Home Loan Guide for First Time Home Buyers in India


Often first-time home buyers tend to feel overwhelmed with the thought of applying for a home. But, if you plan well, and have the right knowledge, you can easily guide through the process. Read on, to know more about home loans in India.

In India, a lot of youngsters aspire to buy a home, and they rely on a home loan to get the desired funds for the purchase. For many first-time home loan applicants, the process may seem to be overwhelming. So, if you have no prior experience of applying for any loan, you must be aware of the know-how of a home loan. 

What is a home loan?

A home loan is essentially the monetary support offered by the lenders to the aspiring home buyers, and in return, they charge interest on the amount they lend. 

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Types of home loans

Over the years, home loans have evolved significantly, and today the lenders in India offer different types of home loans to suit the varying needs of the people. Some of the common types of home loans in India are: 

Home Purchase Loan

This is the most common type of home loans in India, and as the name suggests, it is used for purchasing an already built or newly constructed property. Today, several lenders in India offer this type of loan, and each lender has their interest rate. 

Land Purchase Loan

As the name suggests, you can apply for this type of loan to buy a piece of land where you want to construct your home. Generally, the lenders offer a loan up to 75 – 80% of the land cost.

Home Improvement Loan

This is another popular type of home that you can avail to renovate your home. Generally, the lenders sanction 100% of the improvement estimate cost. But, this may be subject to specific terms and conditions. 

Home Loan Interest Rates

The rate of interest is one of the critical factors that the borrowers consider while applying for a home loan. In India, there are two types of interest rates: 

Fixed interest rate

A fixed interest rate home loan is a type of loan where the interest rate remains fixed throughout the loan tenure, and it is fixed at the time of applying for a loan. This means that the fluctuations in the market condition will not have any effect on the interest. A significant advantage of fixed interest on housing loan is that you would be aware of the amount you must repay every month and plan your finances accordingly. But, on the downside, you cannot take advantage of the interest rate cuts during the loan tenure. 

Floating Interest Rate

A floating interest rate home loans, as the name suggests, is a type of loan where the interest rate varies based on the prevailing market condition. One of the significant advantages of opting for a floating interest rate loan is that it is comparatively cheaper than fixed-rate home loans (provided the market conditions remains stable). On the flip side, when the market is volatile, the interest rate can increase and in turn, the EMIs. 

Essential Things to Consider While Applying for a Home Loan 

Borrowing capacity

Before you apply for a home loan, it is paramount that you assess your financial condition and determine the maximum amount you can borrow so that the repayment is affordable. Make sure that you draw a fixed budget for the home purchase and strictly adhere to it. Choose the loan amount carefully so that the EMI is not more than 40% of your income.

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Credit score

A credit score reflects your creditworthiness, and it is an important aspect that the lenders consider while determining the loan amount. So, try to maintain a decent credit score to suit the specific requirements of the lender. Generally, a score of 750 or more is considered an ideal score.

Loan tenure

Usually, most people apply for a home loan for 20-30 years. Analyse the tenure in terms of EMI affordability, and if you think you would need more time, negotiate the lender to extend the tenure or reduce the total amount.

Be aware of the T&C

Lastly, before you sign the loan documents, be aware of the loan terms and conditions laid out by the lender. Being well-informed beforehand is paramount to avoid any hassles at a later stage.

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