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How Can I Apply for a Second Home Loan and Get Tax Benefits?

How Can I Apply for a Second Home Loan and Get Tax Benefits?

Last Updated : Dec. 5, 2020, 6:29 p.m.

Given the increasing needs, one may require more than one home. While some would like to have a spacious home; which may not have been the case with the existing home, others would want to have one more to put on rent or self-occupy it. If you have bought the first home on a loan, it means this will be your second home loan. You would want to know how you can apply for it and how it will be different from the first one. Besides, you would like to know the tax benefits on offer for your second home. So, we have decided to address all these concerns you may have. Let’s read this post to know all.

How Can You Apply for a Second Home Loan?

You can apply for a Second Home Loan either at the lender you are paying your first loan or somewhere else. If you had applied for the first by comparing the home loan interest rates , processing fees of different lenders, you need to do that now too. But if you didn’t do that and applied for the first home loan randomly, you can go differently this time around by comparing interest rates and processing fees of lenders. We can help you compare by showcasing such details below. Take a look.

LendersInterest Rates (In Per Annum)Processing Fees
State Bank of India (SBI)9.15% - 11.30%0.40% of the loan amount

Minimum - INR 10,000

Maximum -INR 30,000
HDFC Limited8.50% - 9.40%Salaried - INR 10,000

Self-employed Professionals - Upto 0.50% of the loan amount or INR 3,000

Self-employed Non-professionals - Upto 1.50% of the loan amount or INR 4,500
ICICI Bank9.00% - 10.05%Salaried - 0.25% of the loan amount or INR 10,000, whichever is less

Self-employed - 0.5-1% of the loan amount
LIC Housing Finance (LIC HFL)8.50% - 10.75%NIL - Subject to certain Terms and Conditions
Punjab National Bank (PNB)8.50% - 11.95%INR 10,000
Bank of Baroda8.50% - 10.60%Upto INR 50 Lakh loan -

0.50% of the loan amount

Minimum - INR 8,500

Maximum - INR 15,000

Note – Goods and Services Tax (GST) will also apply over the processing fee at the prevailing rate.

You can compare and choose the one where you would want to apply for a second home loan.

Application Process for a Second Home Loan

You will need to submit the following documents to apply for a second home loan.

Identity Proof – PAN Card/Voter ID/Driving License/Passport/Aadhaar Card

Residence Proof – Voter ID/Driving License/Passport/Aadhaar Card/Utility Bill

Income Proof – Latest Salary Slips/Form 16 and Last 3-6 Months Bank Statement (For Salaried)

– Income Tax Return (ITR), Audited Balance Sheet and Profit & Loss Account Statement for the last 2-3 Years

Property Documents – House Allotment Letter, Agreement to Sale Copy, Margin Payment Cheque, etc.

A Duly Filled and Signed Application Form

What Will Happen After You Submit These Documents?

The lender will go through your documents carefully and give in-principle approval to your second home loan application if it finds no error in your documentation. After that, it will send a team of legal and technical experts to evaluate your second home. Legal experts will check the legality of the property you want to buy by carefully assessing the property chain that involves a series of owners in case you are buying a resale property. If you are buying a fresh property, your seller will be the only owner. If the legal verification goes fine, the lender will get to know the same in the report filed to it by the respective team.

Whereas the technical team will go through the property map carefully and check whether the construction is made as per the specifications. If that remains the case, it will file a technical report to the lender stating the value of the property. It will further help the lender decide the loan amount. Credit managers of lenders also sit to decide the loan amount by checking your financials.

After that, you will need to visit the property registrar office of your area and get your property registered by signing a sale deed. You will require two eyewitnesses too for property registration. Once the registration completes, the lender will keep the original sale deed copy with it and issue the seller a cheque for the home loan amount. In return, you will need to pay the same over the chosen tenure via EMIs.

How Much Will Your Existing Home Loan EMI Impact Your Second Home Loan?

Since you are already having a home loan whose EMI could be a significant amount, the lender will check how much it will impact your payments for the second home. Usually, lenders set home loan payments in a way that the proposed obligation and the existing obligation (If any) should not exceed 50% of your net monthly income (NMI). However, that 50% is not definite; if the lender feels your income is high enough to deal with the ratio of more than 50%, it can set your loan accordingly. But for that sheer flexibility of paying both the EMI with ease, choose a loan that keeps the obligation within 50% of your NMI. For people with less income, the optimum ratio would be much lower.

Tax Benefits for the Second Home

Tax benefits for the second home loan will be the same as the first one. You will get tax deductions upto INR 1.5 lakh and INR 2 lakh for principal and interest repayments under Section 80C and 24 of the Income Tax Act, respectively, in a financial year. However, if you are letting out the second property, there is no upper limit for tax deductions on interest payments.

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