Types of Home Loans in India: Buying a home is one of the most significant milestones in anyone’s life. But with the skyrocketing property prices, funding a home purchase often requires taking out a home loan.
Thankfully, there are various types of home loans available in India to suit different needs and aspirations. In this blog, we’ll explore the types of home loans available in India, their features, and how you can choose the right one for your needs. Let’s dive in!
1. Home Purchase Loan
This is the most common type of home loan. A home purchase loan is specifically designed to help you buy a new or resale property. It typically covers up to 75-90% of the property’s market value/agreement to sell (ATS), while the rest needs to be arranged as a down payment.
Features:
- Offered by almost all banks and financial institutions like SBI, HDFC and Bank of Baroda.
- Attractive home loan interest rates starting at around 8.40% per annum (varies by lender).
- Flexible repayment tenures ranging from 5 to 30 years.
2. Home Construction Loan
If you’re planning to build your dream home on a plot of land you already own, this type of home loan is for you. Unlike a home purchase loan, the disbursement of funds happens in phases based on the progress of construction.
Features:
- Loan eligibility depends on the estimated cost of construction usually provided by a Valuer empanelled with the bank.
- Funds are released in tranches as per the construction stages in this type of home loan.
- Requires submission of a construction plan approved by local authorities.
3. Home Improvement Loan
Your existing home may need renovations or repairs to make it more comfortable and aesthetically pleasing. A home improvement loan helps you fund these upgrades, be it remodelling the kitchen, adding a new room, or fixing a leaking roof.
Features:
- This type of home loan covers a variety of renovation and repair works.
- Competitive home loan interest rates.
- Shorter loan tenures compared to purchase loans.
4. Home Extension Loan
Planning to add an extra floor, room, or balcony to your current house? A home extension loan is the type of home loan that is tailored for such needs. It allows homeowners to expand their living space without financial stress.
Features:
- Specifically for home expansion purposes.
- Requires property ownership documentation.
- Similar interest rates and tenures to home purchase loans.
5. Land Purchase Loan
For those looking to buy a plot of land to build a house, a land purchase loan is the ideal choice. However, keep in mind that this type of home loan is only available for residential plots.
Features:
- Can finance up to 85% of the plot’s value.
- Shorter tenures compared to traditional home loans.
- Higher home loan interest rates compared to purchase loans.
6. Balance Transfer Home Loan
Already have a home loan but feel burdened by high interest rates? A balance transfer home loan allows you to shift your loan to another lender offering better interest rates and terms.
Features:
- Helps reduce the overall interest cost.
- Option to renegotiate repayment terms.
- Processing fees may apply for the transfer.
7. NRI Home Loan
Non-Resident Indians (NRIs) wishing to invest in Indian real estate can opt for an NRI home loan. These loans cater to the unique requirements of NRIs, such as repatriation of funds and flexible documentation processes.
Features:
- Available for property purchase, construction, or renovation.
- Requires an NRI account and valid overseas income proofs.
- Interest rates and tenures are similar to regular home loans.
8. Top-Up Home Loan
If you already have a home loan but need additional funds, a top-up loan can be the perfect solution. The borrowed amount can be used for any purpose, such as home renovation, education, or medical expenses.
Features:
- Offered only to existing home loan customers.
- Attractive interest rates compared to personal loans.
- No restrictions on end use of funds.
9. Bridge Loan
A bridge loan is a short-term financing solution for individuals who wish to buy a new property while selling their existing one. This loan “bridges” the gap between the purchase and sale.
Features:
- Temporary loan with a tenure of up to 2 years.
- Higher interest rates compared to regular home loans.
- Helps avoid the financial crunch during property transactions.
How to Choose the Right Home Loan
Choosing the right home loan depends on several factors, including:
Purpose: Identify why you need the loan—purchase, construction, renovation, etc.
Budget: Consider your repayment capacity and calculate your EMI using a home loan EMI calculator.
Interest Rate: Compare home loan interest rates across lenders to find the best deal.
Tenure: Longer tenures mean lower EMIs but higher overall interest costs.
Lender Reputation: Choose a trusted lender with transparent processes and good customer service.
Final Thoughts
Understanding the different types of home loans in India can help you make an informed decision and fulfil your dream of owning a home. Whether you need funds to buy, construct, or renovate, there’s a loan type for everyone. Remember to compare home loan interest rates, evaluate your financial standing, and choose the type of home loan that aligns with your needs.
Investing in a home is a significant step. Make it stress-free by choosing the right loan and lender. Happy house hunting!
