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All you need to know about home improvement loans
If you are a homeowner you know that your responsibilities with the house do not end at buying it, it is in fact just the beginning. The home that you live in will go through considerable wear and tear over the years and you will need to spend a fair sum of money every few years to get repairs done.
If you are currently in a situation where you house is demanding repairs but you are postponing it due to cash crunch you are facing, fret not, for we are here to tell you all about home improvement loans. While researching about the best home loans in India, you may have come across this type of home loan which is available for a time frame of up to a maximum of 15 years and are available at an interest rate of 9.5-11%.
What can you use it for?
If you are homeowner undertaking any kind of home extension or renovation work, you are eligible for a home improvement loan. Any internal or external repairs, renovation or extension work such as adding a room, plumbing overhaul, waterproofing, flooring etc are covered under home improvement loans. Such loans are sanctioned by the lender on the loan to value ratio of the estimate that you submit, subject to a cap of 80%. For an existing home loan customer the bank may extend this limit to 85%
How does it work?
If you are fresh applicant with a lender and do not have a home loan running with it, a home improvement loan works pretty much like any other credit product, where the bank assesses your credit score and all other documents like property papers, income statement, tax returns etc to assess your credit worthiness. The bank will arrive at its estimate independently, even though you will be required to submit an approved renovation plan and a rough estimate of the expenses you will incur in renovation while making the application.
Having a good CIBIL score of 750 and above will help when you are in pursuit of a fresh loan. It is therefore important to keep trying to enhance your CIBIL score continually. The bank will also charge you a processing fee in the range of 0.5% -1% of the loan for a home improvement loan. Once sanctioned, it will usually not bother about the progress of your renovation work, while some others may want to physically verify the progress.
The process is a tad simpler if you are an existing Home Loan India customer of the bank and have been servicing your loan for at least a year. You need to submit income proof and the property deed and will just have to submit your renovation plan and your estimate to make an application. After the verification of the estimate the bank may sanction up to 85% of the estimate that it has arrived at for an existing borrower, provided his service record is impeccable. Such customers may also not be required to pay the processing fee.
Advantage of home improvement loans
Home improvement loans offer tax benefits under Section 24 of the Income Tax Act. The interest paid on such loans is deductible up to ₹ 30,000 per annum and the benefit of the same can be availed of by both the owner and co-owner of the loan.
Such loans are especially beneficial to home owners who already have an existing home loan with a bank. Not only is the process much simpler, by way of documentation that one has to provide as compared to an unsecured line of credit such as a personal loan, it can also be secured at a lower rate of interest of 11-15% as compared to personal loans that are costlier (available at an interest rate of 14-16%)
What you need to watch out for
Home improvement loans are usually provided for major repair work as mentioned above and will not be extended for things such as buying new furniture or adding kitchen cabinets. It would therefore serve you well to know about all the inclusions and exclusions of the lender at the time of making an application. Also bear in mind that if you are not an existing home loan customer with a bank, the documentation process is long and tedious and you may be better off considering another credit line such as a gold loan.
Home improvement loans have in the recent past gained quite a bit of attention in the recent past, but some still opt for personal loans for renovation and repairs simply because they are not aware of this product. We hope that reading all about home improvement loans will help such borrowers.
Posted by: Shreekant Rao on 23 March 2017