All you need to know about Home loans
Most of the first time home buyers go for a home loan. Loan can be availed for buying new house or apartment, renovation,extension or repairs of your existing houseHome loans are categorized as good loans as the value of house appreciates with time.
Buying a home is a high value purchase and associated home loan is a long term commitment, so go through below basics before you take the plunge.
Eligibility criteria for home loans :
Home loan is available to any individual above 18 years of age and working in Government or reputed company, professional like doctors,engineers,C.A etc and any self-employed filling tax returns.
Maximum age is generally restricted at loan maturity to 60 years or superannuation for salaried individual and 65 years for professionals and self employed.
Some financiers have minimum age limit of 21 to 25 years and maximum 70 years.
Loan amount eligibility for home loans:
Generally 20% of property value should be paid by the borrower while the balance 80% is provided by the lender in form of home loan. For loans up to 30 lacs one can get loan amount up to 90% of property value.
Note: Loan is not available not on registration, stamp duty, VAT, service tax and other documentation charges
Interest rate options in home loans:
a) Floating interest rate: Interest varies over the entire loan tenure in-line with market interest rates. Floating rate for banks is linked to their base rate, while for finance companies it is linked to their benchmark prime lending rate.
b)Fixed interest rate: Interest is locked for certain period of time i.e 1 year to 10 years, depending on the option selected. After completion of lock-in period the loan will be switched to floating rate option. Fixed interest rate is usually higher than floating rate option.
Fixed interest rate for entire loan tenure is also available with certain lenders, but they charge higher interest rate than standard fixed interest loan.
c) Interest rate saver: In this option your current account with lender is linked with your home loan account. Home loan interest is calculated on outstanding principal amount minus the amount in your current account. Interest rate is slightly higher than floating rate option, but you can save on home interest by parking surplus funds in the current account.
Tenure on home loans:
It is the period for which the loan is granted to borrower. Borrower is supposed to pay EMI for this period to pay back the home loan to the borrower.
Home loan tenure is offered upto 30 years term but depends upon the age of the borrowers. Lenders ensure that loan tenure does not extend beyond the retirement age of the borrower.
For example if 40 year old person who is supposed to retire at the age of 60 will be eligible only for a tenure more than 20 years,while a 30 year old will be eligible for 30 year period.
EMI on home loans:
Home loan EMI is calculated based on loan amount, interest and tenure of home loan. As a thumb rule your EMI will be Rs 1000 per lakh of loan amount.
Tax exemption on home loans
Tax Exemption is available on home loans under section 80C and 24C
Principal payment, Stamp duty and registration fee payment upto Rs 1,50,000 /- per yearqualifies for tax deduction.
Tax benefit can be claimed only after construction of property is complete.
Exemption is not available for loan taken for home renovation.
Interest payment up to Rs 2,00,000 /- per year qualifies for tax deduction.
If property is let out then there is no limit on deduction which can be claimed ,but rental income is added to taxable income.
Interest payment deduction is reduced to Rs 30,000/- per year if construction is not completed within 3 years from the end of the financial year in which loan was availed.
Interest paid during construction period is allowed as deduction in five equal annual instalments, commencing from the year in which the house property is acquired or constructed.
If loan is taken for home renovation then deduction amount is capped at Rs.30,000 /- per year.
If the home loan has joint holder then the deduction is allowed to each co-borrower in proportion to his share in the loan.
Home loan eligbility sample calcuation
Raj has monthly income of Rs 50,000 and he wants to go home loan with 20 year tenure.He has no other existing loan.
When banks sanction your home loan they ensure that your total monthly EMI considering all your loans taken together does not exceed 50% of your monthly income.
Monthly income = Rs 50,0000
Maximum EMI = Rs 25,000
As a thumb rule you have to pay Rs 1,000 EMI for 1 Lac loan for 20 year period.
Maximum loan amount raj can get = 25000/1000 = 25 Lac
Banks generally provide 80% financing
Value of property Raj can buy = 25/0.8= 31 lacs(approximately)
Documents required for home loan
Proof of identity, age and residence :
Passport or Voter's ID card
Driving License or
Job Card issued by NREGA
Proof of income:
Last 6 months bank statements
Last 3 months Salary-slips
Proof of business existence
Education qualification certificate
Proof of investments which will be used to fund down payment.
For self-employed below listed documents will be additionally required
Business profile and proof of business existence
Last 3 years Income Tax Returns
Last 3 years CA Certified / Audited Balance Sheet and Profit & Loss Account
Property related documents
Original receipt of payments made to developer
Letter of allotment
Sale Deed, Agreement of Sale, Original share certificate(s) issued by the society
Appointment Letter in case current job is less than 1 year old
Processing fee cheque
Passport size photograph