Rs. 25,000 per month (varies across lenders & locations)
• Loan Amount: Up to 90% of property value

Apart from these, your home loan eligibility also depends on the property you are buying and the location of the property.

Home loan application forms usually have a checklist of documents that applicants need to submit to their lenders. These documents are usually the same for all lenders; however, a few specific requirements may vary depending on the chosen loan scheme, purpose of the loan and individual credit profile.

Some of the common documents required for getting a home loan are:

• Duly filled in and signed home loan application form
• Passport size photographs, as required
• Proof of Identity: Copy of any one (PAN Card, Passport, Aadhaar Card, Voter’s ID Card and Driving License)
• Proof of Age: Copy of any one (Aadhaar Card, PAN Card, Passport, Birth Certificate, 10th Class Mark-sheet, Bank Passbook and Driving License)
• Proof of Residence: Copy of any one (Bank Passbook, Voter’s ID, Ration Card. Passport, Utility Bills (Telephone Bill, Electricity Bill, Water Bill, Gas Bill) and LIC Policy Receipt
• Proof of Income for Salaried: Copy of Form 16, latest payslips, IT returns (ITR) of past 3 years and investment proofs (if any)
• Proof of Income for Self Employed: Details of ITR  of past 3 years, Balance Sheet and Profit & Loss Account Statement of the Company/Firm, Business License Details and Proof of Business Address
• Property-related Documents: NOC from Society/Builder, detailed estimate of the cost of construction of the house, registered sale deed, allotment letter and an approved copy of the building plan
•  

Note: The above list is indicative and your lender might ask for additional documents.

You can compare and apply for eligible home loan offers in three simple steps:

Step 1- Share Your Details

Enter personal information as well as the details related to your loan requirements.

Step 2- View Offers

As per the details shared, a list of eligible home loan offers will appear. Compare interest rate, processing fee and eligible loan amount from the list of eligible home loan offers.

Step 3- Submit the Application

Apply for the home loan offer that suits your loan requirements the best. 

Once your application is successfully submitted, you will get a confirmation of your home loan application along with a reference number for future reference. Next, our loan expert will get in touch within 24 hours to take this application forward.

Q. Can I get a home loan for the entire property value?
A. No. Banks usually keep a 20% margin when providing individuals with a home loan. This means that the lender may agree to provide you with 80% of the property value as a home loan, while you will have to shell out the remaining 20% by yourself. In some cases, the lender may agree to provide you with up to 90% of the property value as a home loan, depending on multiple factors such as your repayment capacity, age, credit score and property related details such as its location, age and market value.

Q. For what purposes can you avail a home loan?
A. Following are few of the reasons to avail a home loan –

• To buy a new house/plot
• To construct a house
• To renovate or repair damages to your home
• To add a new room to your already existing home, or to expand the space in your house in some other way

Q. Which bank is the best for home loans?
A. Some of the most popular banks offering home loans in India are HDFC Bank, SBI, PNB, ICICI Bank, Bank of Baroda, Axis Bank and Canara Bank. However, the best home loan for you would be the one that matches your loan requirements. Therefore, to get the best bank for home loan first analyse your requirements. Also, when comparing home loan offers don’t jump for the offer that offers the lowest interest rate, rather check on the entire deal. Besides the interest rate, pay attention to other parameters such as processing fees and loan repayment and prepayment policies.

Q. How much credit score should I have to get a home loan?
A. Credit score is a number between 300 and 900 that reflects how you handled your credit in the past. It not only affects the chances of your loan approval but also the interest rate at which you can borrow a sum. Most lending institutions offer the lowest rates to borrowers who have a credit score of 800 or above. Otherwise a credit score between 750 and 900 is considered good by lending institutions. Remember, higher the credit score, greater are the chances of getting your home loan approved and getting a lower preferential interest rate. Even if your credit score is low, you can improve it by paying credit card bills on time, decreasing your outstanding debt and maintaining old credit card accounts in good standing.

Q. Who can cosign a home loan with me? Can my friend cosign a home loan for a flat?
A. Your family members like father, mother, siblings, etc. can co-sign a home loan with you. Other than that your spouse or adult children can also be co-signatories in case you are applying for a home loan. In India, as per existing rules, your friend cannot co-sign a loan as he/she is not a blood relative or otherwise related to you.

Q. How many people can cosign a home loan with me?
A. At present, up to 7 people can cosign a home with the primary applicant. However, all of them need to be blood- relatives of the family member.

Q. What are the reasons for home loan rejection?
A. Factors that can play a crucial role in home loan rejection are mentioned below:

• Low credit score
• Incorrect personal details in credit report
• Frequent credit rejections by other lenders
• Unstable or insufficient income
• Age factor
• Location of the property

Q. How to avoid home loan rejection?
A. The below mentioned steps can prove to be beneficial to avoid home loan rejection:

• Credit Score: It is advisable to maintain a credit score of 750 and above to have a good chance of your application being approved. Banks & Financial Institutions rely on credit score before approving your home loan to check your credibility and loan repayment history. So, you should always maintain your credit score to avoid home loan rejection.
• Insufficient Income: Banks and financial institutions look into your monthly income to see if you will be able to repay your equated monthly instalments (EMIs) or not. It is always advisable to take a home loan with EMI not more than 40% of your monthly income. Lenders have certain minimum income and employment requirements which play an important role in the loan-approval process. Make sure that you meet all the requirements before you apply for a home loan.
• Too many applications for home loan in a short span of time: If you apply for a home loan from different lenders, it indicates to banks and financial institutions that you are short of credit and need to apply to several sources to fill the gap. Lenders think that you will not be able to repay your loan, which leads to rejection of your home loan application.
• Existing loan portfolio: Currently, if you have a number of loans to repay, then your lender might think that you will not be able to take on another EMI on your existing income, which will lead to your home loan rejection. So, it is better to apply for a home loan once you have paid off a few of your other loans to reduce your EMI burden.

Q. How to improve home loan eligibility?
A. Potential home loan borrowers can enhance their home loan eligibility in the following ways:

• Improve your credit score: A good credit score improves your chances of loan approval so that you can avail a home loan at lower interest rates and better terms. Paying your bills on time and maintaining a credit utilisation ratio below 40% are some of the ways to improve and maintain your credit score.
• Pay higher down payments: Financial institutions lend 75-90% of the property value. This implies that the remaining 10-25% of the property value has to be contributed as down-payment by borrowers. To increase your home loan eligibility, make a higher contribution towards your home loan down payment. Doing so will lower your LTV ratio; thus, improving your home loan eligibility.
• Add an earning co-applicant: Add an earning co-applicant with good credit history and satisfactory repayment capacity to increase your home loan eligibility. Joint home loan might even help you get a higher loan amount and concession on your home loan interest rates (if the co-applicant is a woman).

Q. Are there any prepayment charges in case of a home loan?
A. In case of a floating rate home loan, lenders don’t charge a pre-payment penalty as per RBI directives however a penalty may be applied in case of prepayment of a fixed-rate home loan.

Q. What is a LTV Ratio?
A. Loan-to-Value (LTV) Ratio is one of the factors, based on which a lender sanctions a home loan. It tells you the maximum loan you can get against the appraised value of the property you pledged as collateral. It is always expressed in percentage. So, if you are buying a home costing Rs. 1 crore, and your lender’s LTV ratio is 75%, then the maximum financing or loan you will get from your lender is Rs. 75 lakh.

Lenders use LTV Ratio and other such series of calculations to assess their risk in sanctioning a secured loan such as a home loan. With this ratio, a financial institution ensures that it does not sanction a loan amount higher than the appraised price of the property. For a lender, a higher LTV ratio increases the perceived risk of default. Also, it is important to note that property value is not the sole factor that determines the loan amount. Lenders also consider other factors such as your credit score and repayment capacity to decide the loan amount. Lenders use LTV ratio only to determine the maximum loan amount, based on the property value.

Q. What is a home loan balance transfer?
A. Home loan balance transfer is a facility that allows home loan borrowers to transfer their outstanding home loan to a new lender for lower interest rate or better loan terms. Almost all lenders offer the home loan transfer facility to their customers. Paying your loan EMIs regularly is one of the factors that help you enjoy loan transfer facility. But before going for home loan balance transfer, carry out a cost-benefit analysis. Calculate the difference between the interest rates offered by the two lenders, the amount of the loan left unpaid and the remaining tenure.

Home loan balance transfer is not an ideal option if the outstanding loan amount is low, if only a few repayment years are remaining or the difference in the interest rate is leading to negligible savings. Also, do not forget to consider processing fee charges, which the new lender would be charging for balance transfer.

Q. What are the different types of home loan available in India?
A. Banks and Non-banking Finance Companies (NBFCs) offer home loans for different purposes. So before applying for any type of home loan, assess your requirements in order to get a suitable home loan scheme. Some of the types of home loans available are as follows:

• Home Purchase Loan: It is the most common type of home loan availed usually to buy ready-to-move-in properties, under construction properties and pre-owned homes/resale properties. As per RBI guidelines, lenders can offer loan-to-value (LTV) ratio of up to 75-90% of the property value
• Composite Loan: It is a perfect financing solution for individuals who want to buy a plot of land either for investment or for building a house. In this type of home loan, the first disbursement is made towards the purchase of a plot. The subsequent payments depend on the stages of construction of the house
• Home Construction Loan: This type of home loan is available for individuals who want funds for the construction of a house. The loan is granted only if you own a plot of land and plan to construct a house on it. Just as in composite loan, here too the disbursement depends on the stages of construction of the house
• Home Renovation/Improvement Loan: The can be availed to fund home renovation and home repairing expenses of the existing house. The interest rate for this loan is the same as that for a regular home loan. However, its loan tenure is shorter than the regular home loan
• Home Extension Loan: It is for those who require funds to add more space to their abode. Under this loan type, financial institutions usually lend 75-90% of the construction estimate, depending on the loan amount and LTV ratio
• Bridge Loan: It is a short-term home loan and is suitable for individuals who wish to buy a new house with the sale proceeds of the existing home. The loan helps in covering the gap between the purchase of a new house and the sale of an existing house
• Interest Saver Loan: It is similar to a home loan overdraft facility. In this, the borrowers’ home loan account is linked to their bank account. Any amount deposited in the bank account over and above the EMI amount is used as prepayment towards the loan, thus, saving on the interest amount
• Step Up Loan: Yet another type of home loan in which borrowers pay lower EMIs during the initial years of the loan tenure. However, there is a provision of increasing the EMI amount over time. This makes the loan affordable for young professionals who just start their career

Kotak Mahindra Bank is offering its home loan at 6.5% p.a.

10 September 2021: Kotak Mahindra Bank was offering home loan at the lowest rates but has decided to lower it further for a limited festive period. Currently, Kotak Mahindra home loan interest rate is 6.50% p.a., which is applicable on both fresh and home loan balance transfer loans. This special home loan rate is valid from 10th September, 2021 to 8th November 2021.

LIC Housing Finance lowers its home loan interest rate

01 July 2021: LIC Housing Finance has lowered its home loan rate from 6.90% to 6.66%. This is a limited period offer applicable to the loans sanctioned till August 31, 2021. The home loan interest rate is available on loan amounts of up to 50 lakh (salaried individuals) and for a tenure of 30 years. However, Kotak Mahindra Bank and Punjab and Sind Bank offer the lowest home loan interest rates at 6.65%. However, borrowers need to know that these interest rates are available only to applicants with a credit score of 800 and above.

RBI keeps repo rate unchanged

04 June 2021: The Monetary Policy Committee (MPC) of RBI has kept the repo rate unchanged at 4%. Since October 1, 2019, RBI has mandated banks to offer retail loans such as home loan linked to an external benchmark, which for most banks is the RBI repo rate and are called Repo Linked Lending Rate (RLLR). There may not be a big impact on the home loan interest rate even though going forward, the MCLR may see a minor fall with some banks.

Punjab National Bank reduces its MCLR

01 June 2021: PNB has reduced ìts 1-year Marginal Cost of Funds Based Lending Rate (MCLR) by 0.05% to 7.30%. The revised MCLR rates came into effect from June 1, 2021. The bank has also reduced its 6-month and 3-month tenor MCLR by 0.10%. While, 1-month, overnight, and 3-month MCLRs remained at the same level at 6.70%, 6.65% and 6.80%, respectively.

SBI reduces its home loan interest rate

01 May 2021: From today, the State Bank of India has reduced its housing loan interest rates from 6.95% per annum to 6.65% p.a. SBI home loan interest rates will start from 6.7% for loans up to Rs 30 lakh and 6.95% for loans above Rs. 30 lakh and up to 75 lakh. The big-ticket loans above Rs 75 lakh would get home loans at 7.05%. Further, women will get a special 5 bps concession, resulting in decreases in home loan rates by another 0.5%. Customers can also apply for a loan from the ease of their home via the YONO App to earn an additional interest concession of 5 bps.