To know how to apply for a home loan, potential applicants require a step-by-step guide covering all measures for a smooth application process and loan approval.

Guide for applying for a home loan

As per a study, there has been a rise in home loan applications by 25% to 40% across cities. This increase in demand for a home loan requires individuals to know the steps to avoid hassles. Therefore, here is a guide on how to apply for a home loan:

Step 1: Select loan amount

The first factor to consider during a home loan application is the exact loan amount required. This depends on the market value of the property. Usually, newer residential properties closer to the city have a higher market value. 

Therefore, check the geographical location, property type, legal issues and property size when selecting a loan amount. A higher property value will help get a high LTV. Many institutions provide LTV of a maximum of 90%. In case of home reconstruction, chart down expenses to cover and accordingly select a loan amount.  

Step 2: Check eligibility and CIBIL score

It is important to meet the home loan eligibility criteria set by the financial institution. These requirements can vary; however, here are some of the general norms applicants must meet:

• Both self-employed and salaried applicants can apply for a home loan. 
• Salaried applicants must be from 23 to 62 years old, and self-employed applicants must be from 25 to 70 years old. 
• The individual must be an Indian resident. 
• Salaried individuals must have a minimum of 3 years of work experience, and self-employed applicants should have a business that has existed for more than five years. 

Other than these requirements, an applicant is required to maintain a high CIBIL score. Most institutions prefer a score of 750 and above. Therefore, avoid issues like payment default and check credit history for minor errors as it causes a major drop in score. 

Step 3: Check interest rates

When applying for a home loan, an applicant must select between fixed and floating interest rates. To select a type of interest, it is crucial to know the difference between the two. Fixed interest rates are comparatively higher and not subject to change due to an increase or decrease in the repo rate.

Therefore, applicants must assess their repayment capacity as the applicable home loan interest rate will affect EMI repayments significantly. Individuals can also use the home loan EMI calculator to find out the exact EMI amount and the total borrowing cost. Since interest rates vary with lenders, an applicant must remember to check various lenders before selecting one.

Step 4: Check for foreclosure and part-prepayment charges

When applying for a loan, the applicant must also consider additional charges like processing fees, part-prepayment and foreclosure charges. While Buy Now Pay Later (BNPL) services can be convenient for making purchases, they may negatively impact your credit score and make it more challenging to qualify for a home loan. It affects the total borrowing cost. Individuals must select institutions that don’t impose any or negligible charges on a home loan part-prepayment, foreclosure or likes. 

Step 5: Check for tax benefits

Individuals applying for a home loan are eligible for tax benefits under the Income Tax Act, 1961 on the following grounds:

• Under section 24B, individuals applying for a home loan for renewal, reconstruction, repair and construction are eligible for deduction on interest paid up to Rs.2 lakh. 
• Section 80C of the income tax act provides tax benefits on a home loan of up to Rs.1.5 lakh yearly on repayment, stamp duty and registration charges. 
• An annual interest deduction of Rs.50,000 is available under section 80 EE for first-time home buyers. 
• Tax savings of Rs.1.5 lakh are available for first-time homebuyers if stamp value is within Rs.45 lakh under section 80EEA. 

Step 6: Property verification

Financial institutions conduct a wide range of risk assessments to check the applicant’s creditworthiness. Besides checking if the individual meets the eligibility requirement, they also do legal property verification. Under legal verification, officials examine original documents, including no-objection certificates, title deeds and other ownership papers. Financially independent individuals are well-positioned to apply for a home loan due to their stable income, strong credit history, and ability to make substantial down payments.

This examination is followed by a proper technical verification which is an inspection of the property’s physical condition, market value and building specifications. This helps decide if the applicant is eligible for the said loan amount. Review your financial situation and consider financial tips to improve your chances of getting approved for a home loan.

After verification of the property and documents provided, applicants will receive approval as per the financial institution’s terms. Individuals can simplify this loan application process by opting for pre-approved offers on a home loan. To check your pre-approved offers, enter your name and contact details. Therefore, these steps will allow applicants to understand how to apply for a home loan and proceed accordingly. 

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Here is a detailed synopsis of what home loan tax benefits have in store for you

Home Loan Tax Benefits on Interest Paid Under Section 24(b)

This section allows you to claim a tax deduction of up to Rs.2 lakh on the interest paid on a self-occupied home. This is valid even if you are not occupying the house and are residing elsewhere. However, if you have rented the property then there is no maximum limit on the deduction. 

Home Loan Tax Benefits on The Home Loan Principal Repayment Under Section 80C

The loan principal you repay is permitted as a deduction of up to Rs.1.5 lakh under this section. Keep in mind that the deduction is applicable only if the construction of the house is completed with a valid completion certificate and the property is not transferred or sold to someone else for up to 5 years from the time the construction is completed.

Section 80EEA: Home Loan Tax Benefits for First-Time Buyers

A new deduction under Section 80EEA had been proposed in the 2019 budget. According to this, interest paid on a housing loan taken between April 1, 2019 and March 31, 2020 is deductible beginning in the assessment fiscal year 2020–2021 up to Rs.1.5 lakh. You can claim the interest deduction under Section 80EEA, which is in addition to the Rs.2 lakh deduction permitted under Section 24 and the Rs.1.5 lakh deduction allowed under Section 80C.

Section 80EE: Additional Home Loan Tax Benefits for First-time Homebuyers

Section 80EE ensures that as a first-time buyer, you can claim an additional tax benefit of Rs.50,000 on your interest payment. This comes as a welcome way to save more, helping you utilise funds for other goals, be it related to home improvement or other goals. Housing loans, also known as home loans, offer various tax benefits that can significantly reduce the overall cost of homeownership. However, the important information to keep in mind is that this is applicable only if the property is valued at Rs.50 lakh or less and the loan amount applied for is Rs.35 lakh or less.

Home Loan Tax Benefits on Second Home Loan 

Tax deductions are available on your second home financed with a home loan, too. However, this is valid only on the interest paid. 

Joint Home Loan Tax Benefits 

Applying for a home loan jointly with a family member improves your loan eligibility as well as your tax benefits. In short, both you and the co-applicant can receive home loan tax benefits of up to Rs.1.5 lakh to Rs.2 lakh on the principal and interest payment, respectively. Do ensure that your name is mentioned as the co-owner and co-applicant to avail of this benefit. 

You can claim the tax deduction by simply providing the home loan interest certificate to your employer as a salaried applicant. Utilize the home loan tax benefits to boost your returns and reduce your tax burden. Mind you, your tax will be deducted if you have not furnished this certificate. As a self-employed borrower, you need not produce this certificate, however, do keep it handy for future reference. 

Easiest way to calculate your housing loan tax benefits on a home loan is by using an online home loan calculator. For that simply enter your home loan details and then click on calculate and a detailed tabulation will pop up. This makes your lengthy process easy in a few simple steps.

You may claim deductions in your income tax against principal and interest payments that you make towards repayment of your home loans and it can give you Home Loan Tax Benefit.

In a given financial year, you can save up to 1.5 lakh for principal repayment and up to Rs.2 lakh for interest on a home loan. That’s a lot of money which can be set aside as  savings or for achieving other life goals, be it buying a car or going on a holiday. Keep in mind, a home loan has a lengthy tenor, which assures a lot of savings when tax planning is done correctly.
You can achieve maximum savings by being on the lookout for competitive rates when taking a home loan. It comes with a competitive home loan interest rate and offers quick approval and fast disbursal of funds along with high-value financing and the option of a top-up loan. Many banks and NBFC’s provide home loans at affordable interest rates, so to avail Home loan tax benefit, apply online and get started!

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