How do I Choose the Perfect Type of Home Loan?

Now that you have finally decided to take a plunge from being a tenant to a homeowner, it is time for you to start arranging the necessary funds. Amid financial crisis and lowering interest rate regime, it has never been as affordable to avail of Home Loans as now.

At the same time, you may face a problem of plenty! Different types of Home Loans, terms, and conditions, eligibility criteria, processing fees, etc. are some of the questions that can make the decision a bit tricky. The only possible solution for you is to undertake significant research to get correct information that will enable you to make a final decision.

Types of Home Loans

While Home Loans are generally offered for the purchase of a built-up house, there are various other types of housing finance products that are also available for land, plot, or construction of the home. Before you go onto choosing the perfect type of Home Loan for your requirements, you must know about the various kinds of Home Loans available:

• Home Purchase Loan: This type of Home Loan is offered to purchase a residential property that is already constructed or is under construction. Flats, apartments, houses, villas fall under this category.
• Land Purchase Loan: If you wish to purchase a plot of land to construct your new home, then you can opt for this type of Home Loan. Though, the plot of property must be in an approved zone and free from any encumbrances.
• Home Construction Loan: If you already own a plot of land and need money for construction on it, you need to apply for a Home Construction Loan. This type of loan is usually disbursed in stages by the lender, i.e., as the construction progresses, the loan will be disbursed accordingly. 
• Home Improvement Loan: If you already own your home, but it requires some repairs, or you want to upgrade the construction, then you must opt for a Home Improvement Loan. To avail of this loan, you must be the owner or co-owner of the property.
• Home Loan Balance Transfer: In case you already have availed a Home Loan but are now getting better terms with a new lender, then you will have to avail the facility of a Home Loan Balance Transfer. Herein, the new lender will pay money to settle your outstanding dues and will open a new Home Loan account for you.
• NRI Home Loans: If you are an NRI and wish to purchase a home in India with the help of a Home Loan, you must apply for an NRI Home Loan. The basic structure and process remain the same, but the documentation process is a bit exhaustive.
• Home Extension Loan: If you already own a home but need to extend it, i.e., create a new structure in the same premises, then you can avail a Home Extension Loan. Though in most cases, this loan is combined with Home Improvement Loan and offered as a new product.

How to choose the perfect type of Home Loan?

Now that you know about the different types of Home Loans available in India, it is time for you to know about the various factors that need to be taken into consideration while making a final decision. Here are the important factors you must pay attention to choose the perfect type of Home Loan:

• Interest rate structure:The Home Loan Interest Rates are lowest ever starting at 6.85% p.a. Various financial institutions offer two major types of interest rate structure, i.e., fixed interest rate structure and variable interest rate structure. The variable interest rate structure can be further divided into base-rate linked, repo-rate linked, or any external benchmark linked interest rates. As the government of India is pushing for affordable housing and the RBI is also reducing the repo rate, opting for a variable rate structure is the most suitable option.
• LTV Ratio:Different financial institutions offer different quantum of the Home Loan depending on various factors. Generally, the maximum LTV ratio that lenders follow is 90% of the value of the property, excluding registration and documentation charges. For instance, when one avails an Indian Overseas Bank Home Loan, the LTV ratio varies between 75% to 90%, depending on the age of the borrower and repayment capacity. When it comes to Indian Overseas Bank Home Loan for purchase of a plot, the bank offers up to 30% of the value of the plot as loan amount.
• Annual Percentage Rate:Annual Percentage Rate or APR is the total cost of the loan you have to bear in a given year. It is a more accurate indicator of the cost of the loan as compared to the interest rate. The lower the APR, the affordable it is for you.
• Repayment Tenor:The repayment tenor required is another important factor in determining the most suitable loan for you. The maximum available repayment tenor might vary according to the lender. For instance, in case of Aadhar Housing Finance Home Loans, the maximum repayment tenor is 30 years, but for HDFC Bank Home Loans, it is 20 years. So, you need to choose the repayment tenor according to your repayment capacity.
• Type of property:Different lenders offer different types of Home Loans. Identify the lender that offers Home Loan for the type of property that you wish to purchase. For instance, some lenders do not offer Home Loan against plots while some do. So, identify the lenders who do meet your requirements.

Availing a Home Loan is a significant financial commitment, and it is very easy to go wrong with it. You must, therefore, undertake detailed analysis to identify the perfect type of Home Loan that meets your requirements.

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