What Financing Options Are Available for Purchasing a Home?

Finance Feb 4, 2025 4 Add to Reading List

Buying a home involves significant financial investment. Many people in India rely on loans to achieve this goal. Selecting the most appropriate one from the numerous types of loans available in the country by various lending institutions can be daunting. Let’s consider various financing methods for purchasing property in India.

1. Bank & NBFC Home Loans

Home loans are the most common method individuals use to purchase homes in India, and these loans are offered by banks and non-banking financial companies (NBFCs). Home loans can be utilized to buy a new flat, pre-launch property, or even renovate older structures.

Key Features -

Loan Amount - Depending on your earnings and ability to repay, home loans in India can range between INR 1 lakh and INR 10 crore.
Loan Tenure - Generally, the tenure is around 20 years but can go up to 30 years, allowing enough time for the borrower to fully repay.
Interest Rates - Depending on the lender, the rates may start from 8.5% to 9.5% p.a.

However, this also depends on one’s qualifications for the loans and the lender who’s lending.

Eligibility Criteria -

Must be an Indian citizen.
Age between 21 years (at least) and 60 years old.
The minimum monthly income requirement varies from one bank to another.

Documents Needed Include -

Aadhar card/ Voter ID card/ Driving License/PAN card (Identity proof).
Current telephone bill/voter identity card with photograph and address proof.
The latest salary slips, indicating the gross salary received by the applicant.
The latest TDS certificate issued by the employer.
Related documents substantiating incomes from other sources.

2. Government Subsidy Schemes

There are several initiatives introduced by the government of India that aim to assist new property owners, especially those in the lower middle-class bracket. For example, Pradhan Mantri Awas Yojana (PMAY) is one such scheme through which housing subsidies are provided.

Key Features -

Interest Subsidy - Those who benefit from this program can use interest subsidies that could significantly lower their EMIs. This makes them more affordable than before.
Eligibility - People belonging to economically weaker sections (EWS), as well as low-income group (LIG) individuals and middle-income groups (MIG), are entitled to avail themselves of the project’s benefits.
Amount - The amount given as a subsidy varies depending on group income. For instance, for those under Middle Income Group I (MIG-I), with an annual income between INR 6 lakh and INR 12 lakh, an interest subsidy of 4% is provided on a loan amount up to INR 9 lakh. This subsidy translates to a maximum benefit of approximately INR 2.35 lakh.

3. Finance for Home through Co-operative Banks

Cooperative banks also provide home finance, in addition to commercial banks and NBFCs, which are especially useful for people in small towns or villages.

Key Features -

Reduced Processing Fees - As compared to commercial banks, cooperative banks often charge lower processing fees.
Flexible Eligibility Criteria - Their criteria are usually more forgiving, thereby enabling rural dwellers to qualify easily.

Nevertheless, cooperative banks may levy a slightly higher rate of interest compared to nationalized banks.

4. Home Loan Balance Transfer

Home loan balance transfer is an option for individuals who already have a home loan and want to take advantage of lower rates available in the market. One way you could achieve this is by moving your mortgage from one lender’s institution with higher interest rates into another. The other lender is the one offering comparatively low interest rates over time.

Key Features -

Lower Interest Rates - When transferring your home loan, you may save significant money on interest paid over the term, as home loan balance transfer have lowest interest rates.
Eligibility - You should have a satisfying existing loan record. You should also satisfy the new bank's requirements to qualify for a balance transfer.

Considerations -

Some banks charge a processing fee when you transfer your balance.
To be sure you are saving enough to warrant the change, you need to look at the lowest interest rate for home loan balance transfers.

5. Employer-Sponsored Home Loans

Sometimes, an employer will allow you to access mortgage financing or a home loan through arrangements with banks or financial organizations. These kinds of loans usually come with less expensive interest rates than others. Moreover, they are also processed faster.

Key Features -

Lower Interest Rates - Businesses can negotiate better terms with financial institutions, thus benefiting their workers.
Repayment Options - Some companies may opt for salary deductions for direct payment purposes.

6. Personal Loans for Home Purchases

Some people are left with no alternative but to consider personal loans for buying a house due to the lack of any other way out. They usually have shorter repayment terms and come at high interest rates.

Key Features -

Higher Interest Rates - Typically, personal loan rates are at 10-24%.
Quick Approval - This process may be faster, though the amounts given out will be much less.

7. Loan Against Property (LAP)

A loan against property is a secure loan where the borrower mortgages property assets to secure funds for personal or business needs.

Key Features -

Higher Loan Amount - Up to 75% of the market value can be lent to you.
Interest Rates - These are lower than personal loans and, hence, beneficial for the lendee.

8. Home Loan for Self-Employed Persons

Most of the time, self-employed individuals have trouble securing home loans because their earnings are not constant. But now, few banks and NBFCs offer loans tailored explicitly to self-employed professionals.

Key Features -

Documentation - You will need to present tax returns or profit and loss statements from where you run your business.
Interest Rates - Expect slightly higher rates for the self-employed than ordinary customers.

When selecting a financing option, keep the following in mind -

Interest Rates - It’s always vital to compare rates between various lenders before making a choice.
Loan Tenure - Extending this period results in low monthly instalments but higher interest rates in the long run.
Processing Fees - Find out if there are any upfront charges applicable by the bank upon application for the loan at hand.
Eligibility Criteria - Make sure you meet the eligibility criteria to avoid rejection.

The Bottom Line

Various factors, including finance for home loan lender options, subsidies and the possibility of saving money through balance transfers, must be considered before making a final decision. For the future, the best decision can be a great financial aid to you. Therefore, ensure that you analyze these factors properly before making any hasty decisions.

After all, the right choice can mean so much when it comes to financial matters! All the very best!