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Banks and Housing Finance Companies (HFCs) offer home loans for different purposes. So before applying for any type of home loan, assess your requirements in order to get a suitable home loan scheme. Some of the types of home loans available are as follows:

  1. Home Purchase Loan: It is the most common type of home loan availed usually to buy ready-to-move-in properties, under construction properties and pre-owned homes/resale properties. As per RBI guidelines, lenders can offer loan-to-value (LTV) ratio of up to 75-90% of the property value.
  2. Composite Loan: It is a perfect financing solution for individuals who want to buy a plot of land either for investment or for building a house. In this type of home loan, the first disbursement is made towards the purchase of plot. The subsequent payments depend on the stages of construction of the house.
  3. Home Construction Loan: This type of home loan is available for individuals who want funds for the construction of a house. The loan is granted only if you own a plot of land and plan to construct a house on it. Just as in composite loan, here too the disbursement depends on the stages of construction of the house.
  4. Home Improvement Loan: The can be availed to fund home renovation and home repairing expenses of the existing house. The interest rate for this loan is same as that for a regular home loan. However, its loan tenure is shorter than the regular home loan.
  5. Home Extension Loan: It is for those who require funds to add more space to their abode. Under this loan type, financial institutions usually lend 80-90% of the construction estimate, depending on the loan amount and LTV ratio.
  6. Interest Saver Loan: It is similar to home loan overdraft facility. In this, the borrowers’ home loan account is linked to their bank account. Any amount deposited in the bank account over and above the EMI amount is used as prepayment towards the loan, thus, saving on the interest amount.
  7. Step Up Loan:  Yet another type of home loan in which borrowers pay lower EMIs during the initial years of the loan tenure. However, there is a provision of increasing the EMI amount over time. This makes the loan affordable for young professionals who just start their career.

Why should you take a Home Loan?

The increase in the property rate across the nation (both land and building) has made it impossible for people to buy a home by only using their existing savings. There are many hidden charges and processing fees in the process of buying a house. So instead of buying a house by spending every last penny of your savings and living in constant pressure of being financially insecure, you should definitely take a home loan.

Buying a property involves large scale financial transactions. At the time of buying a property, a buyer does not necessarily have the entire amount to his/her disposal. Here the home loan covers the financial gap and helps you with a smooth financial transaction that is hassle free.

Under section 24 of the Income Tax Act, home loans are eligible for tax exemptions. You can claim up to Rs. 1.5 lakh out of the interest component of your home loan. Also, if you are staying in the house you got loan for, then you can claim exemption on the principal amount of home loan of up to Rs. 1,00,000.