Tuesday, 16 December 2014

Right Choice! - Various types of property loans

Consider various types of property loans available in the market and select one based upon your need.

Banks or non-banking financial companies offer not only home loans, but loans to alter or extend existing property, temporary loans to purchase a new house while you are looking for a buyer for your old home, etc. The various types of property loans that are generally available are:

Land-Purchase Loan:
Land-purchase loans are given by banks or non-banking financial companies (NBFCs) to buy a plot or land on which the loan applicant is looking to construct a house. Generally banks lend up to 80-85% of the price of the plot or land.

Home-Purchase Loan:
This is the most popular and commonly availed home loan where the loan amount is utilized to purchase a residential property. Financial institutions usually provide up to 80-85% of the market value of the house as loan amount. The interest rate on these loans is either fixed, floating or hybrid.

Home-Construction Loan:
Some borrowers of home loan would like to construct a house as per their own design specifications instead of buying a stock-model house off the market.

To serve this segment of loan takers, financial institutions issue home loans to applicants to construct a house on a plot owned or co-owned by them. The loan application and approval process for home-construction loans are different in certain aspects than from the commonly available housing loans.“The plot or land on which the house has to be constructed should have been bought within a year for its cost to be included in the total loan amount. Unless this condition is satisfied the value of the plot cannot be included in the total loan amount.

“The borrower has to make a rough estimate of the cost that will be incurred for the construction of the house, which will be part of the loan amount. If the cost of plot is not included in the loan amount, only the estimation for construction of house is taken into consideration,“ Nitin Vyakaranam, founder and CEO of an online financial planning firm, says.

Home-Extension Loans:
Home-expansion or -extension loans are useful for people looking to expand their existing house. Expansion can include alteration of the current structure of the house to add extra structures like a new room, staircase, balcony, compound wall, etc. Few banks differentiate this loan based on the purpose of expansion of the current house. Most banks include this type of loan as part of their home-improvement loans.

Home-Improvement Loans:
Home-improvement loans are another popular form of loans usually taken by individuals who own a house, but lack funds to renovate it. Renovation like repairs to existing house, painting of the walls, digging a bore well, water-proofing, electrical wiring, among others, can be carried through this loan.

NRI-Home Loans:
NRI-home loans are specialized home loans that assist non-resident Indians who are interested in buying residential property in India. Though the structure of this home loan variant is similar to the regular home loans, the paperwork is a bit more exhaustive.

Home-Conversion Loans:
Existing home-loan borrowers who wish to move into another property can avail a home conversion loan to buy a new house.

Bridge Loans:
People take this loan to buy their second house till a buyer is identified for their old house.

Balance-Transfer Home Loan:
This is to attract existing home-loan customers from competing banks by offering lower rates.

Fast Facts: While considering purchasing a property, we need to understand the different types of loans that are available to the real estate market.

Source: Times Property, Dec 13, 2014

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