Understanding home loans might seem scary because people believe many things that aren't true. This makes many people in India feel confused and worried about getting a home loan. But in this blog, we'll explain the truth behind these myths and help you understand home loans better.
Before we talk about the myths, let's understand what a home loan is. A home loan is money you borrow from a bank or other places to buy, build, or fix a home. In India, there are rules from the Reserve Bank of India (RBI) and other groups that control how home loans work.
To get a home loan, you need to have a large sum of money saved for the down payment. Isn’t it?
Reality: Yes, you need to pay some money upfront, but it doesn't have to be a huge amount. Usually, lenders ask for 10-20% of the home's price as a down payment. But there are also options where you can pay less, especially for people buying a home for the first time.
Myth: Only those with a perfect credit score can get a home loan. That everyone thinks.
Reality: Having a good credit score is important for getting a good interest rate, but it's not the only thing lenders look at. They also check how much money you make, if you have a stable job, and if you can pay back the loan. Even if your credit score isn't perfect, you can still get a home loan, but you might need to give more paperwork or pay a bit higher interest.
Myth: If you repay your home loan early, you will always have to pay a hefty prepayment penalty.
Reality: The RBI rules have made home loans easier for borrowers. If you have a loan with a floating interest rate, the bank can't charge you extra if you pay it off early. But for fixed-rate loans, it might be different, so it's smart to read all the details carefully.
Myth: You can only get a home loan to purchase a ready-to-move-in property.
Reality: Home loans can be used for various purposes, including buying under-construction properties, self-construction, home renovation, and even buying land.
Myth: Home loans can only be availed from traditional banks.
Reality: Besides banks, there are various Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) that offer home loans. These institutions might offer competitive interest rates and flexible terms. It's beneficial to compare offers from multiple lenders to find the best deal.
Myth: Self-employed individuals cannot get home loans or face greater difficulties in securing one.
Reality: Self-employed individuals can certainly get home loans, although the process might require more documentation compared to salaried employees. Lenders look at your business's income stability, profit, and overall financial health. With proper documentation and a steady income, self-employed individuals can avail home loans just like salaried individuals.
Myth: Fixed-rate home loans are always better because they offer stability in EMIs (Equated Monthly Installments).
Reality: Both fixed and floating-rate home loans have their pros and cons. Fixed-rate loans provide stability and are easier to budget for, but they often come with higher interest rates compared to floating rates. Floating-rate loans, on the other hand, can vary with market conditions and might save you money when interest rates fall. The choice between fixed and floating rates should be based on your financial situation and market conditions.
Myth: Once you take a home loan, it cannot be transferred to another person.
Reality: Home loans can be transferred to another person under certain conditions, typically during the sale of the property. This process is known as a "home loan balance transfer" or "home loan takeover." The new borrower must meet the eligibility criteria set by the lender.
| Myth | Reality |
|---|---|
| Myth 1: You Need a Huge Down Payment | Reality: You need to pay some money upfront, usually 10-20% of the home's price. Options exist for lower down payments, especially for first-time buyers. |
| Myth 2: Perfect Credit Score is Mandatory | Reality: While a good credit score helps, lenders also consider income, job stability, and repayment capacity. Less-than-perfect scores can still qualify, with possible extra paperwork or higher interest. |
| Myth 3: Prepayment Penalties Are Always Imposed | Reality: For floating-rate loans, RBI rules prevent prepayment penalties. Fixed-rate loans may have different terms, so reading the details is essential. |
| Myth 4: Home Loans Are Only for Buying Ready Properties | Reality: Home loans cover various purposes, including under-construction properties, self-construction, renovation, and land purchase. |
| Myth 5: You Can Only Get a Home Loan from a Bank | Reality: Besides banks, Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) offer home loans with competitive rates and flexible terms. |
| Myth 6: Self-Employed Individuals Cannot Get Home Loans | Reality: Self-employed individuals can get home loans with proper documentation and a stable income. Lenders assess income stability, profits, and overall financial health. |
| Myth 7: Fixed-Rate Loans are Always Better than Floating-Rate Loans | Reality: Both types have pros and cons. Fixed-rate loans offer stability but may have higher rates. Floating-rate loans can vary with market conditions and may save money if rates fall. |
| Myth 8: Home Loans Cannot be Transferred to Another Person | Reality: Home loans can be transferred, typically during property sale, through a "home loan balance transfer" or "home loan takeover." The new borrower must meet lender eligibility criteria. |
Understanding the truth behind common home loan myths can empower you to make better financial decisions. Don't let misconceptions deter you from achieving your dream of owning a home. Always research, compare different options, and seek professional advice if needed.
We EazyBankLoan understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
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Yes, you can get a home loan with a low credit score, though you might face higher interest rates or need to provide additional documentation.
Yes, you can avail tax benefits on both principal repayment and interest payments under sections 80C and 24(b) of the Income Tax Act.
For floating rate home loans, there are no prepayment penalties. For fixed-rate loans, terms may vary, so check with your lender.
Yes, home loans can be used for various purposes, including renovation and self-construction.
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