What is a home improvement loan?



If you are thinking of renovating your home and running short of finances, you can opt for improvement loan from nationalized bank across the country. Home improvement loan is granted for remodeling of properties.

Any loan taken against the improvement of a home including renovation, repairs, flooring, internal and external painting is termed as home improvement loan. The amount can be borrowed for minute remodeling such as whitewashing and for any major rework such as complete renovation.

Anyone can apply for home improvement loan of up to 80-90 of the estimated improvement cost from all nationalized banks. Loan can be applied individually or jointly for a maximum tenure of 15 years. The tenure is based on several factors such as the applicant’s profile, his age and credit history, and the age of the property at loan maturity.

Eligibility

·        All house owners can avail a home  improvement loan as an individual or jointly. Co-owners of a house must apply jointly for the disbursement of loan
·        The applicant could be salaried or self-employed
·        Minimum age required is 21 years and maximum age is 65 years(for salaried employees)

Document Required
An applicant will have to submit certain documents for loan approval. Following Following is a complete list of documents required-

·        Passport
·        Voter ID Card
·        Aadhaar Card
·        Driving Licence
·        Proof of income
·        Income tax returns- Last 3 Assessment years
·        Profit and loss account statements(in case of self- employed)
·        Six months current account statements(in case of self-employed)
·        Business profile(For business owners only)
·        Summary or details of ongoing loans
·        Passport size photograph
·        Home improvement documents
·        Title Deeds of the property
·        An estimate of the home improvement work

Interest Rates
Talking about the interest rates applicable on such loan, bank and finance institutes offer two options

Fixed interest rate
In this option, the rate of interest on the loan disbursed is fixed for the tenure of the loan. All banks offer different interest rates. Usually, the fixed interest rates fall between 9%  to 12%  per annum. Salaried applicants get a relaxation in interest rates as compared to self-employed individuals.

Floating interest rates
The floating interest rate is flexible in nature , driven by the prevailing repo rate. Usually, the overall interest amount is reduced if an applicant chooses floating interest rate over fixed  interest rates. However, it may fluctuate based on the market conditions. Applicants must be prepared to take this risk while opting for long tenure loans.

Processing fees
Every loan sanctioning financial institute will have its own processing fees and charges coupled with taxes for disbursing home improvement loan. For instance HDFC bank charges the following processing fee.

For salaried Employees
If a home buyer is a salaried employee, he/ she will have to pay up to 0.50 percent of the loan amount RS. 3,000 whichever is higher, plus applicable taxes as a processing fee.

For self-employed professionals
If those running a business, up to 1.50% of the loan or Rs 4,500, whichever is higher, along with taxes is charged as the processing fee.

Tax Benefits
An applicant can also avail tax exemption for loan taken for home improvement under section 24(b) of the income TAX Act. The interest paid on the loan is tax deductible up to RS 30,000 per year



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