What is a Home Loan?
A home loan is a secured loan that is acquired for the purpose of buying a property by pledging the asset as security. House loans provide high-value financing with reasonable interest rates and lengthy terms. The borrower receives the title to the property back after repayment.
The funds are borrowed at a certain interest rate and repaid in EMIs, or equal monthly instalments, within a predetermined time frame (Equated monthly installments).
If the borrower is unable to pay back the loan, the lender has the legal authority to recoup the debt by selling the relevant property. In some countries, a home loan is also called a mortgage.
Definition of a Home Loan: The loan that a person takes from a financial institution, such as a housing finance company, to build a home, modify an existing home, or expand it is called a home loan.
Types of Home loans
In India, financial organizations provide a variety of housing loans to meet the various demands of their clients, some of them are:
- Loan for home purchase
- Improvement Loan: An improvement loan is obtained to renovate or repair a residence.
- Home Construction Loan: To build a new home, you took out a loan.
- Plot Loan: Obtained to purchase a piece of land for constructing one's own home.
- Home Extension Loan: Obtaining a loan to extend your home allows you to add a floor, room, garage, bathroom, kitchen, etc.
- Joint mortgage: A loan taken out by two or more people, such as couples.
- Home loan balance transfers: These loans let you move lenders, benefit from better terms and conditions, and pay less interest.
- Top-up mortgage: Enables you to borrow money at low rates above the amount of the current loan for any reason.
Eligibility Criterion for Home Loan:
Institutions take a risk while giving out loans, they always try to minimize this by checking a variety of factors. Here’s a list of some of them:
- Age now and length of loan repayment: Your age is a key factor in establishing your eligibility for a home loan. Your chances of being approved for a home loan are better the younger you are. Also, you can obtain a loan for a longer period of time while you are young.
- Financial situation of the client: The amount you can borrow is strongly influenced by the consistency and volume of your income. You need to have a reliable source of income whether you work for someone else or for yourself.
- Credit rating: You'll have a better chance of having a loan approved quickly if you have a high credit score and a history of on-time payments.
- Further financial commitments: Lenders assess your current debts, including personal loans, credit card debt, auto loans, and other obligations, to make sure you have the resources to pay back the mortgage. If you don't owe anyone anything, you might easily have your loan accepted.