A home equity loan is a type of Loan in which the borrower uses the equity of his or her Home as collateral. The loan amount is determined by the value of the property, and the value of the property is determined by an appraiser from the lending institution.
Home equity loans are often used to finance major expenses such as home repairs, medical bills, or college education. A home equity loan creates a lien against the borrower’s house and reduces actual home equity.
Most home equity loans require good to excellent Credit History, reasonable loan-to-value and combined Loan to value ratio. Home equity loans come in two types: closed end (traditionally just called a home-equity loan) and open end (home-equity line of credit). Both are usually referred to as second mortgage, because they are secured against the value of the property, just like a traditional mortgage.
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Home equity loans and lines of credit are usually, but not always, for a shorter term than first mortgages. Home equity loan can be used as a person’s main mortgage in place of a traditional mortgage. However, one cannot purchase a home using a home equity loan, one can only use a home equity loan to refinance.
Types of Home Loans in India
- Banks in India provide different types of housing finance options for different purposes. Here’s a list of the prominent types of housing loans in India, based on a study of products offered by some of the top banks:
- New Home Loans: New Home Loans are offered to eligible customers who are looking to purchase a house or property for the first time.
- Pre-approved Home Loan: Pre-approved home loans are offered by banks to eligible borrowers once his/her creditworthiness, income and financial position are taken into considerable for an in-principal approval of the loan.
- Home Purchase Loans: Home purchase loans are specifically given to borrowers looking to purchase a house or flat.
- Home Loan for Construction: Home loan for construction is offered to customers who are looking to construct their own house on an existing piece of land.
- Plot Loans: Plot loans are loans offered to customers looking to purchase a piece of land or plot for the purpose of constructing a house on it.
- Home Loan Top Up: Home Loan Top Up is a facility offered by most banks and NBFCs that allows existing customers to borrow a certain amount above and over the existing home loan
- Home Extension/Renovation Loans: Home loans for extension or renovation of home are offered to borrowers who wish to renovate/extend their existing house/property.
- Balance Transfer Home Loan: Individuals can use the balance transfer option to transfer their home loan from one bank to another. Most people choose this option to avail better interest rates.
Home Loan Eligibility
Eligibility Criteria Requirement Age Minimum Age: 18 years and Maximum Age: 70 years Resident Type The applicant must be (any one):
- Resident Indian
- Non-Resident India (NRI)
- Person of Indian Origin (PIO)
Employment The applicant can be (any one):
- Salaried
- Self-employed
Net Annual Income At least Rs.5–6 lakh depending on the type of employment Residence The applicant must have (any one):
- A permanent residence
- A rented residence where he/she has resided for at least a year prior to applying for a loan
Credit score A good credit score of at least 750 or more obtained from a recognized credit bureau
Home Loan Documents Required
Identity Proof (any one), Residence Proof (any one)Other Documents Driving License Copy of Electricity Bill/Water Bill/Telephone Bill Employer Identity Card PAN Copy of valid Passport/Aadhaar Card/Driving License.
Duly filled loan application form affixed with 3 passport size photographs Voter ID Loan account statement for the previous 12 months if the applicant has any other ongoing loan from other banks/financial institutions Valid Passport Bank account statements for all the bank accounts owned by the applicant for the last six months
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Income Proof Documents
For Self-employed Applicant/Co-applicant:
For Salaried Applicant/Co-applicant: Income Tax Returns for the last 3 years Salary Slips for the last three months Certificate of Qualification (for Doctors/CA and other professionals)Copy of Form 16 or Income Tax Returns for the last two years Balance Sheet audited by a certified CA and Profit and Loss account for the previous 3 years Business License Details Business address proof TDS Certificate
Documents Required from all Non-Resident Indians (NRIs) Applicants
Identity Proof (any one)Residence Proof (any one)Other Documents PAN Telephone bill Attested copy of the applicant’s/co-applicants’/guarantor’s valid passport and visa Valid Passport Electricity bill Proof of residence indicating the applicant’s current overseas address Driver’s License Water bill Employer Identity Card Voter ID Card Piped Gas bill If the applicant is employed in the Merchant Navy, the applicant is required to submit a copy of Continuous Discharge Certificate (CDC) Valid Passport PIO Card issued by the Government of India in case the applicant/co-applicant is a Person of Indian Origin (PIO). Driving License The completed loan application form duly filled with three passport size photographs of the applicant and co-applicants. Aadhaar Card The attestation of the documents can be done by:
1. Indian Embassy/Consulate
2. Overseas Notary Public
3. FOs/Representative Offices
4. Officials of Branch/Sourcing Units based in India
Income Proof Documents for NRI
For Self-employed Applicant/Co-applicant For Salaried Applicant/Co-applicant Proof of income if the applicant/co-applicant is a self-employed professional/businessman.
Valid work permit Business address proof Employment contract (translated in English) attested by the employer/consulate/embassy/Indian foreign office if the contract is in another language.
Balance Sheet and Profit and Loss accounts audited by a certified CA for the last 2 years Salary slips for the last 3 months Individual Tax Return for the last 2 years — Not applicable to NRIs/PIOs located in the Middle East countries.
Bank statements indicating salary credit for the last 6 months Bank statement of the individual’s as well as the business/company’s overseas account for the last 6 months.
Copy of the Identity Card issued by the current employer along with the latest salary slip (original). Copy of the individual Tax Return for the last assessment year. — Not applicable to employees in the Merchant Navy and NRIs/PIOs located in the Middle East countries.
Property Papers:
- Agreement of Sale (any one):
- Occupancy Certificate in case the property is a ready-to-move-in property
- Copy (blueprint) of the Approved Plan and Registered Development agreement of the builder
- Conveyance Deed in case of a new property
- Bank account statements indicating all payments made to the seller or builder
Home Loan Fees and Charges
Depending on the type of loan you are applying for, the following charges may be levied:
- Processing fees: This is a one-time non-refundable fee that is to be paid to the home loan provider after the loan application has been approved. The processing charge varies depending on the bank and the loan scheme you are applying for.
- Prepayment charges: Prepayment penalty is the fee you will have to pay the lender if you plan on repaying your home loan before the completion of the loan tenure.\
- Conversion fees: Some banks also charge a conversion fee when you decide to switch to a different loan scheme in order to lower the interest rate associated with your current scheme.
- Cheque dishonor charges: The fee is levied when the loan provider find that a cheque issued by the borrower is found to be dishonored due to reasons such as insufficient funds in the borrower’s account.
- Fees on account of external opinion: In some cases, you might want to consult an external expert such as a lawyer or a valuator for his/her opinion on the loan. This fee should be paid directly to the concerned person and not the lending institution.
- Home insurance: The premium should be paid directly to the concerned company during the term to ensure that the insurance policy is running during the home loan tenure.
- Default charges: Loan providers also charge a penalty on delayed repayments i.e. if you fail to make your Equated Monthly Instalments (EMIs) or Pre-EMIs on time. The defaulting charges vary from one bank to another.
- Incidental charges: This charge covers for the expenses incurred by the bank to recover dues from a borrower who has failed to make his monthly instalments on time.
- Statutory/regulatory charges: The fee includes all charges associated with Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI), Memorandum of Entry and Deposit, and stamp duty. You can to know more about these charges.
- Photocopy of documents: The fee is payable to the bank if you require a photocopy of your home loan documents for any personal needs.
- Change in loan term: Some banks also charge a nominal fee if you wish to change the tenure associated with your loan.
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