Frequently asked questions (FAQs) on Home Loan
What is the eligibility criteria for a home loan?
Any Indian citizen, either self-employed or a salaried professional who has a regular source of income are eligible to apply for home loans. One must be at least 21 years of age when the loan period begins and should not exceed 65 years of age when the loan period closes.
How to determine eligibility?
The following factors are considered while looking for repayment eligibility
- Spouse’s income
- No of dependants
- Age proof
- Occupation and stability
- Resident status (maximum limit for an Indian resident is Rs. 50,00,000)
- History of credit repayment
- Existing loan status
What are the documents required at the time of application?
Each bank has its own list of documents that one must submit at the time of application. The common documents that the banks require at the pre-approval stage are:
- Photographs (Passport size)
- Age proof
- Last 6 months’ copy of Bank Account statements
- Copy of latest credit card statement ( if available )
What is floating rate home loan?
The interest rate on the loan varies during the loan period then it is called floating rate home loan. Lenders have their own benchmark rate which determines the floating rate.
What is a fixed rate home loan?
The interest rate on the loan is predetermined during the loan period, irrespective of market conditions.
People with fixed rate home loan will not have to suffer due to changes in RBI interest rates.
Is prepayment of loan allowed?
Yes, prepayment of home loans is allowed, buy paying the lump sum. The bank might apply some penalties in the range 2-3% of the principal amount outstanding. The penalties vary, depending on the reasons and source of funds. Penalty might not be charged on the deposited amount if the EMIs are paid periodically.
What are the charges that are included in the home loan process?
- Processing Fee- The fee paid to the lender while applying for a home loan. The amount to be paid could be either a percentage of the loan amount or a fixed amount that is not being linked to the loan.
- Commitment Fee – After the home loans are processed and sanctioned, it is necessary to avail the loan within a certain period, failing which some banks or financial institutions may levy a commitment fee.
- Pre-payment Charge– A maximum of 5% penalty could be levied on the amount pre-paid.
- Miscellaneous charges– Documentation chargers, consultant charges, etc
What is the tax benefit?
The tax benefit on home loan can be divided into two sections-
- Repayment of the principal amount- It is considered under Income Tax Section 80C with a maximum tax deduction of Rs. 1, 50,000.
- Repayment of the interest rate on home loan- Under Section 24 of Income Tax Act, you can avail the tax benefit on the amount to interest paid on home loan to a maximum limit of Rs. 2,00,000
Does the agreement for sale have to be registered?
Yes, it is advised that you get it registered, as it is mandated by law. It can be done at the office of the Sub-registrar appointed by the State Government under the Indian Registration Act, 1908.
What security/collateral do I have to provide?
Collateral could be in the form of
- Guarantee from one or two persons
- Assignment of life insurance policies
- The surrender value of which should be equal to the loan amount, deposit of shares, and units or other securities (additional securities are taken just in case a loan is not paid back)
Who can be a Co-Applicant?
A Co-Applicant(s) is/are the Co-Owners of the property in respect of whom the financial assistance has been sought. Usually co-applicants are
- Mother/daughter etc.