9 Different Home Loan Types And Options Available In India: Eligibility And Interest Rates

Home Loan

Home loans could help you get the dream house you desire. It is the most sought after option and its interest rates are relatively low compared to other loans. Hence, it is necessary to choose the right lender. There are various home loan options that various banks/NBFCs offer. Choose the right option to avail of the amount that you need. It is advisable to have a clear understanding of what these options are and what their interest rates are. Here is a blog to give you a comprehensive understanding of the types of home loan options available in India and the one that fits your needs.

Interest Rates of Different Home Loans

Here are the interest rates of various housing finance options:

*The above table is for educational purposes only. The interest rates could vary at the sole discretion of the lender.

With Navi, you can get home loans up to Rs.10 crore in a 100% paperless manner and at attractive interest rates starting from 7.39% p.a.

Types of Home Loans Available in India

Following are the different home loan types you can avail of:

Loan for Land Purchase

Financial institutions provide loans for land purchases so that borrowers can buy a plot on which they want to construct a house. Tax deductions on land loans can be availed of only when the construction is completed. Usually, loan providers sanction up to 80-85% of the land’s market value, implying that borrowers have to pay the remaining 15-20% as a down payment. 

Home Purchase Loan

Borrowers can avail of a home purchase loan to finance the purchase of a new home. It is important to determine eligibility and repaying capacity before starting the home loan process. Your repayment capacity is based on factors such as total monthly income/ monthly expenses, and other factors like spouse’s income, assets, liabilities, stability of income, etc. One can get up to 80% of the residential property’s market value with this financing option.

With Navi Home Loan, you could get up to 90% of the property’s market value. Download the Navi app today to apply for home loans up to Rs.10 crore.

Loan for Home Construction

Home-construction loans are designed for individuals who wish to construct a residential property on an owned/co-owned piece of land. In this case, the amount of loan that a financial institution can sanction depends upon a rough estimate of the construction cost. 

Home Improvement / Renovation Loan

Individuals who own a house but do not have the financial capability to renovate it can avail of a home improvement loan. Renovation may include repairing an existing property, re-painting walls, installation of new light fixtures, an extension of the house and more. Here’s how the loan works: The borrower shares a cost estimate of the work intended to be done with the lender, who will take a quotation from the contractor to verify the estimate submitted. The money is released at the rate of the construction work to the contractor to whom it is due.

Home Conversion Loan

Individuals who have already availed of a home loan but want to sell the property and buy a new home can opt for a home conversion loan. By choosing this type of housing credit, borrowers can purchase a new residential property by transferring the existing loan to the new house. They do not have to repay the loan or seek another lender. 

However, note that this option is a bit more expensive in comparison to other home loan types on this list. 

Home Loan for NRIs

This type of home loan is specifically designed for non-resident Indians who want to purchase a residential property in India. The application process and the documentation are different from those of the other home loan types available in India. Nevertheless, the structure of this housing loan is similar. 

Bridge Loan

A bridge loan is a short-term financing option that homeowners can avail of to buy a new residential property by selling their existing one. Individuals can utilise the loan amount to finance the purchase of the new home until they are able to sell the old property. Usually, bridge loans come with a high-interest rate and have a tenure of fewer than two years. 

Home Loan Balance Transfer

You can transfer your outstanding balance from your existing bank/NBFC to another bank/NBFC of your choice. Typically, the home loan balance transfer option is chosen when a borrower finds a lower interest rate and a better top-up facility in another lender.

PMAY (Pradhan Mantri Awas Yojana)

Pradhan Mantri Awas Yojana was launched in 2015 with a “housing for all” mission. A subsidy scheme called Credit Linked Subsidy Scheme (CLSS) was launched under this mission to avail of a subsidy on loans taken for the purchase/ construction/ extension/ improvement of a house. As per this CLSS scheme, beneficiaries who would take a home loan can avail of an interest subsidy up to Rs.2.67 lakh.

Also read: Home Loans: Types, Interest Rates, How To Apply And Benefits

Eligibility Criteria for Different Home Loans

Please note that the eligibility criteria for various types of house loans may vary depending upon the lender. 

Here is a tabular representation of the basic parameters: 

Documents Required for Different Types of Home Loans 

The documents required for each type of home loan are not the same. However, individuals might need to submit these if they opt for any type of housing finance option:

• Age Proof 
• Proof of Address 
• Duly signed application form with photograph 
• Income-related documents (salary slip, ITRs, etc.)

Here’s a tabular representation of the additional documents required for each of the different types of home loans:

Also Read: Home Loan Sanction Letter: Sanction Process, Benefits & Documents Required.

Things to Consider before Applying for a Home Loan

Availing of a home loan from a financial establishment is no big deal nowadays. As a home loan is a secured loan, it is easy to get approval upon proper documentation and verification. While the lender will surely check all the details of the lender, as the borrower you should also be careful with your capability and consistency to repay the loan as home loan deals with a large amount of money and a long repayment tenure.

The following are some of the boxes you need to get ticked prior to availing a home loan:

• Check your eligibility: There are many loan eligibility calculators that are available online which will help you know the maximum loan amount that you can avail yourself of. Knowing this amount beforehand will help you manage your finances accordingly. Simply, enter a few details like monthly income, monthly expenses, location, etc., and you will get the maximum loan amount that you are eligible for. 
• Go through the market: Compare the loan amount and interest rate offered by various lenders depending upon the eligibility criteria and settle for the most affordable one. Remember, you have to manage various other expenses along with the EMIs. Hence, make your decision wisely.
• Repayment tenure: Repayment tenure and the interest rate are inversely proportional. A Shorter repayment tenure comes with a lower interest rate to encourage faster repayment. On the other hand, if a company opts for a longer repayment tenure, the financial institution charges an increased interest rate. It is advisable to opt for a short repayment tenure to ensure a low cost of borrowing.
• Foreclosure rules: Discuss with your lender about the terms and conditions related to the foreclosure of the loan. The sooner you pay off the debt, the better will be your credit score.
• Additional charges: Other than the principal amount, down payment, and interest, there can be other additional charges payable such as processing fees, late payment penalty and pre-payment charges. Go through the loan-related documents carefully before signing the agreement. 

Final Word

It is crucial for prospective borrowers to do their fair share of research about different types of home loans available in India. This will help them select an option that is best suited for their financial requirements. However, they should also compare the interest rates and the EMI options charged by different lenders before making a decision. Download the Navi app and check out the EMI calculator to see what option suits your repaying capacity.

FAQs on Home Loan Types

Before you go…

Are you looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to ₹5 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 7.89% p.a.

Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article. 

Explore Home Loan Offers in Your City