Through this blog we shall be highlighting various facts about Home loans and the Tax benefit available on home loans.
So,are you planning to buy your own house? But,you don’t have enough funds to put your plans to action…Your personal finances are not allowing you to take a decision and make such a huge investment.
In today’s world, a lot of young couples dream of owning a perfect home but that seems to be a challenging task due to the huge risk involved and the finances required.
You need not worry, HOME LOANS will drive you through the path for achieving your goals.Home loans play a pivotal role in sustaining the real estate sector.They are important not only for the buyers but for the developers also.
In the recent years,due to rise in desire to own houses ,the leading banks and a number of financial institutions across the country have taken steps to provide easy housing loan facility in the form of attractive offers to the prospective home buyers.
You can get financed by the private or the government banks or various financial institutions (that are authorised to do so) provided you meet certain eligibility criteria and fulfil the basic home loan requirements.Banks can normally provide 75-80% of the value of property while rest should be borne by the individual himself.
The definition of home loan is not restricted merely to Home Purchase loans but it also includes :
- Home Construction loans
- Plot/land purchase loans
- Home Improvement/Repair loans
- Home extension loans
- Home conversion loans
So,if you want funds for any of the above mentioned purposes, What you need to do is to Apply for a home loan.
But,before applying for a home loan ,you need to make yourself aware about the various factors on which your decision shall be based, since you shall be paying the maximum of your savings in the form of EMIs i.e. Principal +Interest which might be spread over a number of years.
Take a look at the 7 facts that you need to know before taking a decision regarding HOME LOANS.
7 Home Loan facts you must know :
1. Eligibility Criteria : As per the rules and regulations of the banks,there are various parameters to calculate the home loan eligibility of a person and how much loan can be sanctioned to him.Normally,these parameters consist of the following :
- Age of the home loan applicant
- Nature of employment/business/profession
- Regular Income of Individual
- Work experience
- Credit status/Credit history
- CIBIL Score
- Financial Background
- Loan amount
- Tenure of loan
- Property Location
If the bank or financial institution is satisfied based on your eligibility criteria then only you tend to get the desired loan amount.You can check your eligibility criteria beforehand by using a web based home loan eligibility calculator and work on your weak points.This way you can remove any hurdles in your way and get the loan sanctioned easily.
Besides taking a home loan,you need to save a big amount yourself as well,for buying a home so checkout one of our most popular blog post on How to save money : 7 tips only smart people know !
2. Fixed vs Floating Rate of Interest : Fixed interest home loan is one where the interest rate is fixed in the beginning and you have to pay fixed EMIs over the tenure of the loan.While,in case of floating interest rate,the rate changes alongwith the change in market conditions.So,in case of floating rate ,if the interest rate comes down,you will have to pay less interest and vice versa. Hence,floating interest rate home loan is preferred over a fixed interest rate home loan.
Moreover,banks usually provide lucrative home loans deals,offers and packages to attract the prospective home loan customers.You might be getting promotional calls and emails regarding easy loan facility every now and then.Act wisely and compare the prevalent interest rates,loan schemes offered by different banks.Select the one that best suits your needs and pocket.
So,which rate of interest suits you refer Fixed or floating rate of interest for home loans-which is better ?
3. Loan Amount, EMI and Tenure of loan : Loan amount refers to the total amount of loan the person wants to get sanctioned. EMI means the Equated monthly instalments that you are required to pay back each month in order to reduce your loan liability.EMI is calculated by adding Principal and accrued Interest amount that is based upon the interest rate and the loan duration.
Tenure of loan refers to the period for which the loan is sanctioned i.e. in how many years the loan applicant shall pay back the entire loan and interest.So,you should wisely choose the EMI and the loan duration.There is an inverse realtionship between EMI and Loan tenure i.e.longer the tenure of loan,the lower the EMI and vice versa.So,plan it cautiously, based on your preferences and benefits.
4. Loan agreement to be read carefully : You should always read the loan agreement and other documents carefully before signing them.Just go through all the clauses minutely or you can refer a consultant or an expert to guide you in this regard.
You should check for any hidden clauses,loopholes that might give you trouble later on.Also,clarify on the charges associated with home loan processing fee,sanction fees,any prepayment charges,legal verification charges, miscellaneous charges or any other cost attached thereto.Read and understand all the terms and conditions clearly.
5. Documents Checklist : The documents required to be submitted may vary from bank to bank as per the set banking guidelines.This is also based on the type of Individual applying for the loan like salaried,businessman or a professional.But,the basic requisites are as follows :
- Duly filled in Application form with Photograph
- ID Proof
- Address Proof
- Salary slips/Form 16 – For salaried persons
- Proof of business and IT Returns – For self employed /business class
- Bank statement of past 6 months or 12 months(may differ as per bank norms)
- Copy of title documents of property.
This is a basic checklist and you may be asked to provide certain additional documents as per banks/institutions norms.
To get additional home buying tips also go through our famous blog post : 5 Smart tips for First time home buyers ! that will help you in taking the right decision.
6. Beware ! House property acts as a Security for banks : You need to know that if you plan to take a housing loan, the house you wish to buy will be taken as security by the bank from where you get the loan.In case of default in the repayment of loan instalments,the bank has the right to recover it from your property.The bank can retrieve the same by auctioning your property.So,be very careful in making timely payments of your EMIs in order to enjoy the benefits of your own house peacefully and without any hindrance.
It is only after repaying the whole Principal + Interest amount i.e. after paying off the entire liability, you become the complete owner of the house.
7. Enjoy! ! Tax benefit on Home loans : Home loans not only help you in stepping towards your dream home,but there are several tax benefits on home loans as well that help you save some of your money.
Tax Benefits on Home loans :
| Section | Amount of Deduction | Deduction Available on which amount |
|---|---|---|
| 80 C | Maximum Rs.150000 | Principal repayment of Home loan |
| 24 | Maximum Rs.200000(For Self Occupied House Property) No limit- For not self occupied house | Interest on Home loan |
| 80EE | Maximum Rs.50000 (For first time home buyers) | Interest on Home Loan provided the loan is sanctioned between 1.4.16 to 31.3.17 |
The above deduction can be claimed if the home loan has been taken for purchase,construction,renewal,repair or reconstruction of residential house property.
So,you get a dual tax benefit,one is the deduction under Section 24 for interest on housing loan and the other is for the principal repayment that can be claimed as part of Tax deduction under Section 80 C .
An additional tip :
It is beneficial to take a joint home loan since the tax deductions on home loans are per person and not per property. So,if a loan is taken jointly say by you and your spouse, both of you are eligible to claim the tax deduction separately.
Lastly,buying a home involves a lot of financial planning to be done on your part.It involves a huge sum of money,so need to be planned well in advance. After analysing all the features and prerequisites of getting financed through home loans,you can step forward and take your decision.
Happy Home Buying !
Hope this blog was helpful in guiding your way and adding to your knowledge on home loan facts and related tax benefits !
Our best wishes to you for moving closer to getting your dream home…
For further investment planning you can have a look at 7 Best Long term Investments in India !
If you have some valuable points to add,feel free to share the same.Would love to hear your thoughts and feedback in the comments below…
This was on Home loans, for details on credit cards in India, you can go through : 9 Best Credit Cards in India – Review !