Home Loan for a Resale flat - Eligibility, Documents, & Tax Benefit

Purchasing a resale flat can be an exciting journey towards owning a place you can call home. However, most of us may require financial assistance in the form of a Home Loan to make this dream a reality. Through this comprehensive guide, let us look at the process of obtaining a Home Loan for a resale flat in India. 

Eligibility for a Home Loan for a resale flat

Income criteria

Your income plays a crucial role in determining your eligibility for a Home Loan. Lenders typically follow an approach known as the Debt-to-Income (DTI) ratio to assess whether you can manage the loan repayments efficiently. Your DTI ratio is calculated by dividing your total monthly debt obligations by your gross monthly income.

Age criteria

Lenders also consider your age when approving a Home Loan for a resale flat. Ideally, you should be between 20 to 65 years of age. However, this age limit may vary depending on the lending institution's policies or your work profile.

Credit score

Maintaining a healthy credit score is vital to secure a housing loan. A high credit score indicates responsible financial behaviour and enhances your loan approval chances. Aim for a high credit score or above to strengthen your application and get favourable terms.

Must Read: Minimum CIBIL Score for a Home Loan

Documents required to avail a Home Loan for a resale flat

To streamline the Home Loan application process, ensure you have the following documents ready:

• Identity and address proof

• Aadhaar Card

• Passport

• Voter ID

• Driving licence

• Utility bills (Gas, water, electricity)

• Income proof

• Salary slips (Last 3-6 months)

• Income Tax Returns (ITR) for the past 2-3 years

• Form 16

• Bank statements (Last 6 months)

• Property documents

• Sale Deed

• Sale agreement

• Property tax receipts

• Approved building plan

• Encumbrance certificate

• Employment and business proof

• Employment certificate (for salaried individuals)

• Business proof (for self-employed individuals)

• Business registration certificate (for business owners)

Tax benefits on a Home Loan for a resale flat

Opting for a Home Loan for your resale flat can also provide you with significant tax benefits:

Tax deduction on Home Loan interest (Section 24)

Under Section 24 of the Income Tax Act, you can claim a tax deduction on the interest paid for your Home Loan. For self-occupied properties, you can claim a deduction of up to Rs 2 lakh per financial year. However, there is no limit on the interest deduction for properties that are not self-occupied.

Tax deduction on Home Loan principal repayment (Section 80C)

Section 80C of the Income Tax Act allows you to claim a deduction on the principal repayment amount of your home loan. The maximum deduction limit under this section is Rs. 1.5 lakh per financial year. Additionally, this deduction is also applicable to stamp duty and registration charges.

Joint Home Loan tax benefits

If you are co-borrowing a Home Loan with a family member, both borrowers can individually claim deductions on the interest and principal repayments subject to the specified limits.

Pre-construction interest

If your resale flat undergoes renovation or reconstruction, you can claim a deduction on the pre-construction interest paid during the construction period. This benefit can be availed in five equal instalments from the year of completion.

Home Loan interest rates for resale flats

When considering a Home Loan for a resale flat, one crucial aspect to pay attention to is the interest rate. Interest rates can significantly affect the overall cost of your loan. Here are some points to keep in mind regarding interest rates:

Fixed vs floating interest rates

Lenders offer two primary types of interest rates: fixed and floating.

Fixed interest rate:

Under this type, the interest rate remains constant throughout the loan tenure, providing predictability in your EMI payments. However, fixed rates are often higher than floating rates initially.

Floating interest rate: Floating rates are linked to benchmark rates like the Repo Rate. These rates can fluctuate with market conditions, leading to changes in your EMI amount. Floating rates may start lower than fixed rates but can increase over time.

Home Loan tenure for resale flats

The loan tenure is the duration for which you will be repaying the Home Loan. The tenure can vary among lenders but is typically up to 30 years. Here is how the tenure choice can impact your Home Loan:

Shorter tenure

Opting for a shorter loan tenure means you will repay the loan in a shorter time. While this can lead to higher EMI payments, it has several advantages:

Low overall interest cost: Shorter tenures result in reduced interest payments, making the loan more cost-effective

Faster loan repayment: You will become debt-free sooner, offering financial freedom.

Longer tenure

Choosing a longer tenure can lower your EMI payments, making it easier on your monthly budget. However, there are trade-offs to consider:

High overall interest cost: Longer tenures result in more interest payments over the loan's duration, increasing the total cost.

Extended debt obligation: You will be in debt for an extended period, impacting your financial commitments.

Prepayment and foreclosure options

Before finalising your Home Loan for a resale flat, it is essential to inquire about the prepayment and foreclosure options offered by the lender. These options allow you to repay the loan ahead of schedule, reducing interest costs.

Prepayment

Prepayment involves making additional payments towards your home loan principal, reducing the outstanding balance. Many lenders allow partial prepayments without charging any penalties. By making periodic prepayments, you can accelerate your loan repayment and save on interest.

Foreclosure

Foreclosure is the complete repayment of the Home Loan before the original tenure ends. Some lenders may charge a foreclosure penalty while others may offer it without charges after a specific period. It is crucial to understand the foreclosure terms before committing to a Home Loan.

By understanding the eligibility criteria, collecting the required documents and leveraging the available tax benefits, you can navigate the process with ease. Additionally, consulting with a financial advisor or a Home Loan expert can provide valuable insights and guidance tailored to your specific situation.