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Home loan for resident Indians are offered by the Commercial Banks/Housing Finance Companies (HFCs) which range from buying a house either from the developers, un-built or under construction or from a second owner or for the improvement and renovation of the existing building structure.
With so many private sector banks, and private as well as public sector's housing financing companies lending their shoulders out, it's becoming gradually uneasy for the consumers to choose the best deal as well.
For an Indian resident to avail loans, certain factors including eligibility criteria, documentation need to be considered, and of course you must know about some Home Loan Tips before applying for Home Loan, which are discussed in this section, which includes eligibility, amount of loans, types of interest, tenure of interest, the documents required, rate of interest, and even disbursal of loans.
Home loan eligibility for Resident Indians depends upon the repayment capacity of the loan applicant. The maximum loan that can be sanctioned varies with the banks and other housing finance companies (HFC) and generally, the maximum loan amount granted is 80 to 85% of the cost of your home.
Home loan eligibility corresponding to repayment option is based on the following factors. Even though, the eligibility criteria may vary according to the HFCs regulations.
Home loan Eligibility Criteria |
Age (Minimum) |
21 Years |
Age (Minimum) |
21 Years |
Age (Maximum) |
58(salaried) |
60(Public limited/Government Employees)65 (self employed) |
65 (self employed) |
Qualification |
Graduation |
Income |
Stable source of income and saving history |
Dependents |
Number of dependents, assets, liabilities |
Other Income sources |
Spouse's income |
As home loan rates increase, the loan eligibility for a borrower becomes stiffer. In such a scenario, some home loan borrowers might have to re-evaluate their options (in terms of loan amount) on account of the new eligibility criteria. Home loan eligibility can be enhanced by:
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Increasing the Home loan tenure
One of the basic process of enhancing the home loan eligibility is by opting for a higher tenure. This is so because the EMI, which an individual has to pay, starts to decline as the tenure increases while the interest rate as well as the principal amount remains the same. What changes though, is the net interest outgo, which rises with a rise in tenure. And since the individual is paying a lower EMI now, his 'ability to pay' and therefore his loan eligibility automatically increase.
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Repaying other outstanding loans
There might be adverse effect on home loan eligibility for individuals with outstanding loans like car loans or personal loans. Industry standards suggest that existing loans with over 12 unpaid installments are taken into account while computing the home loan borrower's eligibility. In such a scenario, individuals have the option of prepaying in part/full their existing loans. This will ensure that their eligibility for the home loan purpose is unaffected.
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Clubbing of incomes
Home loan eligibility can also be enhanced by clubbing incomes of spouse, children (son or daughter) staying with the applicant and having regular income and even earning parents (father or mother) living with the applicant. The eligibility in such cases, will be calculated on the clubbed income of both the applicants enhancing the individual's eligibility to the extent of the co-applicant's income.
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Step-up loan
Individuals can also enhance their loan eligibility by opting for step-up loans. A step-up loan is a loan wherein an individual pays a lower EMI during the initial years and the same is enhanced during the rest of the loan tenure. HFCs usually consider the lower EMI of the initial years to calculate his loan eligibility while the initial lower EMI helps increase the individual's 'capacity to borrow'.
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Perks
Salaried individuals must ensure that variable sources of income like performance-linked pay among others are taken into consideration while computing their income. This in turn will imply that the loan amounts they are eligible for stand enhanced as well.
However, potential investors and borrowers must work out solutions best suited for their profile after speaking to their home loan consultant and only then consider acting on the options discussed. Because, increasing loan eligibility can have an impact on other aspects of their financial planning.
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Step-up Repayment Facility
The objective of step-up repayment is to provide the borrower with a repayment schedule, which is linked to expected growth in income. It not only helps a customer get a larger amount of loan as compared to the loan under the normal housing loan; but the customer can avail of a higher amount of loan and pay lower EMIs in the initial years, which is subsequently accelerated proportionately with the assumed increase in his income.
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Flexible Loan installments Plan
This repayment option offers a customized solution to suit the needs of customers whose repayment capacity is likely to alter during the term of the loan. In cases when a borrower is nearing retirement, the loan is structured in such a way that the EMI is higher during the initial years and subsequently decreases in the latter part proportionate to the reduced income of the customer. This option helps such customers combine the incomes and take a long term home loan where in the installment reduces upon retirement of the borrower.
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Tranche Based EMI
Customers purchasing an under construction property, need to pay interest (on the loan amount drawn based on level of construction) till the property is ready. Tranche Based EMI is a special facility offered by some banks to help customer save this interest. Customers can fix the installments they wish to pay till the property is ready. The minimum amount payable is the interest on the loan amount drawn. Anything over and above the interest paid by the customer goes towards principal repayment. The customer benefits by starting EMI and hence repays the loan faster.
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Accelerated Repayment Scheme
Accelerated Repayment Scheme offers you a great opportunity to repay the loan faster by increasing the EMI. Whenever you get an increment, increase in your disposable income or have lump sum funds for loan prepayment, you can benefit by
- Increase in EMI means faster loan repayment
- Saving of interest because of faster loan repayment
- Or invest lump sum funds rather than use it for loan prepayment. The return from the investments also gives you the comfort of paying the increased EMI.
Home loan tenures fixed by RBI are available up to a term of 15 years. Some financial institutions have home loan tenures in the range extending up to 20, 25 and 30 years if the applicant fulfils certain criteria. However, you cannot opt for a term that extends beyond your attaining retirement age or 60 years of age (whichever is earlier)
Type of Property |
Salaried |
Self-Employed |
Residential |
15 years |
10 years |
Plot of Land |
10 years |
10 years |
Against Existing Plot of Land |
15 years |
10 years |
Tax benefits is one of main objectives for the people to buy property. Property buyers can claim the exemptions under the Income Tax Act, 1961, which are adjusted on time to time basis. Usually Indian government proposes changes to these benefits through budget presentations. These tax benefits for the resident Indians based on the principal and interest component of a loan may help one get tax benefit up to Rs. 50,490 p.a. (approximately) provided the interest repayment is up to Rs. 1,50,000 p.a. is paid. In addition to this, one also is eligible for getting tax benefits under section 80C on repayment of principal amount up to Rs. 1, 00,000 p.a. that further reduces the tax liability by Rs.33.660 p.a.
These deductions are available to assesses, who have taken a loan to either buy or build a house, under Section 24(b). However, interest on borrowed capital is deductible up to Rs 150,000 if the following conditions are fulfilled:
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- Capital is borrowed for acquiring or constructing a property on or after April 1, 1999.
- The acquisition and construction should be completed within 3 years from the end of the financial year in which capital was borrowed.
- The person, extending the loan, certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house.
- A loan for refinance of the principle amount outstanding under an earlier loan taken for such acquisition or construction. If the conditions stated above are not fulfilled, then the interest on borrowed capital is deductible up to Rs 30,000 though the following conditions have to be satisfied.
- Capital is borrowed before April 1, 1999 for purchase, construction, reconstruction repairs or renewal of a house property.
- Capital should be borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property.
- If the capital is borrowed on or after April 1, 1999, but construction is not completed within 3 years from the end of the year, in which capital is borrowed.
In addition to the above, principal repayment of the loan/capital borrowed is eligible for a deduction of up to Rs 100,000 under Section 80C from assessment year 2006-07.
Terms and conditions for availing Tax benefits on Home Loans
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Tax deductions can be claimed on housing loan interest payments, subject to an upper limit of Rs 150,000 for a financial year.
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An additional loan for extension/improvement to the same house and the individual's deductions on the existing loan are less than Rs 150,000; he can claim further benefits from the additional loan taken, subject to the upper limit of Rs 150,000 for a financial year.
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Tax benefits under Section 24 and deduction under section 80C of the Income Tax Act can be claimed only when the payment is made. If an individual fails to make EMI payments, he cannot claim tax benefits for the same.
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According to the Income Tax Act, tax rebates can only be claimed by the loan applicant.
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The interest on home loans taken for repairs, renewals or reconstruction, also qualifies for the deduction of Rs 150,000.
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A husband and wife, both of whom are tax-payers with independent income sources, get tax deduction benefits, with respect to the same housing loan; to the extent of the amount of loan taken in their own respective name.
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If an individual buys a house and sells it within the same year or after 3 years, and if any profit is made, then a capital gains tax liability arises on the same for which the individual is liable to pay short-term capital gains tax since the sale took place in the same year. But in case, if the sale had taken place after 3 years, then a long-term capital gains tax liability would have arisen.
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On being proved that the home loan is simply an arrangement between the loan-seeker and the builder or with a third party for the purpose of claiming tax benefits, then tax benefits will not be allowed and benefits, previously claimed, will be clubbed to the income and taxed accordingly.
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Tax benefits on interest on housing loans are allowable only for the original loan and according to Section 24 (1), tax benefits can also be availed for a second loan taken to repay the first loan but not for subsequent loans. This means that if you have already availed of one loan to refinance the original loan and want to now avail a third loan to refinance the second loan, tax rebate on interest payments will not be permissible.
(Ref: Income Tax Department website)
Salaried Customers |
Self Employed Professionals |
Self Employed Businessman |
Application form with photograph |
Application form with photograph |
Application form with photograph |
Identity and Residence Proof |
Identity and Residence Proof |
Identity and Residence Proof |
Latest Salary-slip |
Education Qualifications Certificate and Proof of business existence |
Education Qualifications Certificate and Proof of business existence |
Form 16 |
Last 3 years Income Tax returns (self and business) |
Business profile |
Last 6 months bank statements |
Last 3 years Profit /Loss and Balance Sheet |
Last 3 years Income Tax returns (self and business) |
Last 3 years Profit /Loss and Balance Sheet |
Processing fee cheque |
Last 6 months bank statements |
Last 6 months bank statements (self and business) |
Processing fee cheque |
Processing fee cheque |
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*Proof of Individual's Identity (any one of the following)
- Passport
- Photo PAN Card
- Defense Identity Card
- Voter's Identity Card
- Driving License
- Photo Ration Card
- Government Identity Card
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**Proof of Residence (any one of the following)
- Passport
- Ration Card
- Telephone (Land/Mobile) Bill
- Electricity Bill
- Driving License
- Society Outgoing Bill
- Voter's Identity Card
- Life Insurance Policy
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Only Passport can be used as both Proof of Individual's Identity and Proof of Residence.
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** Proof of Age (any one of the following)
- Passport
- Valid Driving License
- Voter's Identity Card
- Birth Certificate>
- School leaving certificate
- LIC Policy or Premium Receipt clearly indicating the applicant's age
- Letter from the employer stating the age of the employee
- Photo Ration Card
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Maximum loan
85% of the cost of the property (including the cost of the land) and based on the repayment capacity of the customer.
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Maximum Term
20 years subject to your retirement age.
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Applicant and Co- Applicant to the loanI
Home Loans can be applied for either individually or jointly. Proposed owners of the property will have to be co-applicants. However, the co-applicants need not be co-owners.
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Adjustable Rate Home Loan
Loan under Adjustable Rate is linked to Banks Retail Prime Lending Rate (RPLR). The rate on your loan will be revised every three months from the date of first disbursement, if there is a change in RPLR, the interest rate on your loan will change. However, the EMI on the home loan disbursed will not change. If the interest rate increases, the interest component in an EMI will increase and the principal component will reduce resulting in an extension of term of the loan, and vice versa when the interest rate decreases.
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