Definition of a Home Loan

A home loan (or housing loan) is a type of secured loan provided by banks, financial institutions, or housing finance companies to help individuals purchase, construct, renovate, or repair a residential property. The borrower repays the loan in EMIs (Equated Monthly Installments) over a fixed tenure, while the property itself serves as collateral for the loan.:

1. Types of Housing Loans

A. Based on Interest Rate

1. Fixed-Rate Loan
   Interest rate remains fixed for a set period (e.g., 5, 10, or 30 years).
   Predictable monthly payments.
   Best when interest rates are low.
   

2. Floating (Variable) Rate Loan
   Interest rate changes based on market conditions (e.g., linked to RBI repo rate, MCLR, or SOFR/LIBOR).
   Lower initial rates but uncertain future payments.
   Good if you expect rates to drop.
   

3. Hybrid (Adjustable-Rate Mortgage - ARM)
   Starts with a fixed rate for a few years, then switches to floating.
   Example: 5/1 ARM (fixed for 5 years, adjusts yearly after).
   

B. Based on Loan Purpose

4. Purchase Loan – For buying a new home.

5. Plot Loan – For purchasing land (higher interest, shorter tenure).

6. Home Construction Loan – For building a house (disbursed in stages).

7. Home Improvement Loan – For renovations/repairs.

8. Balance Transfer Loan – Switching lenders for better rates.

9. Top-Up Loan – Additional funds on an existing home loan.
   

C. Special Loan Types

Pradhan Mantri Awas Yojana (PMAY) – Subsidy for first-time homebuyers (EWS/LIG/MIG categories).
NRI Home Loan – For Non-Resident Indians.
Joint Home Loan – Co-borrowers (e.g., spouse, parents) share liability.

2. Key Housing Loan Details

Secured Loan – The property is mortgaged to the lender until full repayment.
Long Tenure – Typically ranges from 5 to 30 years, making EMIs affordable.
Interest Rate – Can be fixed, floating (variable), or hybrid.
Tax Benefits – Available on both principal (Section 80C) and interest (Section 24(b)) repayments (in India).
Loan-to-Value (LTV) Ratio – Most lenders finance 75-90% of the property value; the borrower pays the rest as a down payment.

3. Factors Affecting Loan Eligibility

Income & Repayment Capacity (EMI ≤ 40-50% of monthly income).
Credit Score (CIBIL ≥ 750 preferred).
Property Valuation (Lender assesses collateral value).
Employment Stability (Salaried vs. self-employed).

4. Choosing the Right Loan
Compare interest rates (fixed vs. floating).
Check processing fees & hidden charges.
Opt for shorter tenures if you can afford higher EMIs (saves interest).
Use an EMI calculator to plan repayments.

List of Documents-Salaried

Would you like help comparing specific loan offers or understanding pre-approval steps?