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How Does Home Loan Works? Everything You Need To Know


A home loan is taken to construct a house, renovation or for buying a house. Home loans are backed  against collateral which is the same property that you are looking forward to buy or renovate or  construct. Home loans help you to build your dream house without the need to worry about the  insufficiency of funds. Like personal loans, home loans are repaid in equal monthly installments. Once  you pay back the installments after the said period, the title of the property is transferred back to  you.  

Before we dive deep into the steps on how you can buy your desired home loan, you should know  certain important facts about home loans before applying. These facts would help to clear your  doubts and assist you in making the informed decision.  

Although this differs from lender to lender, generally most lenders only finance 75 to 90 percent  of the cost of your property, while the remaining has to be made upfront as down payment.  

The eligibility that you would be approved for a home loan depends upon your credit score. Credit score  is the credibility ratings assigned to you by the credit bureau. It is assigned based on your past  repayment records. 

One very important factor to keep in mind before applying for a home loan is that home loans are  secured loan types. This implies that in case you fail to pay back the loan amount the collateral which  in most cases is the home would be transferred to the lender which can acquire their money back by  selling your property.  

Now that we know how some of the facts related to home loans, we can now discuss the various  steps through which we can acquire home loan: 

Choosing a reliable lender: This step is very crucial when applying for a home loan. As interest rate  on home loans can differ from lender to lender. It becomes very crucial that you make an informed  decision only after comparing all the options available in the market.  

Check for your eligibility: Whether you will be approved for a loan depends upon the eligibility set by  the lender. Common eligibility criteria set by the lender are age of borrower, Income, your credit  score, Employment status, residency type and property type among others.  

Maintain a good credit score: Credit score ranges from 300 to 900. You need to have a credit score  of at least 700 or above. Your credit rating proves your credit worthiness to the lender and it  becomes easier for you to get a home loan.  

Be ready for a down payment: Whether you apply to whosoever as your lender, you need to be  ready with a down payment which is decided as per the total cost of your property. Lenders don’t  pay the whole amount of property as a home loan. In any case, you should be ready to finance a part of the  property from your pocket.  

Documents ready: Now that you are ready with the lender, have a good credit score, you can move  to the next step of keeping your documents ready with you.  

While there may be minor differences in the process to fill an application for a home loan. The general  procedures remain the same. You have to keep all the required documents handy to fasten the loan  process. Some of the documents required at the time of form filling includes:

  • Income proof 
  • Identity proof 
  • Employment proof 
  • Property details 
  • Educational qualification proof 
  • Address proof 


Through this blog, you were able to know the basics of home loan and the steps to be loan ready.  Just make sure that you don’t miss out on any interest payments. This can severely affect your credit  score. Apply for a home loan only when you are ready to take the loan burden. Pay it back within the  stipulated time period and you are good to go.

Read Also:- How is Your Credit Score Influenced?

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