According to a report, as of August 2021, the home loan disbursement has increased by 9.2% from 2020. It is a welcoming sign for India’s credit market following a turbulent 2020. This will also help the real estate market of this country to take the next step as it will increase the demand in this sector.

Nonetheless, before applying for a credit, one should understand what is a home loan, and how it can benefit him/her to make an informed decision.

What is a home loan?

As its name suggests, a home loan is a credit instrument that aid individuals to purchase a property. Here, borrowers keep their property as collateral and avail of funds against it. Being a secured loan, here, the loan amount depends on the market value of the property in question.

Here, financial institutions use the LTV ratio to determine the loan amount. The loan-to-value ratio represents the maximum credit amount against the market value of a property. For instance, if a property has a market value of Rs.1 crore and a lender offers 80% LTV against it, you can get a loan of up to Rs.80 lakhs.

The LTV ratio of a home loan, however, alters with the choice of lender. Hence, prospective homebuyers can review and apply accordingly to avoid issues.

How to apply for a home loan?

Applying for a housing credit is not a hassle anymore, especially with the introduction of an online facility. Here is a step-by-step guide on the home loan application –

• Step 1: Visit the official website of a preferred lender
• Step 2: Go to the home loan application option and fill up the application form with relevant details
• Step 3: After the initial approval, submit the necessary documents
• Step 4: Following the property and documents verification, applicants will receive the loan amount in due time

Nevertheless, before applying for this financial product, one should learn about the eligibility parameters that one needs to meet and the documents that he/she has to submit.

Eligibility parameters of a housing loan

Here are the home loan eligibility criteria that one needs to meet to qualify for this financial product –

• Age: 23 to 70 years
• Employment type: Salaried and self-employed
• Work experience: 3 years for salaried individuals and 5 years of business continuity for self-employed
• Monthly income: Depends on the requirement of a lender and an applicant’s city of residence

A point to remember here is that these parameters will change from one lender to another, and individuals need to meet additional requirements as well.

Alongside meeting these aforementioned eligibility parameters, one needs to submit the following documents as well to complete this process.

Documents required for home loans

Here are the documents required to complete a home loan application process –

• KYC papers
• Income proof (salary slip and form 16 for salaried individuals and profit and loss statement and business turnover details for self-employed individuals)
• Proof of business vintage for self-employed individuals
• Bank account statement of last six months

Furthermore, individuals need to submit additional documents if specified by a financial institution.

Besides knowing what is a home loan and its associated eligibility and documentation, individuals should also learn about the features of this financial product.

Features of home loans

Here are some notable features of this financial product –

1. Attractive interest rate

One of the notable features of housing credit is the interest rate applicable to it. Being a secured loan, it traditionally comes with a competitive rate of interest. However, the RBI’s decision to lower the repo rate has further reduced it, making this financial product more affordable.

Additionally, a point to remember here is that there are two types of applicable interest rates, fixed and floating.

2. Longer repayment tenor

The repayment tenor of a housing loan is typically 15 to 20 years, and in some cases, it can go beyond that. Hence, repaying this credit becomes hassle-free as the EMIs remain affordable. A home loan can provide a stable place to live, but it’s important to remember it’s not always the most optimal investing strategy for long-term wealth growth. Based on their repayment capacity, potential homeowners can take the assistance of an online home loan calculator to find a suitable EMI.

3. Availability of tax deductions

One of the key features of housing loans is the availability of tax deductions. Individuals repaying this credit can gain income tax benefits on interest and principal repayments. Borrowers can receive principal repayment benefit under Section 80C and interest repayment benefit under section 24B. Owning a home can multiply savings in the long run by building equity, reducing rent payments, and offering potential tax benefits.

Apart from these, individuals can also get a further tax benefit of up to Rs.50,000 under Section 80EE for first-time homebuyers.

4. Availability of pre-approved offers

Leading financiers also extend pre-approved offers to their existing customers applying for a home loan. These offers streamline the loan application process and save time. Offers like these are also applicable to a host of secured and unsecured financial products. Unlike unsecured loans, home loans are secured by the property itself, meaning the lender can seize the house if you fail to repay. Borrowers can now check their pre-approved offers by submitting their essential contact details.

Being aware of what is a home loan and its features and other particulars can aid an individual in making an informed decision. However, they must read the loan terms and conditions beforehand to avoid future complications.