9 Types of Home Loans You Can Avail in India

Financial institutions in India offer a wide array of home loans to consumers. Whether you are looking to buy a home, or extend or renovate your existing home, banks these days can help you with customised plan to meet your unique home loan needs.

In this post, we give you the lowdown on the different types of home loans.

Home purchase loan

As the name suggests, this is the most common home loan availed while buying a new home. All major banks including SBI, HDFC, ICICI, PNA, and Axis Bank offer home loans.

You will receive a maximum of 75-85% of the value of the house as the home loan. You can get all the details about home purchase loans here.

Home improvement loan

Banks offer home improvement loans for the extension, implementation of repair works, or renovation of a home that the borrower has already purchased. The borrower can use the loan amount for external or internal improvement of the house.

Some banks offer a separate category of loans for home extensions and call those loans as home extension loans. All major banks in India offer home improvement loans.

You can avail about 80-90% of the work estimate. For more details, read our exclusive post on home improvement loans.

Home construction loan

The home construction loan is typically offered to customers who are looking for funds to construct a new home. The interest rates and application process is the same as for any other type of home loan.

Home conversion loan

Buyers can take a home conversion loans if they have already taken a home loan from a bank for buying a house and are now looking for an additional loan amount to buy another home. The outstanding amount for the previous loan is transferred to the new loan.

This type of loan is usually availed by people who like to eliminate the need to pre-pay the previous or existing loan. However, since these loans are meant for second homes, borrowers might have to pay a higher rate of interest than new home loans, depending on the policy of the bank from which you intend to borrow.

Land purchase loan

This type of loan is availed by people who want to purchase land either for constructing a home or just for investment.

(Note: Buying agricultural land is not allowed under this loan)

All major banks in India offer this loan. The tenure of a land loan is much smaller than that of a home loan and usually ranges between 5-15 years. This means that your EMI will also be relatively higher.

The loan to value ratio of land loan lies between 60%-75%, and most lenders have a cap on the maximum amount that you can borrow. You’ll have to bear almost 30%-35% of the cost as down payment. The interest rates for most land loans are usually at par with home loans.

Bridge loan

These are customised loans for individuals who want to sell their existing home and buy a new home. As the name suggests, this loan bridges the financial gap that is created while buying a new home and finding a buyer for the existing house.

The bridge loan is a short-term loan that can be availed in the interim period of buying a new home and selling the old one. Since it is a short-term loan, interest rates are slightly higher than regular home loan rates.

To avail this loan, you must furnish details of the new property to the bank. If you are unable to find a buyer for your old house within six to twelve months of availing this type of loan, then your bank might go ahead and convert it into a mortgage loan, with a higher rate of interest.

Balance transfer home loan

A balance transfer home loan enables buyers to benefit from lower interest rates in the market. Although RBI insists that lower interest rate benefits should be passed on to existing customers, most of the banks in India refrain from doing so, thus making a balance transfer a lucrative option for borrowers.

Under this type of loan, existing home loan customers switch their home loan to another bank to benefit from the lower rate of interest. A balance transfer home loan reduces the burden on buyers with existing home loans.

Stamp duty loan

Banks offer the stamp duty loan to help buyers bear the cost of stamp duty to be paid during registration of the property.

Reverse mortgage loan

This is a relatively new concept in India that is aimed at providing financial assistance to senior citizens. Under reverse mortgage loans, the borrower pledges the property, and the bank then arrives at its current market value, after which the bank disburses the loan amount as periodic payments to the borrower.

The borrower’s equity in the property decreases with each disbursed payment.