What is housing loan?

As a financial expert, I can tell you what is housing loan. A housing loan (or home loan) is a type of secured credit extended by banks or housing finance companies to individuals seeking to buy, build, renovate, or extend a residential property. The property is used as loan collateral. I have shared more information about this loan below.

What is a Home Loan?

The borrower pledges the house or land as collateral. It gives the lender security against default. In essence, the institution gives you a lump sum today, and you repay it over a long tenure (often up to 30 years) in regular equated monthly instalments (EMIs) comprising principal and interest.

• Housing loans can be used for a variety of purposes.

  • Purchasing a new home

  • Buying a resale property

  • Constructing a house on your plot

• The home loan amount typically depends on your income, credit history, the market value of the property, and the loan-to-value (LTV) ratio set by the lender and regulatory guidelines.

• Interest rates on home loans may be fixed, floating, or a combination. It means the cost of borrowing can change over time if your rate is variable.

One of the key benefits of a housing loan is that the long repayment horizon makes the monthly burden more manageable compared to shorter-term high-value debts. I hope this helps you understand what is mean by home loan.

Kids are smart these days. My nephew, who is 12 years old, came to me asking about a housing loan. So my other nephew who is just 16 at the moment started explaining it to him. I was shocked because to be brutally honest I was a big loser at that age. I had heard of the term home loan or housing loan but I didn’t know the nitty gritty of it. But Harsh (my 16 year old nephew) knew way more than I had expected. This is what he explained.

When you go out to buy a house but don’t have enough finances, you reach out to lenders or people who would be willing to give you money. The lenders usually are banks or financial institutions who deal in loaning money to people to fulfil their dreams. What a simple explanation about housing loan, right?

He then further went into details. 

To avail housing loans, people need to submit a few documents such as personal identification documents, property documents, bank statements, financial records, government clearances, etc. while filling the loan application. The borrower also agrees to pay the EMI, i.e. monthly payment with interest to repay the loan.

Further, he explained how many types of housing loans are available.

• Home purchase loan

• Home improvement loan

• Home construction loan

• Home extension loan

• Joint home loan

• Home loan balance transfer

• Home loan top-up

My 12 year old nephew then asked if he can apply for a housing loan. And that’s when I interrupted and told him that there are certain rules and regulations. The eligibility criteria to apply for a housing loan says that a person should be of a certain age and must have an income source. 

He was disheartened to hear that as he thought he would start early and buy his own house and become the youngest one in the family to do so. Kids I tell you!

Anyway, this whole experience might help you understand now what is housing loan.