To keep up pace with the emerging housing needs, banks and housing finance companies are adding to their portfolio of home loan products, including the one you take to buy a house. Home loans are made available for constructing and renovating homes too. If that’s not enough, lenders don’t hesitate to offer pre-approved and balance transfer versions. Of course, you would choose from these types of home loans based on your requirements. But no harm in knowing all these in detail before applying for the one you need. Let’s begin!
Let’s Discuss the Types of Home Loans
Each of the home loan types comes with distinct features and benefits. The interest rate, repayment structure and other aspects may differ from one type to another. Knowing the same beforehand will take away the last-minute hassle that can be the case otherwise. Let’s begin discussing the types of home loans without any further delay.
Home Purchase Loan
Buying a home is one of the key milestones in everyone’s life, with some considering it to be the most auspicious thing. But given the price a home may command, often people are forced to wait before they buy it. Real estate prices are growing at an annual growth rate of 4-6%, demanding increased savings to pay the EMI to the lender as well as the upfront amount to the property seller.
While the EMI depends on the interest rate, loan amount and tenure, the upfront amount depends on the loan to property value ratio. Usually, home loans up to INR 30 lakh, above INR 30-75 lakh and above INR 75 lakh are financed to the extent of 90%, 80% and 75% of the property value, respectively. That further implies an upfront payment of 10-25% of the property value. Whereas home loan interest rates can range from 6.50-8.20% per annum.
Home Construction Loan
You may have land but want to construct a home on the same. You will get a home loan for the same. But the loan disbursal, in this case, would come at different stages of construction. Before the construction completes, the equated monthly installment (EMI) would include only interest. Post the construction, the lender will deduct both principal and interest portions. While applying for a home construction loan, the lender would ask you to submit a construction timetable, estimate and plan. You can get it from the property seller and hand it over to the lender.
Home Renovation & Extension Loan
Giving your home a refreshing look must be itching you or you may want to extend your home by adding new rooms. For these, you can apply for a home loan.
Plot loan is one of the popular types of home loans allowing you to purchase a piece of land and construct a property on the same. In case you don’t want to build a home, you can just buy a plot via a loan. However, that will not be considered a home loan. You’ll get an option of either a personal loan or a loan against property to avail funds for sheer plot purchase.
Pre-approved Home Loan
Pre-approved home loans are sanctioned based on your income. Besides, the lender may charge a processing fee at the time of loan sanction. The loan will help you effectively negotiate with the property seller.
Home Loan Balance Transfer
Paying a home loan at a higher rate of interest? Get the interest burden reduced by switching the loan to the new lender at a lower rate. This is known as a home loan balance transfer. Submit the No-objection Certificate from the existing lender, loan statement showing the outstanding loan balance, rate of interest, payments made so far, etc, to the new lender for a smooth transition. Look for a deal that lowers your interest rate by at least 0.40-0.50% for maximum savings.
Top-up Home Loan
You can either apply for a top-up home loan while doing a balance transfer or apply at the same lender. When you do it over a balance transfer amount, the interest rate tends to be the same. Here, the same interest rate applies to the total amount arrived after adding the transferred balance and top-up portion. Else the top-up may or may not add over the outstanding balance. In the case of the latter, your existing home loan and the top-up amount will run separately at different interest rates. Most likely, the top-up portion will bear a slightly higher rate of interest in that case.