Know the loan types and your eligibility

Loans have become vital part of our lives. Be it the purchase of a car or a purchase of our dream house, loan helps us to achieve our desired assets. There are different types of home loans which are depended on the type of property we want to buy.

Types of home loans

- Loans for home purchase

This is the most popular type of loan that a borrower can avail. In this type of loan the lender disburses a loan to finance a new or an old residential property at a fixed or floating rate of interest. A bank can lend up to 85% of the value of the property as a loan to an individual or joint borrowers depending upon your eligibility.

- Loans for land purchase

If you wish to buy a plot of land and construct a house on it, you can avail of a land purchase loan from a bank or a financial institution for the same. You can get up to 85% of the value of land as loan. However, you must bear in mind that the property related documents need to be in order before you think of availing a land purchase loan. It’s best to seek legal counsel to find out whether the land you are willing to purchase is loan worthy. A loan for the purchase of land gives opportunity for individual customers to purchase a residential plot of land to do self-construction. The customer can thus invest in the plot of land and build in the future. Banks normally provide loans for land purchase within municipal limits or if the land is allotted by development authority.

NRI home loans

NRI home loans is a specialised home loan variant which has been developed to assist non-residents in acquiring housing finance to buy residential property in India. These loans are meant exclusively for the non-resident Indians.

The formalities of availing this segment of home loans is similar to the regular home loans which are offered to the residents, only the paperwork is a bit elaborate. Almost all public and private sector banks provide NRI home loans.

Your eligibility for a home loan

  • To qualify for a home loan, most of the lending institutions in India require you to be:
  • An Indian resident or NRI.
  • Above 21 years of age at the commencement of the loan.
  • Below 65 when the loan matures.
  • Either salaried or self-employed and
  • Worthy of credit facility.
  • Proof of eligibility:

If you are an NRI and are looking for investing in a property in India, you should obtain a Person of Indian Origin (PIO) certificate as an eligibility proof. In case you do not have your PIO certificate, you can always produce your mother’s/father’s birth certificate for the eligibility. However, these documents should be submitted to the Indian embassy of the particular country.

Once you qualify the basic eligibility the next step is to show the complete details of your income statements and liabilities.  Anybody looking to apply for a home loan will have his/her income statements, assets and liabilities and credit history examined to qualify for a home loan.

The standard method banks use to assess your home loan eligibility is the application of FOIR (fixed obligation to income ratio) of a borrower. This is an important calculation for the bank for this is the way to understand what your other obligations are, as a borrower. To calculate the FOIR the lender takes into consideration all the other monthly instalments a borrower is paying including the home loan that has been applied for.

Most lenders restrict the FOIR limit to a maximum of 50% of one’s monthly income. In other words, it means that if one needs around 50% of his income to meet his personal expenses, the other half is committed towards fulfilling his fixed obligations including the home loan.