Home Loan: Eligibility, EMI, Documents and Interest Rates

What is a home loan?

A home loan is a secured loan to buy, construct or renovate a house. The property is kept as security with the lender until the loan is fully repaid.

How home loans work

The lender assesses your finances and the property, sanctions an amount, and releases money in one go or in stages (for under-construction property). You repay through EMIs over a long tenure.

Eligibility factors

• Age, income and stability of employment or business
• Credit score and repayment history
• Existing loans and monthly obligations
• Property location, legal title and valuation
• Co-applicant income, where applicable

Loan-to-value ratio and down payment

Loan-to-value (LTV) ratio is the loan amount as a percentage of the property's value as assessed by the lender. The balance is your down payment, paid from your own funds. Maximum LTV limits are set by regulation and lender policy, so confirm the latest rules with the lender.

Interest rates: fixed and floating

Ask how and when the rate can be reset, and whether there is a fee to switch.

EMI and tenure

EMI stands for Equated Monthly Instalment, the fixed amount repaid to the lender every month. It is commonly calculated with this formula:

EMI = P × r × (1 + r)ⁿ ÷ [(1 + r)ⁿ − 1]

Here P is the loan amount, r is the monthly interest rate (annual rate ÷ 12 ÷ 100) and n is the number of monthly instalments. Each EMI has an interest part and a principal part; in the early years the interest part is larger.

Home loan tenures are long, so even a small rate difference can change total interest significantly.

Processing fees and other charges

• Processing fee
• Legal and technical valuation fees
• Stamp duty and registration (paid for the property, not to the lender)
• Insurance, if opted for
• Charges for rate conversion or part-release

Documents generally required

• KYC: identity, address proof and PAN
• Income proof: salary slips, Form 16 or ITRs
• Bank statements
• Property papers: sale agreement, title documents, approvals
• Builder or seller documents for new projects

Property-related considerations

• Check that the title is clear and the seller has the right to sell.
• For under-construction projects, verify RERA registration on the state RERA website.
• Confirm building approvals and occupancy certificate.
• Consider maintenance, registration and furnishing costs.

Prepayment

Part-prepayments reduce the outstanding principal and total interest. Charges on prepayment depend on the loan type and the applicable rules, so check with the lender.

Frequently asked questions