Types of Home Loans in India

When it comes to purchasing a home, securing the right type of loan can make all the difference. Home loans come in various forms, each designed to cater to different financial needs and circumstances. Understanding these options can help you make informed decisions, ensuring that your home-buying journey is smooth and financially sound. Here, we explore the various types of home loans available, providing detailed insights into their benefits and how they work.

Loan for the Purchase of Land or Plot

A Loan for the Purchase of Land or Plot is a financial product provided by banks and financial institutions to help individuals buy land. This loan can cover up to 90% of the land's cost, and the land can be purchased for future construction or resale.

For example, if you want to buy a plot of land for building a house later, you can take a loan from a bank to cover up to 90% of the land's purchase price. So, if the land costs ₹10 lakhs, the bank might lend you ₹9 lakhs, and you only need to pay ₹1 lakh upfront.

Loans for House Purchase

Loans for House Purchase are secured loans provided by banks to help individuals buy new or pre-owned homes. These loans can cover 50-85% of the property's cost, with the home itself serving as collateral.

For instance, if you're buying a house for ₹50 lakhs, you can get a home loan from a bank to cover up to ₹42.5 lakhs (85% of the cost). You repay this loan through Equated Monthly Installments (EMIs). Once the loan is fully repaid, the bank releases its charge on the property, and the home is entirely yours.

Loans for Construction of a House

Loans for Construction of a House are provided to finance the building of a new home. If the cost of land is included in the loan, the land must have been purchased within the last year. The loan amount can be disbursed either in full or in installments.

For example, if you already own a plot of land and want to build a house on it, you can apply for a home construction loan. If you bought the land within the past year and want to include its cost in the loan, the bank will consider this as well. The loan can be given to you all at once or in stages, depending on the construction progress.

House Expansion or Extension Loans

House Expansion or Extension Loans are provided for constructing additional parts to an existing home or renovating it. These loans can cover up to 90% of the construction estimate and can have a maximum tenure of 20 years.

For instance, if you want to add an extra room or renovate your current home, you can apply for a house expansion loan. For a construction estimate of ₹10 lakhs, the bank can lend you up to ₹9 lakhs (90% of the estimate). You can repay this loan over a period of up to 20 years, making it easier to manage financially.

Home Conversion Loans

Home Conversion Loans allow borrowers to switch their existing home loan to a different type or structure within the same bank. This conversion typically incurs a fee, enabling borrowers to move to a more competitive or suitable housing loan based on their needs.

For example, if you currently have a fixed-rate home loan but want to switch to a floating-rate loan due to lower interest rates, you can apply for a home conversion loan with your bank. By paying a conversion fee, you can make this switch and potentially reduce your monthly payments or overall interest costs, depending on market conditions.

Loans for Home Improvement

Loans for Home Improvement are designed to finance renovations and repairs for your house, both internal and external. This type of loan allows you to fund various improvements such as painting, tiling, plumbing, and more. Suppose you want to renovate your kitchen, redo the flooring, and improve the plumbing in your bathroom. You can apply for a home improvement loan from a bank to cover these expenses. This loan specifically caters to enhancing the livability, functionality, and aesthetics of your home.

Balance Transfer Home Loans

Balance Transfer Home Loans let you move your existing home loan from one bank to another to benefit from better loan terms or lower interest rates offered by the new bank.

For example, if you have a home loan with Bank A at an interest rate of 9% per annum but find that Bank B offers a lower rate of 7.5% per annum, you can opt for a balance transfer home loan. This means transferring your remaining loan amount from Bank A to Bank B to save on interest payments or get more favorable repayment terms.

NRI Home Loans

NRI Home Loans are loans provided to Non-Resident Indians (NRIs) to facilitate the purchase of property in India. These loans are offered by most banks and enable NRIs to invest in Indian real estate with financial support. For instance, an NRI living in the USA wants to buy an apartment in Mumbai. They can apply for an NRI home loan from an Indian bank to finance the purchase. This loan allows them to leverage their funds effectively, enabling them to invest in property while keeping their personal funds available for other investments with potentially higher returns.

Bridged Loans

Bridged Loans are short-term financing solutions that help borrowers cover immediate financial needs, such as buying a new home before selling their current one. Suppose you want to buy a new home but haven't sold your existing one yet. A bridge loan can provide you with temporary financing to purchase the new house, using your current home as collateral. Once you sell your old house, you use the proceeds to pay off the bridge loan.

Understanding the various types of home loans can help you choose the right financial product to meet your needs. Whether you're purchasing land, buying a home, building, renovating, or looking for better loan terms, there's a home loan tailored for you. By selecting the appropriate loan type, you can manage your finances more effectively and make your dream of owning or improving a home a reality.

Reverse Mortgage Loans

Reverse Mortgage Loans are designed for senior citizens who own a home. These loans allow them to convert part of the equity in their home into cash, providing a steady income stream without having to sell the property.

For example, An elderly couple can use a reverse mortgage loan to receive regular payments from the bank based on the value of their home, helping them cover living expenses in retirement.

Are you interested in understanding these home loan options, you can make an informed decision that aligns with your financial goals? Our team of experts is ready to assist you in finding the best loan options tailored to your needs.