Since home loans are a popular way of financing the purchase of a home in India, a number of different
types of home loans are offered by lenders. Over the last 10 years, the demand for home loans has
increased tremendously. That said, the popular types of home loans in India are:
#1: Home Purchase Loan
This is the most commonly available home loan in India. You can avail a home loan to buy a new under-construction
property, ready-to-move-in unit, or a home that is put up for resale. Based on your income profile
and capacity to repay, the lender may extend a loan ranging anywhere from Rs. 2 lakh to Rs. 200
lakh. Typically, lenders provide financial assistance to the tune of 85 percent of the current
market value of the house you are planning to buy.
As this is a secured loan, collateral is needed.
You can improve your eligibility by clubbing your spouse’s, parents’ or child’s income.
If you are salaried, you can avail a larger loan by including the income linked to performance
that you earn.
Tax deduction can be availed on principal and interest.
#2: Land Purchase Loan
Banks provide land purchase loans for buying residential plots that are located within the corporation
or municipality limits. The approval processes and interest rates involved are similar to that
of the home loan. However, the maximum limit for Loan To Value is 70 percent of the value of the
plot you are planning to buy. The maximum loan repayment period allowed is 15 years.
A majority of the Indian banks do not provide this loan to non-resident Indians.
This home loan variant is not eligible for tax deduction.
#3: Home Construction Loan
If you are looking to construct a house instead of buying a ready-to-occupy unit, then you should
apply for a home construction loan. The loan application form and the approval procedure involved
in the case of home construction loans are different from that for other types of housing finance.
You have to prepare a plan and provide a rough estimate of the cost of constructing the house as
per the plan when applying for a house construction loan. Further, you should have bought the piece
of land where the house will be built within a year. The lender approves a loan amount and disburses
the same either at one-go, or in stages, based on the progress in construction, loan size, and
LTV applicable in your specific case.
If the construction is not according to the approved plan (extension over the approved area,
violation of boundaries, etc.), then the lender can freeze the loan.
Only the interest paid on the loan till the completion of the construction of the house is eligible
for tax deduction.
Home construction loans often exclude costs of works such as partition, painting, lighting plumbing,
#4: House Renovation / Extension / Expansion Loan
If you already own a home and want to expand it or add a balcony or enclose a balcony, build one
more bedroom, expand the bathroom, or remodel a room, then you should seek this type of home loan.
Generally, lenders fund up to 70 to 85 percent of the estimated value of the extension work. Loan
is sanctioned taking into consideration your age, creditworthiness, credit history, and repayment
capacity. You can choose either a floating or fixed interest rate. Typically, the tenure of the
loan is 15 years. You must be at least twenty-one years old if you want to apply for this loan.
The maximum age is your retirement age.
A processing fee of 1 to 2 percent is involved.
All of the property’s owners must be co-applicants.
Loan has to be repaid even if the house is damaged or destroyed because of a natural disaster.
#5: Home Conversion Loan
You might have already taken a home loan and bought a home using the same. However, you may now wish
to buy and move to another new house. In such a situation, you can apply for a home conversion
loan. The lender may transfer your existing loan to your new house. After the transfer, you are
not required to repay the old home loan. It offers convenience, but this home loan variant is very
Most banks charge a conversion fee of 0.5 percent to 1 percent of the sanctioned home loan amount.
If you want to pay a higher EMI, new cheques will have to be submitted.
#6: Home Improvement Loan
You might already be having a home, but you may not have sufficient funds for renovation work. This
home loan variant enables you to carry out internal/external painting work, repairs, waterproofing,
construction of underground/overhead water tank, electrical work, etc.
Home improvement loan interest rate is same as that for a home loan.
Both salaried and self-employed people can avail this loan.
#7: NRI Home Loan
The NRI home loan is a specially designed home loan variant for supporting non-resident Indians that
want to buy a residential property in their home country. The application procedure and compliance
aspects related to availing this type of home loan are different from that of others. In general,
most of the public and private sector banks extend NRI home loans.
Loans are available to NRIs for purchasing land to build residential houses. The land should
not be farm or agricultural land.
A co applicant can be introduced to enhance loan amount.
#8: Balance Transfer Loan
The balance transfer loan is for you if you wish to transfer the home loan you have obtained from
one bank to another bank. Typically, this home loan variant allows you to take advantage of the
reduction in interest rates for home loans.
Additional top-up loans can be availed.
EMI holidays may also be available.
#9: Stamp Duty Loan
You can apply for a loan to pay the stamp duty charges applicable for registration of your home.
The property must have been purchased by you. Some banks provide this type of home loan. This is
not a very widely known home loan variant.
#10: Bridged Loan
A bridged loan is a short-term loan. It is designed to help existing homeowners that want to buy
a new property. This home loan variant enables borrowers to obtain funds for purchasing a new house
till they identify a buyer for their existing property. You may have to mortgage the new house
with the lender when availing this loan. Typically, the tenure of a bridged loan is less than two
Home loans have become the norm for buying a home. It is, therefore, important that you identify
your requirement properly and ensure that you apply for and get the type of home loan that best
suits you. It will not only reduce the paperwork but also simplify the approval process. In addition,
you will be better equipped to avail a loan at a reduced interest rate. Finally, make use of a
home loan calculator that helps you to determine the EMI. This will enable you to understand the
amortization schedule better and plan your finances.