Home Loan Benefits and Eligibility Criteria

Owning a home is a dream for many, and home loans have made this dream more achievable. Leaving aside the home buying aspect, home loans come with additional benefits like tax savings. Lately, there has been a lot of hue and cry post Union Budget 2024 after the Finance Ministry proposed the elimination of indexation benefits for homeowners (earlier, homeowners enjoyed the benefit of inflation-adjusted property prices). 

In spite of this, there has been an upward tick in share of home loans. According to a report published by Times of India, home loans for properties valued at ₹75 lakh and above, has surged from 19% in March 2020 to an impressive 31.4% in March 2024.

In this blog, we have pointed out the various advantages of taking a home loan. We will also talk about the eligibility criteria for home loans to make your loan application journey easier.

Home Loan Benefits and Advantages

1. Home Loan Tax Benefits

Section 80C: The principal amount paid on the home loan EMI in a financial year is eligible for tax deduction under Section 80C of the Income Tax Act, 1961. The maximum deduction amount you can claim is capped at ₹1.5 lakh. This also includes deduction for registration charges and stamp duty. However, to claim this deduction, you need to ensure the property isn't sold within 5 years of possession. 

Section 80EE: An additional deduction up to ₹50,000 on the interest component can be claimed under Section 80EE. However, the provision was specifically designed for home loans sanctioned between 1st April 2016 and 31st March 2017. 

Section 80EEA: In Budget 2019, an additional deduction of up to ₹1.5 lakh was introduced to promote affordable housing. You can claim this deduction towards the interest paid against your loan in a financial year subject to terms and conditions. For instance, the loan should be sanctioned between 1st April 2019 and 31st March 2022 and the stamp duty of the house should be ₹45 lakh or less. Taxpayers who're eligible to claim deductions under Section 80EEA are not eligible to claim tax deduction under Section 80EE. Similar to Section 80EE, you should not own any house or property as of the date of loan sanction.

Section 24(b): Section 24(b) of the Income Tax Act allows you to claim tax deduction up to ₹2 lakh against the interest paid on your home loan. Ideally, you should exhaust your ₹2 lakh deduction limit as offered under Section 24(b), then go for further deduction of up to ₹1.5 lakh under Section 80EEA, provided you meet all the conditions specified under the Income Tax Act. For example, you can claim deduction under Section 24(b), only if the construction/possession of the house is completed within 5 years. Kindly consult a tax adviser before claiming home loan tax benefits.

Other than these, your spouse and you can save more on taxes if you have applied for a joint home loan. 

2. Lower Interest Rates

Home loans are secured loans, where the house acts as collateral. Secured loans carry lower risk compared to unsecured loans, hence the interest rates are comparatively lower. Also, the Government's constant push to promote 'Housing for All' has prompted banks to offer affordable rates to customers.

3. No Prepayment Penalty

There's no prepayment penalty for floating rate home loans. This rule is set by RBI (Reserve Bank of India) and is applicable to all Indians banks You can make part prepayments towards your loan to reduce the EMI burden/tenure or foreclose your loan without incurring any additional charges.

4. Flexible Repayment Tenure

The repayment tenure varies from 15 years to 30 years. For example, you can apply for Ujjivan Home Loan for a tenure of 240 months (20 years). This gives you the flexibility to select a tenure of your choice as per your financial standing. 

5. Build Credit Score

Making timely repayments against your home loan can help boost your credit score. A higher credit score would help improve your creditworthiness. This may help you get quicker access to any form of credit in the future.

Eligibility Requirements for Home Loans

The loan amount you're eligible for and the applicable interest rate could be different from the advertised rates and the maximum amount. Understanding your home eligibility would give you a better idea regarding how much loan you actually qualify for.

We have compiled a list of generic eligibility requirements and may vary across banks. Contact Ujjivan Small Finance Bank by dialing our toll-free number 1800 208 2121 for more details on home loans.

1. Age

Most banks in India offer home loans to individuals aged between 21 and 65 years.

2. Income and Employment

Banks may consider your income stability and employment status. Salaried individuals usually need to have a minimum work experience of 2-3 years, while self-employed professionals might need to show a business vintage of 3-5 years.

3. Credit Score

A good credit score is crucial for loan approval and favourable interest rates. Most lenders prefer a CIBIL score of 750 or above, though some may consider scores above 650.

4. Debt-to-Income Ratio

Lenders typically look for a debt-to-income ratio of 40-50% or lower. This ratio represents the percentage of your income that goes towards debt repayment.

5. Property Criteria

The property you intend to purchase should meet the bank's criteria in terms of age, condition, and legal clearances.