What are home loans-
Home loans are defined as the sum of money borrowed from banks or financial institutions, repayable at an interest rate in the form of Equated Monthly Installments (EMIs). Under home loans, banks generally keep hold of collateral or security and use valuation methods to lend a sum of money.
This amount of money can then be used to purchase a house, construct a house, renovate a house, etc.
Types of Home Loans:
- Home Purchase Loan: A home purchase loan is sanctioned for the purpose of purchasing a house.
- Home Improvement Loan: Home improvement loans are sanctioned for the purpose of improving/renovating a house.
- Home Construction Loan: This loan comes in handy when one is building a new house.
- Land-Purchase Loans/Plot Loans: This loan is sanctioned for the purchase of a land/plot for the purpose of constructing a house.
- Home Extension Loan: This loan is sanctioned for individuals who want to extend a specific portion to their house, like a bathroom, room, etc.
- NRI Home Loans: These are the loans sanctioned to Non-Resident Indians for the purpose of constructing a house or renovating an existing one.
- Home Loan Balance Transfer: Home loan balance transfer is usually availed by individuals who want to transfer an existing home loan from a bank/NBFC to another provider/lender, mostly due to more flexibility of repayments and lower interest rates.
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How much home loan can I get?
The types of home loans lent vary based on different banks and the rate of interest on loan principal differs depending on annual income, loan amount sanctioned, tenure, etc.Conventional home loans are sanctioned on a minimum monthly income of Rs. 25,000 and up to 40% of the monthly salaries are converted into EMIs.
Generally, home loans are sanctioned between Rs. 5-7 crore, with a maximum of Rs. 10 crore on selection of the maximum tenure.
Home loan rates vary, starting from 6.95% and going all the way up to 11%. CIBIL scores as well as other various factors play an important role in the interest rate levied on loans.
Individuals between the age of 25 and 40, earning Rs. 25,000 per month can apply for loans up to 49 Lakhs.
Individuals between the age of 25 years and up to 40 years can apply for a loan of up to 73 Lakhs, provided they earn a monthly income of Rs. 50,000. Individuals earning up to Rs. 75,000 on a monthly basis can apply for loans up to 98 Lakhs, provided they’re aged between 25 to 40 years. As the age progresses, the amount of loan sanctioned starts decreasing despite earning the same salary as someone younger, implying that age plays a crucial role in loan amounts sanctioned too.
How to calculate home loan EMI-
Before taking the decision of applying for a home loan, it is absolutely necessary for people to indulge in financial planning and indulge in laying out a proper financial roadmap.Although sanctioning of loans can be relatively a hassle-free task, one should have a proper plan ahead of themselves to check how much money will be going out every month in the form of EMIs and how they can completely clear off the loan taken without defaulting even once.This step is critical in laying out the financial roadmap and one can learn how to calculate their monthly outgo using this simple formula. You can use our calculator for the same.
The formula to calculate EMI is-
EMI = [P x R x (1+R)^N]/[(1+R)^ (N-1)]; where
P= Loan amount
r= interest rate,
n=tenure in number of months.
Now, let’s look into a simple example to see how an EMI can be calculated.
Let us assume a Principle of Rs. 1,00,000; rate to interest(r) to be 10% and tenure(N) to be 12 months (one year).
Substituting the above values in the formula, let’s calculate the EMI-
1,00,000 x 10% (1+10)^12/[(1+10)^ (12-1)]
= Rs.8792 per month, which is the EMI amount going out monthly.
Before taking any decision on loans, we advise our readers to once calculate their EMI outgo and then take a call based on the feasibility to avoid unhealthy financial situations during changing scenarios. Constraints and changing situations are almost absolutely unavoidable and a proper financial plan is vital for a healthy financial stronghold.
Once you take care of this step, one can learn how to apply for home loans to achieve that independent lifestyle of yours.
How to apply for a home loan-
- Eligibility- In the case of Indian Residents, one is required to be a minimum of 18 years and up to 70 years for a home loan to get sanctioned, with a minimum salary of Rs. 25,000 per month or Rs. 2.4 Lakh per annum conventionally. At least a minimum of 2 years work experience is required in the case of salaried employees and a minimum of 3 years work experience is required in the case of self-employed individuals (varies from bank to bank). Banks also expect good CIBIL scores, with a minimum score of 700. Up to 90% of property value can be sanctioned as a loan.
- Documentation- Conventionally, these are the documents required for the purpose of home loans for Indian residents:
- Employer Identity Card
- Loan Application: Completed loan application form duly filled in affixed with 3 Passport size photographs
- Proof of Identity (Any one): PAN/ Passport/ Driver’s License/ Voter ID card
- Proof of Residence/ Address (Any one): Recent copy of Telephone Bill/ Electricity Bill/Water Bill/ Piped Gas Bill or copy of Passport/ Driving License/ Aadhar Card
- Permission for construction (where applicable)
- Registered Agreement for Sale/ Allotment Letter/ Stamped Agreement for Sale
- Payment Receipts or bank A/C statement showing all the payments made to Builder/Seller
- Last 6 months Bank Account Statements for all Bank Accounts held by the applicant/s
- If any previous loan from other Banks/Lenders, then Loan A/C statement for last 1 year
- Documentation in the case of NRIs- Documents Required for NRI Home Loans (Requirements can vary depending on the bank)
- Work visa copy
- Proof of valid work permit
- Employment contract copy
- Current proof of residence
- Salary slips of past 3 months
- Salary account statement for the past 6 months
- Property papers of the NRI
- Conventional procedure to apply for a loan across major public/private sector banks
- Application: The first step would be to apply for a home loan. This can be done online or at bank branches or at loan centers.
- Loan Sanction: Post submission of your application and review of necessary KYC and documents of financial stability, the bank sanctions the loan amount.
- Review: Once the loan is sanctioned, applicants are required to submit the documents pertaining to the property against which the applicant’s loan is sought, for technical and legal review.
- Approval & Disbursal: Upon validation of the applicant’s loan amount and the property papers, the bank shall approve and disburse the loan.
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