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Navigating the Maze: A Guide to Different Types of Home Loans in India

Owning a home is a cherished dream for many in India. However, financing this dream can be a complex process. Fortunately, a diverse range of home loan options are available to cater to various needs and financial situations. Understanding these options empowers you to make an informed decision and select the loan product that best aligns with your requirements. Let's delve into the most common types of home loans offered by banks and financial institutions in India:

1. Loan for Purchase of a New Home:

This is the most common type of home loan, used to finance the purchase of a new property, be it an apartment, villa, or independent house. The loan amount typically covers a significant portion of the property's purchase price, and repayment is spread over a pre-determined tenure, usually ranging from 15 to 30 years.

Key Features:

Loan to Value (LTV) Ratio: This ratio determines the maximum loan amount you can avail relative to the property's value. For new home loans, the LTV ratio typically ranges from 80% to 90%, depending on the lender and your creditworthiness.
Interest Rates: Home loans for new properties generally attract floating interest rates, which are linked to an external benchmark like the Repo Rate set by the Reserve Bank of India (RBI). These rates can fluctuate over the loan tenure.
Repayment Options: You can choose from various repayment options, including equated monthly installments (EMI) with fixed or floating interest rates.

2. Home Loan for Construction of a House:

This loan option is ideal if you plan to build your dream home on a plot of land you already own. The loan is disbursed in stages, aligned with the construction progress.

Key Features:

Loan Disbursement: Unlike loans for new homes, the loan amount for construction is disbursed in tranches based on the completion of specific construction milestones. This ensures the funds are used for the intended purpose.
Documentation: You may be required to submit additional documents, such as approved building plans and cost estimates, to secure this loan.
Supervision: The lender may appoint a supervisor to monitor construction progress and ensure proper utilization of funds.

3. Home Extension/Improvement Loan:

This loan caters to those who already own a property and wish to renovate, expand, or make improvements. It can be used for various purposes, such as adding a room, renovating the kitchen or bathroom, or undertaking structural changes.

Key Features:

Loan Amount: The loan amount is typically lower compared to loans for new homes or construction, and is determined by the estimated cost of the renovation or extension.
Flexibility: This loan offers some flexibility in terms of repayment tenure, which is usually shorter compared to other home loan options.
End-Use Verification: Some lenders may require verification of how the loan funds are being used for renovations or extensions.

4. Home Loan Balance Transfer:

If you have an existing home loan with another lender and are dissatisfied with the interest rate or terms, you can consider a balance transfer. This involves transferring your outstanding loan amount to a new lender offering more favorable terms.

Key Features:

Benefits: A balance transfer can potentially save you money on interest payments if the new lender offers a lower rate. Additionally, the transfer may allow you to extend the loan tenure or consolidate your loan with another loan.

Processing Fees: There might be processing fees associated with transferring your home loan to a new lender.

Eligibility: Your eligibility for a home loan transfer depends on your creditworthiness, the remaining loan tenure, and the new lender's criteria.

5. Pradhan Mantri Awas Yojana (PMAY):

This government-backed scheme aims to make housing affordable for all. It offers subsidized interest rates on home loans for eligible applicants, particularly those belonging to economically weaker sections (EWS), low-income groups (LIG), and middle-income groups (MIG).

Key Features:

Subsidies: PMAY offers significant interest rate subsidies on home loans, making them more affordable for eligible applicants.

Eligibility Criteria: The scheme has specific eligibility criteria based on annual income, location of the property, and other factors.

Loan Limits: The maximum loan amount available under PMAY varies depending on the category (EWS, LIG, MIG) and the property location.

6. NRI Home Loan:

Non-Resident Indians (NRIs) can also avail of home loan facilities in India to purchase a property. The eligibility criteria and interest rates for NRI home loans may differ from those offered to resident Indians.

Key Features:

Documentation: NRIs may need to submit additional documentation, such as proof of income from their country of residence and Non-Resident (Ordinary) or Non-Resident (Non-resident) status proof.

LTV Ratio: The LTV ratio for NRI home loans can be lower compared to resident Indians, typically ranging from 60% to 80%.

Repayment Options: Similar to other home loans, NRIs can choose from fixed or floating interest rate options for their home loan.

7. Top-Up Loan:

A top-up loan allows you to borrow an additional amount against the existing equity you have built in your property. This can be helpful for various purposes, such as financing a child's education, medical expenses, or home improvement projects beyond the scope of a home extension loan.

Key Features:

Loan Amount: The maximum loan amount available as a top-up loan is determined by the property's current market value and your outstanding home loan amount.

Interest Rates: Top-up loans typically come with interest rates that are slightly higher than the original home loan rate.

Repayment: The top-up loan can be repaid with a separate EMI or consolidated with your existing home loan EMI.

8. Lease Rental Discounting (LRD):

This is a unique financing option where you can avail of a lump sum amount against the future rental income of your property. This can be beneficial if you need immediate funds but are not willing to sell your property.

Key Features:

Eligibility: The eligibility for LRD depends on the property type, location, and rental potential.

Loan to Value (LTV) Ratio: The LTV ratio for LRD can be lower than traditional home loans, typically ranging from 50% to 70% of the property's value.

Repayment: The loan is repaid through a combination of rental income received from the property and interest payments over the loan tenure.

Choosing the Right Home Loan:

With so many options available, selecting the right home loan can feel overwhelming. Here are some key factors to consider:

Loan Purpose: Identify your specific need - are you buying a new home, renovating an existing one, or refinancing your current loan?

Financial Situation: Evaluate your income, existing debt obligations, and creditworthiness to determine the loan amount you can comfortably repay.

Interest Rates: Compare interest rates offered by different lenders and choose the option with the most competitive rate that suits your needs (fixed or floating).

Repayment Tenure: Select a loan tenure that balances affordability with your financial goals. A longer tenure results in lower EMIs but higher overall interest payments.

Additional Charges: Be mindful of processing fees, prepayment penalties, and other charges associated with the loan.


Understanding the different types of home loans available in India empowers you to make an informed decision. By carefully considering your needs, financial situation, and loan features, you can select the home loan product that best facilitates your dream of owning a home. Remember, seeking guidance from a financial advisor can be invaluable in navigating the home loan selection process and securing the most suitable option for your circumstances.