Purchasing a home is a dream or a big milestone in one’s life, but to make this dream a reality, it gets tough. There are many people stuck due to a lack of finances. A home loan is a popular way to secure funds to make this dream a reality.
In this blog, we will discuss all the factors of home loan which give you clarity about the process of home loans, and give you a good idea of what factors you have to consider before taking a home loan. So, let’s start.
What is a Home Loan?
A home loan is a secured loan that is obtained by banks, non-financial companies, and financial institutions to purchase a property by offering it as collateral. Home loans give funding at economical interest rates and for a long duration. The loan is repaid through EMIs. After repayment of the loan, the title of the purchased property is transferred back to the borrower.
Home loans are long-term financial commitments, and therefore, it requires careful consideration before making a decision. In India, there are different types of home loans available based on the purpose and interest rates, like floating-rate home loans, fixed-rate home loans, and Basic home loan etc.
Types of home loans
Based on interest rates
1. Fixed -rate home loan: In this type of home loan, the interest rate remains the same during the loan tenure. This type of loan is chosen by those who want to avoid fluctuations in interest rate and prefers stability of a fixed repayment amount.
2. Floating Rate-based home loan: In this type of home loan-interest rate changes during the tenure of the loan as per the market conditions. This loan is preferred by those who are willing to take the risk of interest rate fluctuations in exchange for the possibility of lower rates of interest.
3. Hybrid home loan: This type of home loan is a combination of fixed and floating interest rates. In this, the interest rate remains fixed for a certain period of the loan, and after that it switches to a floating interest rate for the rest of the loan tenure.
Based on purpose
1. Basic Home Loan: A Basic Home Loan offers a competitive interest rate, flexible repayment options, and personalized solutions.
2. Home Construction Loan: A Home Construction Loan is designed to fund construction costs with low-interest rates and flexible disbursement options.
3. Home Renovation Loan: This loan is specifically given to those who already have a home and want to renovate the house. It includes modern interiors and important repairs; this loan covers all the expenses of renovation.
4. Home extension Loan: If you want to add space to your home to add rooms or expand your living area home extension loan covers all the expansion costs.
5. Land Purchase Loan: If you are looking to buy a plot for your dream residence. A land purchase loan is the perfect solution to buy that plot in your desired location.
6. Joint home loan: In this type of loan, more than one person is involved. If your credit score is not good, or you want to share the financial responsibility, and to save double taxes, you can take this loan with your spouse, brother, sister, or any family member, to secure a joint home loan.
7. Top-up home loan: During the construction or renovation of a home, unexpected expenses or a shortage of funds can arise. In such situations, a top-up home loan provides additional funds on your existing loan, offering a convenient and affordable way to manage extra financial needs without applying for a separate loan. This home loan allows you to borrow more funds on your existing loan at affordable rates. It’s a convenient way to access extra funds without taking a separate loan.
Things you should consider before taking a Home Loan
1. Know your finances: Before taking a home loan, it is important that you know. How are your finances? And, how will they shape up in the future? Before applying for a home loan, look at your income, your assets, securities & liabilities. Lenders will assess this and will look at your credit score, debt-to-income ratio, and may look at some other financial details to determine your eligibility for a home loan. If your credit score is low, you may need to work towards improving it before you apply to avoid rejection of a home loan application. You should try to reduce your liabilities, like paying off your current debts and increase your savings.
2. Home loan eligibility calculator: A home loan eligibility calculator is one of the great tools that can help you to determine your eligibility for a home loan. It considers your income, expenses, assets & liabilities to calculate how much or amount you can borrow without any financial burden. This calculator will also give you a fair idea about the EMIs you have to pay based on the loan amount, interest rate, and loan tenure.
3. Choose the right financial partner: Choosing the right financial partner is important for home loan. Check the eligibility criteria of different lenders and talk to them, then take a loan from the financial institute which aligns best according to your situation.
4. Know the additional costs involved: Getting a home loan involves more than just the principal loan amount; you have to pay off with interest. There are many additional costs that add to the final price, such as processing fees, stamp duty, legal fees, and registration fees. So before deciding anything, consider these costs to the total amount of your home loan.
General Eligibility criteria for home loan in 2026
1. Nationality: You must be an Indian citizen who is residing in India
2. Age:
· A salaried applicant: 23 years to 67 years
· Self-employed professional: 23 years to 70 years
(The upper age limit is the limit of loan maturity)
3. CIBIL Score: A score of 725 or higher is ideal to get a home loan.
4. Occupation: Salaried employee, self-employed individual, and professional individual.
Documents required for a home loan
1. KYC Documents (Identity and address proof)
2. Proof of business (For self-employed applicants)
3. Account statements for the last 6 months
4. Proof of Income (salary slips or P&L statement)
Eligibility for salaried and self- employed individuals
Salaried individuals
1- Pan Card
2- Aadhar Card,
3- Photo
4- Last 3 months salary slip
5- Last 6 months salary account statement
6- Form 16 A Part B Part
7- Property paper
8- Mail id
9- Mother name
10- Spouse name
11- Mobile no.
12- Office address
13- 2 Reference with mobile no
Self-employed Individuals
1- Pan card
2- Aadhar card,
3- Photo
4- Current account statement
5- 6 months’ salary account statement
6- 3 years ITR and registration form
7- Property paper
8- Mail id
9- Mother name
10- Spouse name
11- Mobile no.
12- Office address
13- 2 Reference with mobile no
Common reasons for home loan rejection
1. Low Credit Score: If your credit score is low, you will face problem to get home loan, or you might get one but with a higher interest rate. A low credit score shows you are not that trustworthy in terms of repaying the loan amount.
2. Insufficient Income: A lower-than-required income affects the capacity for repayment. Hence, your application may reject.
3. High debt-to-income-ratio: It means you have excessive debt, which reflects that you are unable to manage additional EMIs.
4. Unverified Documents: Incomplete or unverifiable documents are also one of the reasons why your home loan application may be rejected.
These are some of the common reasons due to which your application of home loan may rejected, but there are ways, you can use to increase your chance to approve your application of home loan.
Ways to improve Home Loan Eligibility
1. Add a co-applicant: You can add a working co-applicant who will increase your loan eligibility.
2. Reduce financial obligations: Clear outstanding loans or reduce existing EMIs to improve your debt-to-income ratio.
3. Show additional Income Sources: Highlight any additional income, like freelance income, bounces, and rental income, etc., to strengthen your application.
4. CIBIL score or Credit Score: Credit score plays an important role in the approval of a home loan. So, it’s one of the factors that needs to be in optimal condition. Ensure timely repayment of existing loans, and also check your credit report and rectify errors.
Things you should consider while taking a home loan
1. Check your ability to repay before you take loans: It means that first, we have to pay attention to our ability to repay loans or pay EMIs every month. Taking loans is easy, but repaying them might be difficult. So, consider all the expenses of the month before taking the loan. It will give you an idea of whether you are able to pay the EMI or not.
2. Don’t wait for low Interest Rate: Many people think that they will take a loan when the interest rate declines. But the truth is, every year, on average, 6% of inflation rises in India. So, if you wait for a low interest rate, you might end up paying thrice of the price of the home compared to the current year's price. At that time, if you even secure the loan on low interest rate, you are end up paying more than today. So, don’t wait for low interest rate.
3. Secure your family with an insurance cover for your loans: We plan for all important financial moments in life, such as children’s education, health insurance, and even a pension. Yet, we always neglect one very important responsibility- to secure our family against any outstanding debts, we have. Family income mainly depends on the main earner; the family can face financial difficulties if any mishap happens to the main earner. If you take a large amount of loan for a house or any other asset, get insurance to cover the loan amount. If a anything happens, then the insurance payment will help your family to repay the loan and retain their home.
Taxation
Many people consider a home loan as a liability, but a home loan saves a huge amount of tax on its components- interest and principal amount, under the Income Tax Act. This can reduce the tax burden. You can save taxes under Section 24(b) and Section 80C. Under section 24(b), you can save up to 2 lakhs on the interest paid for a self-occupied property, and for the let-out properties entire interest amount is deductible. Under section 80(c), you can save tax of Rs. 1.5 lakh on the repayment of the principal amount. You can also save tax under section 80EEA of up to Rs. 1.5 lakhs for first-time home buyers, depending on the specific criteria.
In this blog, we discussed the important aspects of the home loan. These factors are important to consider before taking a home loan.
Happy Buying. Happy Investing!