A home loan is one of the most widely used financial products in India, helping individuals buy, build, renovate or upgrade residential properties without paying the entire cost upfront. Offered by banks, housing finance companies and non-banking financial institutions, home loans are classified as secured loans because the property being financed serves as collateral until the loan is fully repaid. Before applying for a home loan, borrowers should understand the various loan options available, eligibility requirements, interest rates, tax benefits and the documentation needed.
Different types of home loans
Financial institutions offer several types of home loans to cater to different customer needs.
Home purchase loan
A home purchase loan is the most common form of housing finance and is used to buy a ready-to-move-in, under-construction or resale residential property. Banks generally fund a significant portion of the property’s value, while the buyer contributes the balance as a down payment. The loan is repaid through Equated Monthly Instalments (EMIs) over a tenure that can extend up to several decades.
Plot loan
Individuals looking to purchase residential land for future construction can opt for a plot loan.
Home construction loan
A home construction loan is designed for people who already own a piece of land and need funds to build a house. Unlike regular home loans, the sanctioned amount is released in phases as construction progresses.
Home renovation loan
Homeowners seeking funds for repairs, remodelling or structural improvements can apply for a renovation loan. The money can be used for painting, flooring, room additions, modernization or other improvement projects.
Home loan balance transfer
Borrowers with an existing home loan may transfer their outstanding loan amount from one lender to another to secure lower interest rates or better loan terms. A balance transfer can help reduce EMI obligations or shorten repayment tenure.
Top-up loan
A top-up loan is an additional borrowing facility available to existing home loan customers. Since it is linked to the original housing loan, the interest rate is usually lower than that charged on personal loans.
Eligibility criteria for home loans
Lenders assess multiple factors before approving a home loan application to ensure that the borrower has the financial capacity to repay the debt.
Age
Most financial institutions allow individuals between 21 and 70 years of age to apply for a home loan. The applicant’s age often influences the maximum loan tenure available.
Income
Income is one of the most important determinants of loan eligibility. Higher monthly earnings generally translate into greater borrowing capacity and improved chances of obtaining a larger loan amount.
Employment
Salaried applicants are typically expected to have at least one to two years of work experience. Self-employed individuals must demonstrate a stable source of income and a consistent business track record.
Credit score
A borrower’s credit score, generally ranging from 300 to 900, reflects their financial discipline and repayment history. A higher credit score significantly improves the likelihood of loan approval and may help secure more competitive interest rates.
Loan-to-value ratio
Banks generally finance up to 80% of the property’s value through a home loan. The remaining amount must be arranged by the borrower as a down payment from personal savings or other legitimate sources.
Home loan interest rates
Home loan interest rates are available in two primary forms—fixed and floating.
Under a fixed-rate home loan, the interest rate remains unchanged for a substantial portion of the tenure, ensuring predictable EMIs. However, fixed rates are usually higher than floating rates.
In a floating-rate loan, the interest rate changes whenever benchmark lending rates are revised by the banking system. Most borrowers prefer floating-rate loans because they can benefit from reductions in interest rates over time. However, EMIs may increase if market rates rise.
Apart from interest charges, lenders also levy processing fees and other administrative costs when sanctioning a home loan.
Tax benefits
Home loans not only facilitate homeownership but also provide substantial tax-saving opportunities under the old tax regime.
Section 80C: Principal repayment
Borrowers can claim a deduction of up to ₹1.5 lakh annually on the principal repayment component of a home loan under Section 80C, subject to prescribed conditions and the overall limit.
Section 24: Interest deduction
Under Section 24 of the Income Tax Act, borrowers can claim a deduction of up to ₹2 lakh annually on interest paid for a self-occupied property. For rented properties, the entire interest paid may be eligible for deduction, subject to applicable tax provisions.
Section 80EE
First-time homebuyers may qualify for an additional deduction of up to ₹50,000 on home loan interest under Section 80EE. This benefit is available for loans sanctioned between April 1, 2016, and March 31, 2017, subject to specified property value and loan amount limits.
Section 80EEA
Section 80EEA provides an additional deduction of up to ₹1.5 lakh on home loan interest for eligible first-time buyers of affordable housing. The benefit applies to loans sanctioned between April 1, 2019, and March 31, 2022, subject to various conditions.
New tax regime
Under the new tax regime, most home loan deductions are unavailable. However, taxpayers can continue to claim interest deductions under Section 24(b) for let-out properties.
Documents required for a home loan
Home loan applicants are required to submit a range of documents, including identity proof, address proof, age proof, income records and property-related paperwork.
For salaried individuals, lenders generally require salary slips, Form 16, bank statements and employment proof. Self-employed applicants must furnish income tax returns, profit and loss statements, balance sheets, GST registration or business documents and bank account statements.
Property documents such as sale deeds, title deeds, builder-buyer agreements, approved building plans, allotment letters and payment receipts are also essential during the verification process.
Home loan application process
The application process begins with selecting a suitable lender based on interest rates, tenure options and service quality. Applicants then submit the loan application form along with supporting documents.
The lender verifies the documents, evaluates income and employment details, and assesses the applicant’s credit profile.
Once the verification and credit assessment stages are completed successfully, the lender approves the loan and disburses funds in accordance with the agreed terms and conditions, enabling the borrower to move forward with their homeownership plans.