Applying for a home loan is one of the biggest financial decisions for any individual or family. A wrong move can impact your long-term financial stability. Whether you are a salaried professional or self-employed, understanding the key factors before applying for a housing loan is essential. Here’s a detailed breakdown in simple terms with practical examples:
1. Eligibility Criteria
Banks evaluate various criteria before approving your loan:
Age: Most banks allow home loans for people aged 21 to 65.
Example: If you are 30, you can opt for a 30-year tenure. But if you are 55, tenure options may reduce due to retirement proximity.
Income & Employment: A minimum income of Rs. 25,000/month is typically required.
Example: An IT employee earning Rs. 50,000/month might get a Rs. 30 lakh loan. NRIs or freelancers may have different eligibility.
Credit Score (CIBIL): A score of 750+ ensures better approval chances.
Example: A score of 800 may get you lower interest; a score below 650 may lead to rejection or high rates.
2. Interest Rates
Choose between:
Fixed Interest Rate – Constant rate (e.g., 8.5%) for the full tenure.
Floating Interest Rate – Fluctuates with market conditions.
Example: If SBI offers 8.4%, HDFC 8.5%, and ICICI 8.6%, SBI is the most cost-effective.
3. Loan Amount & Tenure
Generally, banks offer 80–90% of the property’s value. Tenure ranges from 5 to 30 years.
Example: For a house worth Rs. 50 lakhs, you may get Rs. 40 lakhs loan. EMI for 20 years = Rs. 35,000 | EMI for 30 years = Rs. 30,000 (but higher interest overall).
4. EMI and Affordability
Your EMI should not exceed 40–50% of your income. Use an EMI calculator to plan.
Example: If your monthly income is Rs. 1 lakh, an EMI of Rs. 26,000 for a Rs. 30 lakh loan is acceptable.
5. Processing Fees & Charges
Banks may charge 0.5% to 2% as processing fee. Legal, valuation, and prepayment charges may apply.
Example: A Rs. 50 lakh loan may have a processing fee of Rs. 25,000. Some banks waive prepayment charges, especially for floating rate loans.
6. Documentation
Essential documents include:
Income proof: Salary slips, ITR
ID proof: Aadhaar, PAN
Property documents: Sale deed, approvals
Example: Self-employed must provide 3 years’ ITR. For under-construction properties, builder approval is necessary.
7. Prepayment and Foreclosure
No charges for prepayment on floating interest loans. A 2–4% penalty may apply on fixed-rate loans.
Example: If you repay the full loan after 5 years, check terms to avoid penalties.
8. Tax Benefits
Under Section 80C, you can claim up to Rs. 1.5 lakh on principal repayment.
Under Section 24(b), you can claim up to Rs. 2 lakh on interest paid.
Example: Rs. 1 lakh interest = Rs. 30,000 tax savings if you’re in 30% tax bracket.
9. Co-applicant Advantage
Adding a spouse or family member as co-applicant improves eligibility.
Example: Your income Rs. 50,000 + spouse’s Rs. 40,000 = Rs. 90,000 combined; eligible for higher loan of Rs. 50 lakh.
10. Property Type and Approval
Banks prefer approved builders and RERA or NHB-certified projects.
Example: Buying from a registered builder speeds up approval. For resale properties, all legal documents must be clear.
11. Insurance Cover
Opting for a Home Loan Protection Plan (HLPP) is recommended.
Example: With a small premium (e.g., Rs. 1,000/year), your family won’t bear the loan burden in case of your death.
12. Other Key Points
Debt-to-Income Ratio: Existing debts should not exceed 50% of income.
Down Payment: Usually 10–20%. Higher payment = lower interest.
Bank Comparison: Use trusted online portals to compare offers.
Final Note:
Before signing any home loan document:
Review your financial health
Compare at least 3–5 lenders
Consult a financial advisor if needed
