What is a Home Loan?

Buying a home is a cherished dream of every individual. However, a lack of finances holds them back from achieving this dream. In such scenarios, availing a home loan helps borrowers to buy their dream home and pay for it in simple instalments. 

If you are also planning to get a home loan to purchase your dream home, this blog is all you need. Keep reading to learn the home loan meaning, its features, benefits, types, application procedure, and other details to make the most out of this financing option.

What is a Home Loan?

A home loan is a type of credit facility that allows you to arrange the necessary finances for purchasing your home. Initially, you will have to pay a specific amount as a downpayment. After that, you can approach a lender, with your request for a home loan. Usually, this credit type comes with a restriction on its end use, implying that you can only use the money for the purpose for which the loan has been sanctioned. Upon availing the loan, you will have to pay back the amount along with interest in affordable EMIs. There are several important terms that you will need to have a clear idea of before knowing in detail about home loans. 

What are Some Important Terms Related to Home Loan?

Knowing about some important terms related to home loans helps you easily navigate this credit facility and make wise decisions. Following is a list of the important terms that you must learn about:

• Loan-to-Value Ratio: LTV or Loan-to-Value ratio represents the amount of money that the borrower is eligible to get against the property pledged. Some factors that influence the LTV ratio include property type, borrower’s creditworthiness, and loan amount. 
• Equated Monthly Instalment: EMI or Equated Monthly Instalment refers to the fixed payment that you will need to make to the financial institution to repay the loan amount. It depends on the interest rate, loan amount, and loan tenure. 
• Prepayment: It refers to the payment of the entire loan amount or a major portion of it before completing the tenure. Usually, the terms of prepayment vary among lenders. So, it becomes important to check the terms before applying. 
• Credit Score: A credit score is a three-digit number that reflects the creditworthiness of a borrower. There are several factors on which these scores depend. These factors include credit history length, credit utilisation ratio, repayment history, types of credit accounts, and so on. A higher score helps the borrower get favourable terms on their home loans. 

There are several types of home loans that the borrower can avail from their lender. These are outlined in the next section. 

What are the Types of Home Loans?

Home loans can be classified under various types, depending on their attributes. Some of the types of home loans available in India include:

Home loan types based on interest rate 

• Fixed-rate home loan: For this type of housing loan, the interest rate remains fixed throughout the year. Hence, you can easily plan the EMI payment based on the interest rate at which you have obtained the loan. 
• Floating rate home loan: In this type of credit, the interest rate of the home loan keeps changing with the changes in the market rate. So, even though you cannot plan the EMIs beforehand, the overall EMIs can be comparatively less. 
• Hybrid home loan: This is a combination of fixed interest rate and floating interest rate. Here, the interest rate remains constant over a definite period of time, after which the rate keeps changing with market fluctuations.

What are the Features and Benefits of a Home Loan?

Home loans, if navigated prudently, can offer individuals several benefits. The following are some salient features of home loans:

• Substantial loan amount: Borrowers are usually eligible to get up to Rs. 15 crore or even more, depending upon the LTV ratio that the financial institution offers. Thus, they can build their dream home, without worrying about finances.
• Flexible selection of tenure: Usually, lenders offer tenure of up to 40 years to borrowers for repaying their housing loan. So, applicants can choose a duration depending on their financial goals to repay their loan comfortably. 
• Simple application process: Today, the application process for a home loan has gone completely online. People can apply for home loans in less than an hour from the lenders of their choice just by a few clicks. 
• Attractive interest rates: Home loans, being secured loan, offer lower interest rates when compared to unsecured loans like personal loans. Usually, the interest rate starts from 8.50% p.a. but can vary with lenders and loan terms. 
• Zero additional charges: Most of the time, lenders do not ask for additional charges during prepayment or foreclosure of credits. Thus, an applicant will only need to pay processing fees and EMIs, minimising their loan costs. 
• Quick approval and disbursal: Usually, home loans get approved within 48 hours of the application, given the paperwork is accurate and the eligibility is met. However, this time can vary from one lender to another. 
• Simple eligibility criteria: Mostly, the eligibility criteria for home loan applicants are kept simple. They will have to meet some age-related and income-related criteria to get access to the funds to construct their dream home. 
• Minimal paperwork needed: Financial institutions usually ask for property and income-related papers and KYC documents of the applicant. This simplifies the overall home loan application process. 

If you want to reap these benefits, you can proceed with the home loan application process. 

Home loan types based on their end use

• Home construction loan: You can apply for this type of loan in case you have already purchased a plot and need money to finance the construction of your house.
  
• House renovation loan: If you are planning to renovate your house and enhance its look, a home renovation loan serves as your perfect go-to option.
  
• Plot loan: A plot loan happens to be the right financing option when you plan on purchasing a plot for the future construction of a home.
  
• Home extension loan: With time, new members keep on adding to your family, making it a necessity to have a bigger place to stay. In such scenarios, you can opt for a home extension loan. 
• Balance transfer loan: Many financial institutions offer balance transfer loans to borrowers so they can transfer their existing loan to another lender. This facilitates borrowers to get exclusive terms on their credit.

Each of these types of loans is associated with various benefits, making them a lucrative financing option.

How to Apply for a Home Loan?

The digitisation of the loan application process has made it easier for homeowners to access funds as and when needed. The steps to apply for a home loan are as follows:

Step 1: Choose the lender

First and foremost, conduct thorough market research to check the reputation of the lender. Also, compare the interest rates and loan terms to choose the right lender for your housing loan.

Step 2: Check the loan eligibility

After finalising the lender navigate to their official website and check if you fulfil the eligibility criteria. Also, go through the loan terms and conditions to make sure that you are comfortable with them. 

Step 3: Apply for the loan

Next, move to the housing loan application form and fill it accurately with the required details. Once done, upload all the necessary documents accurately, review the form, and submit your loan application. 

Step 4: Wait for loan approval

After submitting the application form, the officials at the financial institution will go through it and verify if the details are accurate. Accordingly, they will disburse the loan amount to your bank account within the given TAT. 

Once you receive the money, you can finance your home construction-related expenses using it. However, you must consider some crucial factors before applying for a home loan.

What Factors Should You Consider When Applying for a Home Loan?

Considering certain factors helps you easily navigate through your home loan application process. These factors include:

• Checking the reputation of the lender: Make sure that the lender that you have chosen has a good market reputation. Otherwise, you might end up becoming a victim of fraud.  
• Selecting the type of interest rate: Lenders offer either fixed or floating type of interest rates to borrowers. Hence, applicants should review the pros and cons of each type to finalise the one that would benefit them. 
• Choosing the right loan tenure: Selecting a shorter loan tenure can lead to higher EMIs but reduce the overall interest on loans. Whereas, a longer tenure can reduce EMIs. But increases interest. Hence, borrowers must choose an optimum duration to comfortably repay the loan. 
• Selecting appropriate loan amount: A high loan amount can lead to an unnecessary increase in the monthly instalments. Hence, they must calculate the loan amount and apply for a top-up later if additional money is needed.
• Checking additional charges applicable: It is a must for an applicant to check the additional charges that they will have to pay during the loan tenure. This will help them get a realistic idea of the overall costs. 
• Calculating EMIs beforehand: Make sure to determine the EMIs that you will have to pay beforehand such that you do not face hassles when paying the monthly instalments. For this, you can use the online EMI calculator offered by your lender.
• Keeping the documents ready: When applying for a housing loan, you will need to submit a few crucial documents. Make sure to keep them scanned so that there are no delays in the loan application process.

Conclusion

A home loan is a long-term financial commitment. So, aside from knowing the home loan meaning, you should also navigate other details to get affordable EMI options. Once you move into your dream home, you can use the NoBroker app to efficiently manage utility bill payments, avail digitised communications, pay maintenance charges, and so on. Also, it comes with a two-day installation, low investment, and a fast and simple platform. So, register on this application today and enjoy the benefits that it offers.