With property pricing crashing out and the end users looking at buying their dream house, it becomes important to be aware of the types of loans available today for one to be able to realize living in under the owned roof. Awareness about the various forms of loans will only make the herculean task of planning out finances in a better way. So let us take the first step towards realizing the dream.
The housing finance companies and banks offer varied kinds of products to suit the needs of the borrowers. These product variants cater to various sections of population who can have specific needs. These products vary from buying an apartment to owning a land; from building a house to funding for renovation. Let us understand the 6 most popular product forms a little better:
Loan to buy house
This is the most popular form of loan. Popularly called home loan, it is extended to buy a new or a pre-owned property. Various interest plans are available for the borrowers. Depending upon suitability, one can chose from fixed or floating rate. Apart from this some banks and housing finance companies also offer fixed rate for first few years and thereafter the loan getting converted to floating rate of interest. The term of loan varies and a few lenders offer such loans for up to 30 years as well. The rate of interest currently being offered is about 8.30% per annum on reducing balance. The loan amount can go up to 85% of the property value. The banks also fund under construction properties which are approved by them under this product variant.
Loan to buy land
The banks also offer loans for purchase of land for residential purpose. The amount again can be funded for up to 85% of the land value. However, it is important from the borrower’s perspective to check if the land being purchased is in the area that actually gets funded for such transactions. Usually, the prevailing rate of interest to buy a house is applicable for buying the land as well. The funding is generally limited to 80% of the land value.
Balance transfer loans
This is a popular loan form where the existing home loan gets transferred to another bank or a HFC. Say one is running a loan for last 5 years with one banks and realizes that will be able to get better rate of interest and service if switches to, say, ICIC home loan, he would shift the outstanding principal to ICICI and will be able to save on the cost of loan.
Loan for house construction
Owing to high cost of construction, building a house on the land also needs funding. The house construction loan comes to aid in this situation. The individuals are able to get up to 80% of the construction cost funded by the bank. In case the land is also to be purchased, the same also becomes part of the loan amount.
Loan for house expansion/improvement
This loan fits the requirement if one wishes to build another room on the already constructed house or is looking at undertaking interior work done or changed. Alteration to the existing structure and renovation fall under the purview of this loan type.
These are short term loans that are extended to ones who are looking at selling one property and buying another one. So one can use this loan format to buy a new property and pay off the loan from the proceeds of the sale of existing property. Usually these loans can get extended for up to 2 years of time frame. The funding can be done for up to 80% of the existing market value of the new property. While the rate of interest is higher than the regular home loan rate, it is a good proposition for people looking at switching the property since a simple interest gets charged per month. The person can also pay part of principal amount according to availability of funds at his end every month.
Before we wrap up, it is equally important to reiterate that the CIBIL score calculation plays an equally important role in availability of loan. So while you may be eligible as per your income, a healthy credit score is must.
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