What is Home Loan & How Does It Work

Home Loan

A home loan is a secured loan, which requires the borrower to keep collateral with the lender. The amount of your loan depends on the property that you have a mortgage. generally, banks & NBFCs approve up to 80% of the total value of your property as the loan amount. The minimum credit score required to apply for a home loan is 650.

Determining the appropriate lender.

While determining the appropriate lender when you apply for a home loan, research the market thoroughly and analyze the benefits offered by various lenders. Initiate by comparing the home loan interest rate and later explore the other benefits that are offered by the various banks and lenders.

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Documents Required to apply for Home Loan

To apply for a home loan, the documents required are mostly similar across various banks, However, they may differ with some banks that have their own specific requirements. The documents mentioned below are required to process the home loan:

  • Age Proof
  • Address Proof
  • Income proof of the applicant & co-applicant
  • Bank A/C statement ( Last 6 months)
  • Applicants and co-applicant’s passport-size photos.
In the case of Salaried In case of Self-employed
Employment certificate from the employer. Copy of Audited financial statements  ( Last 2 years)
Payslip copies for last few months and TDS certificate A copy of the articles of incorporation and the memorandum of association, if the entity is a corporation. A copy of the partnership deed is required if the business is a partnership.
Form 16 issued by employer Bank statement P&L A/c for the last few years
Income tax assessment order

Home Loan Lenders in India

Banks Loan to Property Value Interest Rates Processing Fee
LIC Housing 75% – 90% 6.66% – 7.20% Below 1 Cr: Upto Rs.10000 + AT

Above 1 Cr: Rs.20000 + AT

State Bank Of India (SBI) 75% – 90% 6.70% – 6.90% NIL (upto 31.12.2021)
HDFC Ltd 75% -80% 6.70% – 7.15% Rs 10,000+ AT or 0.25% + AT ( Whichever is lower)
ICICI Bank Upto 85% 6.75% – 7.55% Flat Rs 3000 /- + AT
Bank of Baroda 75% – 90% 6.85% – 7.85% Upto 0.5 % + GST
AXIS Bank 75% – 85% 6.90% – 8.40% Up to 1% of the loan amount subject to a minimum of Rs.10,000/-
Citibank 75% – 80% 8.50% Rs 25,000 + ST or 0.5% of loan amount + ST (whichever is higher)
Indiabulls Housing Finance Limited 75% – 80% 8.80% – 12.00% Nil
Bajaj Finserv 75% – 80% 9.05% – 11.15% Nil
Standard Chartered Up to 80% 9.41% NIL

Charges except Interest Rates in a Home Loan

When applying for a home loan the charges that should be taken into consideration apart from the home loan interest rate are as follows:-

  • Processing Fees
  • Foreclosure Charges
  • Prepayment Charges
  • EMI Bounce Penalty

As these charges vary from bank to bank it is advised to carefully read the loan agreement to get a better understanding of these fees and charges.

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Credit Score and how it impacts Home Loan

The creditworthiness of an individual calculated on the basis of his credit files is the credit score of that individual. The approval of the loan depends on the repayment capacity of the individual and the credit score. Most of the lenders in the market like LIC, SBI, HFL, HDFC Ltd., and many others approve home loan applications with a cibil score of 720 or above.

Banks are most likely to reject applications with a cibil score of less than 650. However, if an application is approved by a bank the loan amount would be lower than the applied amount and the applicant might have to pay a higher home loan interest rate.