10 types of home loans you must know of

Home loans are an attractive and popular means of buying a dream house for most people. In India, the demand for home loans has increased manifold in the last decade. Every day numerous people apply for home loans to own a perfect abode for themselves. The fact that home loans come with added advantages (like tax benefits) is the icing on the cake.

Lenders provide home loans not only for buying houses but for a variety of related purposes. The home loan market is brimming with diverse home loan products which cater to different needs of individual customers.

The following are some popular types of home loans available in the Indian housing finance market:

1. Land purchase loans

Land purchase loans are taken to buy a plot of land on which a borrower wishes to construct her/his house. Most banks offer up to 85 per cent of the price of the land. These loans can be availed for residential as well as for investment purposes. Almost all leading banks offer this loan like ICICI Bank (land loan), Axis bank (loan for land purchase) etc.

2. Home purchase loans

The home purchase loans are the most popular and the most commonly available home loan variants. These loans can be used to finance the purchase of a new residential property or an old house from its previous owners.

In this type of loan also, lenders usually finance up to 85 per cent of the market value of the house. These loans are provided either on fixed interest rates or floating interest rates or as hybrid loans.

All banking institutions and housing finance companies provide this type of loan.

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3. Home construction loans

These loans can be availed by those individuals who want to construct a house according to their wishes rather than purchasing an already constructed one. The loan application and approval process for home construction loans are somewhat different from those of the commonly available housing loans.

The plot of land on which the borrower wishes to construct the house should have been bought within a year for the cost of the land to be included as a component for calculating the total price of the house. If the plot has been purchased more than a year ago, then the above clause is not applicable.

The borrower has to make a rough estimate of the cost that will be incurred for the construction of the house and then apply for the loan with the same amount. The lender then takes over from there and analyses the application to decide whether or not to sanction the loan.

The approval or disapproval of the same is intimated by the lender to the applicant. The loan amount may be disbursed at one go or in several installments according to the progress in the construction of the house. Banks like Canara Bank, UCO Bank, Bank of Baroda provide these loans.

4. Home expansion/Extension loans

Home expansion or extension loans are useful in situations when people want to expand their existing house. Expansion includes alteration in the current structure of the residence to add extra space such as constructing a new room, a floor, a bigger bathroom or enclosing a balcony. Though many banks provide loans for these purposes as part of home expansion loans, some banks lend for the same purposes as part of their home improvement loans.

It depends on how a bank categorises its loans. Some popular banks which provide home expansion loans are HDFC Bank (HDFC Home Extension Loan), Bank of Baroda etc.

5. Home improvement loans

Home improvement loans are availed by individuals who already own a house but lack the funds to renovate it. All kinds of renovations and repair works can be financed using this variant of home loans such as internal and external painting, external repair works, electrical work, water-proofing and construction of underground or overhead water tank etc.

ICICI Bank, Vijaya Bank and Union Bank of India are among those banks which provide specialised home improvement loans.

6. Home conversion loans

Those borrowers who have already purchased a house by taking a home loan but now want to buy and move to another house opt for the home conversion loans. Through these loans, they can fund the purchase of the new house by transferring the current loan to the new house. There is no need to repay the loan on the previous home.

Though useful, this segment of home loans is accused of being quite expensive. This housing finance scheme is provided by HDFC Bank among others.

7. NRI home loans

NRI home loans is a specialised home loan variant which has been developed to assist non-residents in acquiring housing finance to buy residential property in India. These loans are meant exclusively for the non-resident Indians.

The formalities of availing this segment of home loans is similar to the regular home loans which are offered to residents, only the paperwork is a bit elaborate. Almost all public and private sector banks provide NRI home loans.

8. Balance transfer loans

Balance transfer option can be availed when an individual wants to transfer his home loan from one bank to another bank. This is usually done to repay the remaining amount of loan at lower interest rates or when a customer is unhappy with the services provided by his existing lender and wants to switch to another lender.

Banks such as Deutsche Bank, ICICI Bank, Kotak Mahindra Bank offer this facility among other lenders.

9. Stamp duty loans

Stamp duty loans are provided to pay off the stamp duty charges on the purchase of a property. The amount from this loan can be used solely for this purpose. This segment of home loans has yet not gained much popularity.

10. Bridged loans

Bridge loans are short term loans which are meant for people who already own a residential property but are planning to buy a new house. It helps borrowers to fund the purchase of the new house until a buyer is identified for the old house.

It is extended for a period of less than two years and requires the mortgage of the new house with the lender. Some banks offering this type of loan are Vijaya Bank, HDFC Bank etc.