Home loan | The checklist to finance your home

Buying your first home is an exciting experience, but it can also be overwhelming. The average homebuyer visits at least a dozen properties before settling on one. The final choice isn’t driven by price alone. Several factors, such as peace of mind, emotional satisfaction, status symbol and peer pressure, play a significant role. Yet, one should consider factors such as affordability, the builder’s reputation, the loan tenure and any other financial benefits that can be gained from owning a house, rather than living on rent. In recent years, the appeal of home purchase and repayment as a means to save on income tax has diminished with the introduction of the new tax regime. Therefore, taking a home loan now depends solely on individual needs.Depending on the type of home you are looking for, lenders offer loan products structured to cater to your needs (see Know Your Home Loan). There are many types of costs associated with obtaining a home loan, and it would be helpful to familiarise yourself with some of these before considering a loan. Many borrowers focus only on the interest rate offered by a lender—a common but costly mistake. While a lower rate may reduce the EMI (equated monthly instalment), the method used to calculate that interest can significantly affect the actual amount you end up paying.Start with a clear budget when planning a home loan—and keep extra funds beyond the down payment. A home purchase often involves additional costs before you move in: interior work, furnishings, appliances, municipal taxes and even the housewarming ceremony.Even before you approach a lender, your credit score and credit report should be in good standing. If your score isn’t good enough, seek assistance from credit reviewers to understand how you could overcome any shortcomings. Once your financial records are in order, draw up a checklist of documents that you will need to apply for the loan. These may include your tax return files, employment history or other documents from your employer regarding your income and bank statements..preferred-source-banner{ margin-top: 10px; margin-bottom:10px;}After you have done some groundwork, you can discuss the availability of a home loan with your banker or a builderbroker who is selling you the house. This way, you can engage with an institution where you already have a relationship, which may come in handy for smoother processing of paperwork. Chances are that you may need to take out a life insurance policy that covers the amount you are borrowing. This is not a must, but a lender may insist on it as a means of protecting the loan.When it comes to interest rates, most lenders offer repo-rate-linked home loans. This means the interest rate on the loan is tied to the repo rate—the interest rate at which the Reserve Bank of India (RBI) loans money to commercial banks. So when the RBI revises the repo rate, your home loan interest rate also changes, typically after a short transition period. Lenders require this transition period to adjust the interest rate to a higher or lower level within a reasonable timeframe, as dictated by the bank’s rules and policies.The EMI itself will depend on the loan tenure. This means the EMI will be lower for a loan with a longer tenure and higher for a loan with a lower tenure. The interest payout will naturally be higher on loans with longer repayment tenures. Choose your loan tenure based on a realistic assessment of your repayment capacity.Another important factor is how the lender treats intermittent additional repayments toward the principal sum borrowed. Your EMI consists of two parts—the principal and the interest. In the early years of the loan, the interest component is higher, while the principal component is smaller. This means it can take several years before you begin repaying a significant component of the principal.You should look for lenders who allow for lumpsum principal repayment during the loan tenure, which can directly reduce the principal amount from your loan, reducing the outstanding balance and potentially shortening the loan tenure. This is an essential feature to check with your lender when taking a home loan.Finally, submit all required documents when closing your loan, and obtain a No Objection Certificate (NOC) along with a no-dues statement confirming you have fully repaid the lender.If this feels overwhelming, consider engaging a home loan agent to guide you toward the right choice. Today, there are also several apps and online resources to help you select a home loan. Whichever lender you end up choosing, make sure your choice fits in with your goals and lifestyle. The best home loan tenure is the one that allows you to enjoy your new home without financial stress, both today and in the future.KNOW YOUR HOME LOANThe basic construct of any loan is the same—you borrow money from an institution for a fixed duration. The loan is available at a defined interest rate (fixed or variable) and you incur charges in the event of delayed or defaulting payments. There are different types of homes—the one you construct or you purchase. To cater to the diverse needs of homebuyers, lenders have developed various types of tailored home loansHome Construction Loan: Available to build a house on a plot that one already owns, with disbursements made in stages based on construction progress. This loan ensures that funds are released according to project milestones and does not involve a one-time lump sum disbursementHome Purchase Loan: It is ideal for buyers looking to purchase a ready-to-move-in or a house under constructionHome Extension Loan: Useful for those owning a house on their own plot, allowing them to expand their living space—adding rooms, extra floors, etc.—within the existing structureBalance Transfer: It enables existing home loan borrowers to transfer their existing loan to another lender, allowing them to benefit from lower ratesRenovation or Home Improvement Loan: This type of loan can be used for repairs or renovations to an existing houseLand Plot purchase Loan: Enables buyers to purchase land for building a house, cannot be used as an investment; may need to submit a proposed house plan and a timelineTop-up Loan: Offers an additional amount above the existing loan; can be used for additional expenses, such as home improvement or documentationTHINGS TO CONSIDER WHEN ZEROING IN ON A HOME LOANWith many institutions (banks and finance companies) offering home loans, choosing the right one calls for careful evaluation. As every lender’s situation and requirement vary, each one needs to make an informed decision to ensure they have the best loan for them:Eligibility: The borrower’s income, employment status, credit score and repayment capacity play a key role in determining approval. Strengthening these factors enhances your chances of securing a higher loan amount at more favourable termsLoan-to-Value (LTV) Ratio: This defines the proportion of the property value that the lender will finance, with the remaining portion covered by the borrower through a down paymentPurpose: The type of home loan (construction, improvement, ready-to-buy, etc.) varies based on the end use for the loan you have. Depending on the type of loan, the interest rate and other modalities, such as loan tenure, change based on the purpose of the loanProcessing fees and other charges: Banks and housing finance companies charge various fees, including processing fees, legal verification costs and administrative expenses. Often, these expenses can impact your borrowing, as these charges are usually linked to the loan valueInterest rates: Compare fixed and floating rates as well as the base rate to which the loan is linked. A change in policy rates alters the base rate against which a loan is typically calculated. This means the effective interest you pay on the loan you have taken changes every time the base rate is resetRepayment flexibility: Compare lenders based on their repayment flexibility, such as the allowance for delays in EMI payments or even missing an EMI payment occasionally. Some lenders provide a built-in flexible clause, while others may give you a waiver in some instances.- EndsPublished By: Shyam BalasubramanianPublished On: Oct 10, 2025

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Home loan | The checklist to finance your home

The decision to buy a house is a highly emotional one, involving factors such as aspirations, practical needs, budget and the prevailing economic cycle

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