Purchasing a house of your own is a dream that many of us aspire to achieve at some point in time. It is a long-term goal as the capital required to fund the purchase of a home is huge. Nowadays banks have made it easier for people to own their own houses by introducing home loans.

What is home loan?

Home loans are secured loans sanctioned by the banks, housing finance companies and non-banking financial companies (NBFC’s) for long-term. A home loan can be availed to buy an apartment, a plot of land and construct a house or repair or renovate your existing home. In this type of loan, the house acts as a collateral till the loan amount is repaid in full.

Home loan terminologies you need to know:

• Principal: The money loaned by the lender to buy or construct the house.
• Interest rate: The percentage charged by the lender on the borrowed amount.
• Down payment: The amount that must be managed and paid by the buyer; banks usually cover 75% to 90% of the property's cost.
• Eligible loan amount: The amount you are eligible to receive from the bank, varying by bank and calculated based on income, credit score, and income ratio.
• Co-applicant: A person who signs the loan documents with the borrower and is liable to repay the loan if the main borrower cannot.
• Equated monthly installments: The fixed amount the borrower pays to the bank every month during the loan tenure.
• Interest type: Home loans may have fixed or floating interest rates; floating rates fluctuate based on market conditions throughout the loan tenure.

Eligibility criteria of home loan:

Banks follow the process of due diligence. This is a kind of background check performed by the banks, to understand your eligibility before approving the home loan. Thus, you must understand the eligibility criteria of home loans:

• Age: Salaried professionals aged between 21-60 years and self-employed individuals aged between 21-65 years can avail home loans.
• Income level: A higher monthly income suggests the ability to pay higher EMIs on time, making the borrower eligible for a larger loan.
• Credit score: A CIBIL score of 750 points and above helps secure a loan with better interest rates, indicating good credit habits. Conversely, a low credit score reflects outstanding loans or a poor repayment history.