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home loans
Home Loan Types  Tax Benefits
Interests & EMI’s Calculators
Required Documents
 
Home Loan Types
In India, banks and housing finance companies offer many types of home loans that cater to a diverse range of home purchase needs.
  • Home Purchase Loans: These are the basic home loans for the purchase of a new home.
  • Home Improvement Loans: These are for repair and renovation works in a home that has already been purchased by you.
  • Home Construction Loans: These are for construction of a new home.
  • Home Extension Loans: These loans are for extending or expanding, such as addition of a new room or floor, to an existing home.
  • Home Conversion Loans: These loans are for those who have financed the present home with a housing loan and wish to purchase and move on to another home, for which some additional funds are required. In this the existing loan is transferred to the new home including the extra amount required, eliminating the need for pre-payment of the previous loan.
  • Land Purchase Loans: . These are for purchase of land for investment purpose and construction of a home.
  • Bridge Loans: These are for people who wish to sell their existing home and buy another. This helps to finance the purchase of the new home until a buyer is found for the old home.
  • Balance Transfer: These are to pay off an existing home loan and avail the option of having a loan with a lower rate of interest.
  • Refinance Loans: These are to help you pay off any debts you have made from private sources such as friends, relatives, pawn brokers, etc., for the purchase of your present home.
  • Stamp Duty Loans: You may avail these loans to pay the stamp duty charges that need to be paid on the purchase of any real estate property.
  • Loans to NRIs: These loans are for non-resident Indians (NRI) and people of Indian origin (PIO) to buy or build a home in India. As of April 2009, NRIs and PIOs (not being a citizen of Pakistan or Bangladesh or Nepal or Bhutan or Sri Lanka or Afghanistan or Iran or China) are given general permission to buy only residential and commercial property but not agricultural lands or farms or plantations.
Tax Benfits

Apart from the pleasure and pride of owning a home, home loans can also help you in reducing the tax burden. As an incentive for increasing home ownership, the Government of India offers many tax benefits.

  • Resident Indians can claim tax benefits on principal and interest components of a home loan under the Income Tax Act, 1961. The tax deduction on the interest payments is subject to an upper limit of Rs. 1,50,000 for a financial year.
  • Under Section 88, you can avail a tax rebate of 20 per cent on the principal repaid subject to a ceiling of principal amount of Rs. 20,000 per year. This can reduce your tax liability by Rs. 4000 per annum.
  • With affect from 1st April, 2005, under Section 80C of the Income Tax Act, 1965, principal amount of repayment of loan along with other savings such as PF, PPF and life insurance premiums, etc., are eligible for deduction from gross income subject to a maximum of Rs. 1,00,000.
  • Under the same section, interest paid on the loan after the completion of the construction of the house will be deductible from the tax for the income earned on the property.

Other Costs Involved:

Home loans usually come with some additional costs you might be unaware of unless you read the fine print of a loan agreement. 

  1. Processing Charge: It is the fee you pay for applying the loan. It could either be a fixed fee or a small percentage of the loan amount.
  2. Pre-payment Penalties: When a loan is paid back before the end of the agreed duration, a penalty is charged by the banks or home finance company, which is usually between 1% and 2% of the amount being pre-paid.
  3. Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned.
  4. Miscellaneous Costs: . It is quite possible that some banks and finance companies may levy a documentation or consultation charges.
  5. Registration of mortgage deed.
Required Documents

To avail the loan you will have to submit the following documents to the lending institution. Note that the submission of the documents alone will not make you a rightful candidate for the loan. Financial institutions have the right to check, crosscheck and also reject your papers without stating any reason. They might also ask for additional information that will convince them about your financial health and loan repayment capability. 

Some of the basic documents you need to produce for a home loan are:

  1. Income Proof : such as your last three months’ salary slips, income tax returns of the last three years, Form 16/16A, copies of statements of your active bank accounts, etc.
  2. Residence Proof : such as ration card, electricity bill, driving license, etc.
  3. ID Proof : such as ration card, passport, driving license, election photo identification card, etc., which must have a clear photograph on it.
  4. Age Proof : such as any of the above mentioned documents or a school leaving certificate.