Owning a home is an urge that each one of us wants to fulfill. Although everyone wishes to own a home not everybody is lucky enough to have one. If we talk of India, even settling down is synonymous with owning a home. In this world where everyone is busy chasing their dreams, a perfect abode has become essential for all where they can head up to at the end of the day and spend some time in solace.
Besides its being essential, owning a home has become a herculean task. It is not easy as it looks to own a home. The process is long enough to wreck your nerves. You save money for a lifetime and when you finally feel that you can buy or get a home constructed, the ongoing market rates disturb your finances and you end up not having one to yourself.
Under such circumstance when the process of owning a home becomes too big a deal to be handled easily, a home loan is an easy way to fund the purchase. Since burning your entire savings to buy a home or land is not a wise idea, the home loan comes to the rescue.
Before jumping direct to the types of home loans, let’s first discuss the basics of home loans.
A home loan is a loan given by a mortgage company, bank or any other financial institution for the purchase of a residence.
The banks and other financial establishments offer different types of home loans. The continuously rising demand of home loans in the recent times has resulted in raising the expectations of people when it comes to home loan. Thus, to cater the requirements of people, numbers of banks have come up with the idea of introducing a home loan scheme in the market. To talk about a few, many banks have crafted home loans specifically for women, agriculturalists, etc.
Types of Home Loan
Lenders not only offer home loan for buying a house but also for a variety of purposes. Below are mentioned some popular types of home loans that are available in the financial market.
Loans for Purchase of a Land
There are many banks that offer loans for the purpose of land purchase. The buyer can save funds and construct a house whenever he/she wishes to or may have the land simply as an investment. Thus, purchasing a land is quite flexible. In fact, up to 85% of the cost of land is provided in the form of a loan by the banks such as Axis Bank or ICICI Bank.
Loans for Construction of a House
This loan is designed for those who want to get their house constructed as per their wishes rather than buying an already constructed house. The approval of this loan is different from the cost of the plot is also included under this. An important clause when applying for this loan is that the plot on which the house is to be constructed must have been purchased within a year for its cost will be included in the loan amount. The amount of the loan is decided on the basis of a rough estimate of the construction cost. The banks offering home construction loans are Bank of Baroda, Canara Bank etc.
Loans for Home Purchase
This is the most popular type of home loan. It is provided for the purchase of a new/pre-owned home. The loan is commonly available in banks and is offered in different variants. The interest rate on this loan is either fixed or floating and usually ranges from 9.85% to 11.25%.
Loan for House Conversion
People who have already taken the benefits of a home loan and have purchased a home but want to move to an altogether new residence get an option for home conversion loans. They can easily fund the purchase of a new home by transferring the current loan to the new one. They also are not required to repay the previous home loan. Though the customers are guaranteed convenience under this segment, this is also a very expensive segment of home loan.
Also Read: Best Tips to Make Your Home Loan Cheaper!
Loans for Home Improvement
It is a fact that the renovation and repair including paint, construction, internal and external repair etc. will give a fresh look to your house. If you lack funds for financing the repair and renovation of your house, many banks offer specialized home improvement loans to assist you in fulfilling your desire of living in a beautiful home.
With home loans becoming so common these days, it is equally important to clearly identify your requirements and apply for the right kind of a home loan. Recognizing the best fit of the type of home loan you need help you in reducing the paperwork, simplify the home loan approval process and also gives you an advantage of enjoying the home loan at a reduced rate of interest.
About Ankit Dixit
Ankita is a freelance writer who writes about finance, loans, credit cards and insurance.