A home loan is often the first step toward turning your dream of owning a house into reality. It involves borrowing money from a bank or financial institution to purchase or construct a residential property.
Home loans are among the most widely used financial products, and the process is fairly straightforward. Most major banks and lenders offer attractive home loan schemes.
Below are some essential points to help clear your basic doubts before applying:
How much of the project cost will the bank finance?
Banks usually finance 80–85% of the property’s market value or 85–90% of the total project cost. You must arrange the remaining amount yourself.
Home loans can come with fixed, floating, or hybrid interest rates.
How is home loan eligibility assessed?
Your eligibility depends mainly on your income and repayment capacity. Lenders also consider:
Age and qualifications
Number of dependents
Spouse’s income (if co-applicant)
Existing assets and liabilities
Savings and credit history
Employment stability
What does EMI mean?
EMI stands for Equated Monthly Installment, the fixed amount you pay each month toward loan repayment.
It includes both principal and interest, and continues until the loan is fully repaid.
Is a home loan necessary when I already have sufficient funds?
Even if you have enough money, opting for a home loan can be beneficial. It:
Maintains your cash liquidity
Offers significant tax benefits
A useful rule of thumb:
If your investments earn a higher return than the home loan interest rate, taking the loan makes financial sense.
If not, using your own funds may be better.
What tax benefits do home loans offer? (FY 2020–2021)
Here are the available deductions under the Income Tax Act:
SectionDeduction Limit24No limit (let-out property), ₹2,00,000 (self-occupied)80C₹1,50,000 on principal repayment (incl. stamp duty & registration)80EE₹50,000 additional interest (first-time buyers)
What tax advantages apply to a second home?
Earlier, only one property could be declared as self-occupied, and other properties were taxed based on notional rent.
However, as per the 2019 Union Budget, you can now treat two properties as self-occupied, eliminating notional rent on the second property. This helps maximize deductions and reduces overall tax liability.
Which documents are needed for a home loan application?
Since home loans are secured loans, lenders require various documents to verify the borrower’s credibility. Though requirements vary slightly by bank, the commonly required documents include:
General Documents
Recent passport-size photographs
Identity proof (PAN, Aadhaar, Passport, Driving License, Voter ID)
Address proof (Rent agreement, Passport, Driving License, recent electricity bill)
Employment appointment letter (if current job < 1 year old)
Property documents (Sale deed, Khata, ownership transfer papers)
Cancelled cheque for processing
Duly filled home loan application form
Financial Documents
For Salaried Individuals:
Form 16
Last 3 months’ salary slips
Bank statements
For Self-Employed Professionals:
Last 2 years’ IT returns
CA-certified income computation
For Self-Employed Non-Professionals:
Last 3 years’ IT returns
CA-certified income computation
When is the home loan amount released?
Loan disbursement happens only after:
Technical inspection of the property
Completion of legal verification
Full payment of your down payment
Lenders may release the amount in stages based on construction progress or in full, depending on the agreement.
For full disbursement, EMI begins the following month.
For partial disbursement, you will pay pre-EMI interest until the entire amount is released. Full EMI starts afterward.
Conclusion
A home loan is a powerful tool that can help you achieve your dream of owning a home while offering financial flexibility and tax benefits. Understanding the process, eligibility, and documentation requirements ensures a smoother experience. With the right planning, your journey toward homeownership becomes simpler, smarter, and more rewarding.