Own home is every person’s dream. It provides financial security, relief in income tax, support system in emergency and the convenience of living as per your choice.
Banks or non-banking finance companies (NBFCs) give you long-term loans if you do not have the money to buy a house. By paying a fixed amount as monthly installment to the bank or NBFC, you repay the principal amount and interest of the loan over a period of 10, 20 or 30 years.
This is called ‘home loan’.
Home loan proves to be very helpful in fulfilling your dream of home. You just need to raise only 10 or 15 percent of the total cost of the house.
You can take a home loan from a bank or NBFC to buy your home based on the income from the job or business, once you meet the amount you need to make the downpayment.
Home loan eligibility is determined as follows:
A person can get a loan of 60 times his total income per month
If you have taken any other loan (car or personal loan etc.) which is operational, then the lending bank will consider the home loan amount after deducting the monthly installment from your income.
If you want to take a home loan and your credit score is not correct or if you have defaulted in the repayment of any previous loan/borrow, then the bank may refuse to grant the loan.
You can improve your eligibility by taking a loan for a longer tenure.
If you are a salaried employee or you are a private business person, then the loan eligibility is different for both.
Generally, banks consider 40 percent of your total monthly income as necessary for personal expenses. After this, the home loan is given according to the remaining amount.
For example, if your monthly income is Rs 60,000, then the bank assumes that your personal expenses will be Rs 25,000 per month. If you have not taken any other loan like car or personal loan then you can get up to Rs 35-40 lakh as home loan for 20 years at 9% per annum interest rate.
Also Read: 5 Big Things To Know About Home Loans
Why should you take a home loan?
Taking a home loan actually gives you three facilities.
buy property for investment
income tax savings
accommodation
If you buy your home by taking a home loan, then the value of your house keeps on increasing over time. It is a type of investment as well. However, the rate of increase in property prices may vary depending on the connectivity of the area, demand-supply situation and the income of the people living in it.
The amount to be repaid as monthly installment of the home loan consists of both principal and interest. If you think in terms of principal, then under section 80C of the Income Tax Act, you can get income tax relief on payment of Rs 1.5 lakh in a year.
Along with this, there is a separate income tax exemption on the amount up to two lakh rupees in a year for the amount you have paid as interest in the home loan installment.
