The rising cost of homes may make realizing your dream of buying a home difficult. However, this is where home loans come to your rescue.
A home loan can help you buy your dream abode. Most banks and financial institutions offer loan to buy a home or land to construct a loan.
This post focuses on understanding a home loan and its types.
What is a Home Loan?
A home loan is a secured loan you avail from a financial institute to buy a home, plot land or construct a house. You have to pay interest on the borrowed amount. The principal, along with interest, is repaid in Equal Monthly Instalments (EMIs).
The interest rates vary across lenders. When applying for a loan, you should not only look for the lowest home loan rates but also find out if the loan is at a floating rate or fixed rate. If you cannot repay your dues on time, the lender has the right to possess your home and recover your dues.
What are the types of Home Loans?
The different types of home loan offered by lenders are described below:
Land Purchase Loans
As the name specifies, banks offer this loan to purchase land. You can buy land and then construct a house whenever your finances allow. This option gives you more flexibility.
You can buy land for investment purposes also.
Home Purchase Loans
You can use a home purchase loan to buy a new home or a pre-owned home. Almost all financial institutes offer these loans. Lenders may provide up to 90% of the home value as
Some lenders may even offer loans up to 70% to 80% of the home value.
Home Improvement Loans
Loans are available to renovate or repair your home. You can use this loan to paint your house, add a garage or change the plumbing work.
Home improvement loans can be availed easily from almost any lender. These loans are popular due to their low-interest rates.
Home Construction Loans
If you choose to construct a home as per your choice, rather than buy a pre-constructed one, you can avail of a loan for the same.
The approval process for these loans is different from a loan for a pre-constructed home. If the plot is purchased within a year of constructing the house, its cost can also be
included in the loan amount. The amount you can borrow will depend on the estimated cost of construction.
The loan may be disbursed in one go or in parts.
Home Loan Balance Transfer
Home loans run for a long duration. The interest regimes may change during the loan term. If you have a loan at a higher rate than what is now prevalent in the market, you can opt
for a home loan balance transfer to get the lowest home loan rates on your loan.
Sometimes borrowers may opt for a balance transfer due to service issues too.
If you want to buy a home by selling an existing property, a bridge loan can help you. These loans help meet the short-term need for funds till the old house or land is not sold. The loan term is usually up to 2 years, and the interest rates are high.
Top-Up Home Loans
Lenders offer a top-up loan that allows you to borrow a certain amount over and above your existing home loan. Anyone who has a home loan can avail of a top-up loan.
A home loans is a secured loan availed to purchase a property by offering it as collateral. These loans are provided at various interest rates and for different tenures and are repaid
through EMIs. After repayment of the loan, the title of the property is transferred back to the borrower.
Now that you know what a home loan is and about the various types of home loans available choose and avail yourself of the most suitable loan that fits your requirements!