It is a decision of life time to acquire your own home. You have to do a lot of planning and research of your necessities and huge investment is required by you. Your home gives you a place to relax easily after tiring schedule of the day, to spend your fruitful time and good moments and time with the members of your family.
House loan is a loan that is secured and provided for security of property or house for which bank has funded by giving loan. The property can be commercial or personal. It is taken by borrower from bank which is issued against security or property to be purchased by borrower, giving a conditional ownership to banker on property. It means if borrower fails to repay the loan amount, banker can sell the property and retrieve the money lend.
Home Loan’s types
In the market, various kinds of home loans are available to fulfill the needs of borrower.
1. Purchase loan for home
It is the basic kind of home loan whose purpose is to buy a new home.
2. Improvement loan for home
This loan is used for repair or renovation of home which is purchased already.
3. Extension loan for home
The purpose of this loan is for extension or expanding the home that exists like addition of extra room.
4. Conversion loan for home
In this loan, a home loan is taken by borrower for financing his current home and now borrower wants to move into another house. This loan helps him for transferring an existing loan to new home in which extra funds are required. In this new loan, previous loan amount and required money for new home is paid.
5. Bridge loan
This loan provides finance to borrower for new home when he has to sell his existing home. This loan is given for short time and helps the borrower during the time he has to sell old home and has to purchase a new home. The time period of this loan is till borrower has found buyer for his old home.
6. Construction Loan for home
It is provided to help the borrower in the construction of new home.
7. Loan for land purchase
This loan is used for purchasing a land to construct home and for investment purposes.
Factors considered when home loan is taken
Amount of Loan
Its nit wise for borrower to borrow large sum of money and apply for many loans because your repayment for a huge debt will become challenging and as a result you get trapped in debt. You must decide your amount of loan first which depends on your consideration of job stability, monthly income, other debts, financial commitments and your age. Also you should remember that borrower has to do some down payment also while applying for loan which can be 8 % to 20% of loan amount. So, you should also have arrangement for this.
Tenure of repayment of loan
Borrowers have desire to repay the loan soon so, they choose loans for short tenure. In the loan of short tenure, your EMI which is paid monthly will be high. In case of long tenure, borrowing cost will be high. If you are about to retire, bank will not provide you loan of long tenure. If you cannot afford EMI of short tenure but want to repay the loan soon, you can go for loan for middle tenure that is for 10-15 years.
You must consider rate of interest while applying for home loan. So, you can go for fixed rate or floating rate of interest.