A Home Loan is a secured loan product where the lender provides finances for the purchase or construction of a Residential/Commercial property. One can also avail a housing loan to buy a plot of land and construct on it. Home Loans are also issued to extend/ repair/ renovate/ alter a new or second-hand property. The Home Loan is taken by a borrower against the Property/Security to be bought. This is done by giving the banker a conditional ownership over the property i.e. if the borrower fails to pay back the loan, the banker can retrieve the lent money by selling the property.
Most lenders get the property valued independently and provide loans based on their estimated value. It is important to remember, however, that frequently their valuation is significantly lower than the actual cost and hence the requirement of the borrowers goes up.
Home loans in Indian Banks are provided up to maximum of 80% (90% for loan amount below INR 20 lakhs) of the value of the house. Home loans are repaid using Equated Monthly Installments (EMIs) spread over a fixed tenure.
Home Loan eligibility depends upon various factors. A few of them are listed here –
- Income – Your income determines the amount of home loan you are eligible for. Banks generally keep the EMI to income ratio at 0.45 to 0.50.
- Tenure – The longer tenure you opt for, the more is your home loan eligibility and the lesser is your EMI.
- Age – Your age will determine your home loan tenure and hence your eligibility.
- Interest Rate offered – Banks offer Fixed and Floating Rates of Interest. If your interest rates are on a lower side, then the loan eligibility will be higher.
- CIBIL Score – Your credit report tells the bank about your repayment capacity and hence determines if you're eligible for a loan.