Home Loan: Frequently Asked Questions

Are you planning to buy a flat? Are you not sure whether you are eligible for a home loan? Here are some Frequently Asked Questions (FAQs) that are often on the minds of home loan applicants.

1. Are home loans only for house or flat buyers?

Most home loan seekers who intend to buy property such as a house or flat are first-time seekers. Indian banks and financial institutions also extend home loans to first-time seekers for the purpose of extension, renovation, and repairs of houses and flats. Different commercial banks and such financial institutions, however, have a different set of regulations or criteria for repeat loan seekers.

2. Am I eligible for a home loan?

By assessing your eligibility for a home loan the bank or lending institution will determine your repayment capacity. The criteria for eligibility for most lenders are: a) Applicant should be an Indian citizen b) Over 21 years of age at the time of loan commencement c) Less than 60 years by the end of the loan period d) Salaried or self-employed with demonstrable ability to repay the loan

3. How will I be expected to repay the bank?

Your loan will be repaid through EMIs (Equated Monthly Installments). These EMIs comprises both the principal loan amount and the interest on the loan. These are the installments that you have to pay the bank from the month following loan disbursement. Different types of loans have different terms and conditions. Some may allow an annual reduction in principal amount, while others may allow a monthly reduction.There are others who also allow a daily reduction.

4. What documents do I need to submit while applying for a home loan?

The bank usually demands the following documents from a home loan applicant:

Identity proof
Proof of residence
Statement of income (salary slips of up to last six months attested by employers)
Photocopies of Income tax returns or Form 16

5. What is fixed or floating interest rate?

Your bank may offer you either a fixed or a floating rate of interest on your loan. Getting a fixed rate of interest means that the rate at which interest shall be charged on your loan shall remain unchanged for the period of the loan. A floating interest rate, on the other hand, means that the rate of interest will fluctuate according to the rate prevalent in the market. Opting for a fixed interest rate means that you may end up paying a higher rate if interest rates drop or may pay less if interest rates go up subsequently.

6. What is in-principle approval?

A number of banks or lending institutions approve a home loan “in-principle”. This means that the loan is sanctioned before you decide on the house/flat that you want to buy. Once you get such an approval you usually have about three months to finalise the purchase of the flat/house and get back with complete documentation to the lender for disbursement of the loan.

7. What security will the bank need to offer me a home loan?

Most lending institutions agree to a mortgage of the property for which the loan is taken. In case such a mortgage of the property cannot be provided, the institutions agree to accept other security such as fixed deposits, shares or savings certificates. In many cases one or two guarantors may be necessary. In case the flat or house being bought is mortgaged, the title deed must be clear and approved by the bank. When a property under construction is bought with the home loan, the bank may require an additional security for the period of construction.

8. How long does a loan application require to be approved?

The time required to scrutinise an application and process the home loan varies according to the bank applied to. The usual time taken for approval is between three days and a fortnight. After having gained approval when all necessary documents have been submitted to the bank including proof of down payment to the seller, loan disbursement may take a further week to 10 days.

9. What are the other costs charged by the lender?

The lender institution may charge you:

Processing fee: The fee charged for processing the application; could be fixed or a percentage of the loan approved.
Consultation fee: The fee charged as consultation cost and cost of documentation.
Mortgage registration fee: The fee charged for registration of the mortgage documents.
Pre-payment penalty: The charge added to repayment amount when the loan is paid off before the completion of the term.

10. Does taking a Home Loan come with tax benefits?

Under Section 80C of the Income Tax Act, the minimum tax deduction allowed on the repayment of principal amount is INR 1,50,000. This is, however, allowed only on the house or flat whose construction has been completed. The tax benefit that you can claim on interest on home loan (in case of a self-occupied property) has a maximum limit of INR 2,00,000 under Section 24 of the Income Tax Act. If the property is not self-occupied, there is no maximum limit defined and the entire interest amount can be taken as tax deduction under Section 24. The amount paid towards registration fee and stamp duty can be completely allowed as tax deduction even if a Home Loan has not been taken (as per Section 80 C).

11. Can I take a joint home loan with a spouse or other associate?

Most banks and financial institutions allow spouses or associates to jointly apply for home loans and even own the property together. This is usually an advantage to the applicants as the banks consider the income of both individuals while ascertaining the loan amounts. Some banks and institutions may consider joint applicants even if the applicants are not co-owners of the house or flat.