Home Loan Guide for First-Time Home Buyers

With rapid urbanisation and economic growth, there is an increasing demand for housing in India. The majority of home purchases involve a Home Loan because buying a home is an expensive affair.A home loan can help you achieve this goal without worrying about the finances. Hence, the demand for housing finance has also been increasing, and lenders are offering a variety of Home Loans for first-time buyers to meet the increasing demand.

Whether you want to buy a home, build a home from scratch or renovate your existing home, financing options are available for every requirement. This expert, Home Loan guide, can help you understand the different types of Home Loans available in the market and make an informed decision.

Home Purchase Loan

A home purchase loan is the most common to buy a new or a pre-owned home. This type of Home Loan is easily available and is offered by almost all banks and non-banking financial institutions. You can get 80% to 90% of the house's market value with the help of a home purchase loan.The interest rates range between 8% and 11%, depending on your credit profile. These interest rates can be floating or fixed, with tenures of up to 30 years.

Home Construction Loan

This type of Home Loan is for constructing a new house. You should own a plot to be eligible for a home construction loan . The lender considers the value of the plot and the construction cost before sanctioning the loan. The loan amount is disbursed either in a lump sum or in instalments at various stages of construction.

Home Improvement Loan

A home improvement loan provides finance for repairing or renovating an existing home. The improvement projects may include internal and external repairs, painting, waterproofing, upgrading electrical systems, plumbing, etc.You need to provide the lender with a cost estimate of the improvement work. The lender asks for a quotation from the contractor and verifies the estimate. After the verification, the loan amount is disbursed.

Home Extension Loan

A home extension loan provides financial support for alteration in the home structure or building additional rooms. You can avail it alongside a home improvement loan or an existing Home Loan from the same lender.

Home Loan balance transfer

Home loan balance transfer enables you to transfer the balance of the loan amount to a different lender offering lower interest rates and better services. The revised rates provided by a different lender reduce the burden on you.

NRI Home Loan

These Home Loans are also available for NRIs who want to invest in a property in India. An NRI Home Loan provides financial assistance to Indians residing abroad to buy a house in India.Read more: A Complete Guide to NRI Home Loans - Eligibility, Benefits and Features

Bridge Loan

A borrower takes a bridge loan when they want to buy a new property by selling the existing property. Such a loan bridges the gap between selling and buying, providing funds for a down payment until the old property is sold. It is available at a high-interest rate with a repayment tenure of a maximum of 2 years.

Plot Loan

A Plot Loan provides finance for buying a residential plot. The loan pays for up to 75% of the plot value and is available at high-interest rates.

Property Loan

You can use a property loan to buy a plot or build a house. The lender disburses the loan when you furnish the documents showing the purchase of a plot or construction of a house.

Joint Home Loan

A Joint Home Loan is a loan when you apply for a loan with a co-applicant. It enhances eligibility for a loan, and you can also get a higher loan amount. Note that a co-applicant for a joint Home Loan can only be one of these: parent, spouse, sibling, unmarried daughter and son.Read more: What are the Benefits of Joint Home Loan

Home Loans for first-time buyers provide financial support and many other benefits.

1. Tax benefits

The most important reason to take a Home Loan is the tax benefit it offers. You can claim a tax deduction on the interest and principal repayment amount. You can claim a deduction of up to ₹1.5 lakhs on principal repayment under Section 80C and up to ₹2 lakhs on interest payment under Section 24B of the IT Act.Under special circumstances, you can also claim a deduction on stamp duty charges under Section 80C.Also read: Guide to stamp duty and registration charges for homebuyers.

2. Low interest rates

Home Loans are available at a lower interest rate than other loan types. These loans are easy to apply and are customisable. If you need additional funds, you can easily get a top-up loan on your existing Home Loan at a lower interest rate than a Personal Loan.

3. Property verification by the lender

Your bank or lender conducts due diligence on the property to ensure that all the documents are valid and the paperwork is complete. The lender also conducts a legal check on the property to ensure there is no dispute before approving your loan application.This due diligence conducted by the lender reduces both their risk as a lender and your risk as a buyer.

4. Long repayment tenure

Home Loans have a repayment tenure of up to 30 years, and borrowers spread equated monthly instalments (EMIs) over this extended period, making it affordable to repay the loan and reduce the burden on you.

5. It lets you grow your funds

Even if you have the funds to buy a home, taking a Home Loan may be a good idea because you get tax benefits. You can invest your accumulated funds to earn good returns and create wealth. Not using your funds enables you to maintain liquidity and provide a safety net during a financial crunch.

Lenders have specific eligibility criteria for a Home Loan. Your loan application is accepted if you meet the eligibility criteria established by the lender. The first thing noticed by a lender is your credit score .Most lenders prefer a CIBIL score of 750 and above. CIBIL score is important for a Home Loan because it reflects your credit history and repayment habits. Other important parameters considered by lenders are -

• Age: 21 to 70 years
• Employment type: Salaried or self-employed
• Work experience: 2 to 3 years for salaried applicants and 3 to 5 years for self-employed applicants
• Income: minimum ₹25,000
• Existing financial obligations
• Location and age of the property

There are many ways in which you can apply for a Home Loan. You can visit the nearest branch of the lender or apply online. Here are the steps involved in the application process -

1. Fill out the application form. Provide your name, age, contact details, income, education, and employment details.
2. Submit the required documents, such as identity proof, employment proof, salary slips, ITR, bank statements, property documents, etc.
3. Pay the processing fee as determined by the lender. After the payment of the processing fee, the lender will contact you to discuss on the terms and conditions of the Home Loan.
4. After paying the processing fee, the lender verifies the loan application and the submitted documents.
5. Once the documents are verified and the loan application is approved, the lender sends you a sanction letter. This letter includes the loan amount approved, interest rate, loan type, and loan tenure. If you agree with the loan details, you can accept the sanction letter and send a signed copy to the lender.
6. The lender checks the property and its paperwork to ensure everything is genuine and no dispute is associated with the property.
7. After property verification, the loan agreement is signed, and the loan amount is disbursed.

• As a first-time buyer, you need to take Home Loan guidance from a genuine source and understand Home Loan terminologies and types before making the final decision. Conduct your research thoroughly and make an informed decision.
• Depending on your unique requirements, you can select any Home Loan for first-time buyers and get a loan with less documentation and quick disbursal.