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Home Loans

Q1. What are the types of housing loans available?

Financial institutions offer various housing loans. Prominent among these are:
Home Loans - This is the basic housing loan for the purchase of a new home which covers cost of the flat and parking space ,deposits and charges, stamp duty and registration charges.

Home Improvement Loans - For implementing repair works and renovations in a home that has already been purchased by you. It is also called as "Top-up Loans" by certain banks and home Finance Companies.

Home Construction Loans - For the construction of a new house. d) Home Extension Loans: For expanding or extending an existing house

Land Purchase Loans -For both home construction or investment purposes.

Bridge Loans - For people who wish to sell the existing house and purchase another and need finance for the new house, until a buyer is found for the old house.

Balance Transfer - To pay off an existing housing loan and avail of the option of a loan with a lower rate of interest.

Refinance Loans - To pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present house.

Loans To NRI's - As per requirements of NRI's who want to buy a house in India

Q2. Who can apply for a housing loan?

Any person, including Non Resident Indians, with a steady source of income can borrow funds for financing the cost of a flat from housing finance companies and banks.

Q3. Can a Non Resident Indian avail of housing loans?

Yes. Repayment of loan should be made within a period not exceeding 20 years out of inward remittances or out of funds held in the borrower's NRE/FCNR/NRO accounts.

Q4. How much can a person borrow?

Loans are generally disbursed up to a maximum of 85% of the cost of the flat. The balance 15% cost of the flat is to be funded by the flat purchaser from his own contribution. Some banks can fund upto 90% of the cost of flat.

Q5. What are the documents required at the time of making an Application for a housing loan?

  • Financial institutions offer various housing loans. Prominent among these are:
  • Latest 3 months salary slips (proof of income for salaried individuals)
  • Photographs
  • Proof of age
  • Photo Identity papers
  • Proof of residence
  • Bank statements for the previous six months
  • For self employed, certified copies of balance sheet, profit and loss statement and tax challans / tax returns for the previous 3 years
  • For /private limited companies, the Articles of Association, partnership deed and details about the firm
  • For NRI's Latest salary certificate specifying, Name (as it appears in the passport), Date of joining, Passport Number, Designation, Perquisites and salary, Photocopy of labour card/identity card, Photocopy of valid resident visa stamped on the passport, Photocopy of monthly statement of local bank account, Statement of NRI/NRO a/c, credit bureau report (CBR) if applicable, Property related documents.

Q6. What is an EMI?

Home Loan Calculator

Monthly Instalment ("EMI") is the amount comprising a portion of the interest and the principal loan amount which is payable by a borrower to the lender every month.

Q7. How is the rate of interest calculated in India?

Interest rates vary from time to time and from institution to institution. The interest is calculated on either a daily or monthly reducing or yearly reducing balances.

Q8. What is a fixed-rate housing loan?

A fixed-rate housing loan is a loan where the rate of interest is constant through the entire term of the loan period.

Q9. What is a floating-interest-rate housing loan?

Floating interest rate loan is a loan where the interest rate payable is linked to the market conditions such as the bank's retail prime-lending rate (PLR) it rises and falls with the bank rate varies. Hence, a borrower bears the risk of interest rate fluctuations. Floating interest rates offered are usually lower than the fixed interest rates.

Q10. What is the difference between monthly reducing interest rate and yearly reducing interest rate?

 In a monthly reducing interest system, the principal on which interest is paid reduces every month as EMI is paid. In the annual reducing system, the principal is reduced at the end of the year, and the borrower pays interest on a certain portion of the principal, which is actually paid back to the lender. The EMI for the monthly reducing system is effectively lesser than the yearly reducing system of calculating interest.

Q11. What are the repayment period options?

Repayment period options range generally from 5 to 20 years

Q12. What are the charges for availing a housing loan?

Fees – payable to the lender on applying for a loan and is either a fixed amount not linked to the loan or may also be a percentage of the loan amount.

Commitment Fees – in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned then some institutions levy a commitment fee.

Prepayment Penalty – between 1% and 2% of the amount being pre paid is charged by some institutions when a loan is paid back before the end of the agreed duration.

Stamp duty and registration fee on a deed of mortgage

Miscellaneous costs – such as administrative costs, legal documentation charges, technical consultant charges.

Bank statements for the previous six months

Q13. What security is required for a housing loan?

The flat purchased is the primary security and is mortgaged to the lending institution till the entire loan is repaid. Additional security such as life insurance policies, shares, bonds, fixed deposit receipts, national savings certificates can also be offered, as per the requirements of the institution

Q14. Do lending companies require guarantors?

Yes. Many lending companies require 1 guarantor. But it may not be mandatory.

Q15. What is the time required for approval of a loan application?

About 15 - 20 days

Q16. What is the time required for disbursement of loans?

Usually loans are disbursed within 5-7 days after completion of verification by the institution, documentation (such as handing over of the original agreement for sale / lodging receipt to the lender) and completion of all relevant procedures and only after proof that the borrower's own contribution has been paid by him to the Vendor / Developers / Developer.

Q17. Do institutions accept joint loan applications?


Q18. Do lending institutions offer special schemes/incentives/offers for housing finance?

Sometimes lending institutions offer special schemes / incentives/offers for a specified period or under a special scheme. Incentives could be any of the following:

  • Free accident insurance
  • Waiver of pre payment penalty
  • Waiver of processing fee
  • Property insurance

Q19. Which sources, other than housing finance companies, can give loans for purchasing a flat?

A loan for purchasing a flat can be availed of from the following sources:

  • Housing Finance Companies
  • Banks
  • Employer
  • Insurance company
  • Against Provident Fund Account , Fixed Deposits, Post office Savings
  • Against Shares and Debentures of listed companies, government bonds and securities
  • Private parties such as relatives, friends

Q20. What are the tax benefits of home loans?

Both principal as well as interest of home loans attract tax benefits. With effect from 1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax Act 1965:

  • Principal amount of repayment of loan along with other savings such as PF, PPF and Life Insurance premium etc up to a maximum of Rs 1, 00,000/- will be eligible for deduction from gross income.
  • Interest paid on loan after completion of construction will be deductible from income from property For Self Occupied Income will be treated as nil and interest payment will be treated as minus income which will be adjusted against other income. For Rental Property It will be adjusted against rental income
  • Interest paid on loan before completion of construction will be allowed as deduction from income at 20% per year for the next five years.