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Home renovation or improvement loan-Unearthing the key aspects


Home renovation or improvement loan-Unearthing the key aspects

You must have heard about home renovation or home improvement loans which are offered by several banks and financial institutions. Wondering what these loans are? Home renovation or improvement loans are those which are sanctioned to customers for improving/renovating/refurbishing/decorating their homes. These loans usually have tenors going up to a maximum of 15 years according to experts while the rates of interest are quite reasonable in most cases and possibly slightly higher than home loan interest rates at times. There are processing fees going up to 1% that are usually charged on these loans as well.

These loans can be taken if you wish to start renovation or refurbishment projects on properties which have already been completed. You can apply for home renovation or improvement loans for doing up your home or periodically upgrading it whenever you require to do the same. You can repay the loan through EMIs which should be factored into your monthly budget before applying. These loans help you opt for fittings, fixtures, changing of furniture and several other purposes within the periphery of home renovation/improvement.

Key Things that you should remember

Here are some of the major aspects that you should remember when it comes to home renovation or improvement loans.

  • The maximum tenors can be up to 15 years in most cases.
  • You can choose between floating and fixed rates of interest based on what you prefer.
  • You may also get offers from the bank which combine both types of interest for varying parts of the loan tenor.
  • You can apply online or offline for these loans and you can get either the whole cost of the loan as given by some financial institutions or up to 80-90% of the cost as given by many others.
  • You can either get the loan amount as a lump sum payment or in instalments depending upon the policy of the lender and your own specific requirements.
  • These loans are usually sanctioned faster and the documentation needs are mostly minimal as compared to regular home loans.
  • You can apply for this loan at any bank even if you are a new customer. However, existing customers often consider going for top-up loans over and above their home loans in order to take care of similar needs.

Eligibility Needs

It’s not enough that you have a property in your name which you wish to renovate/redecorate/improve. You should also make sure that you meet the eligibility criteria for the loan. These requirements are a lot similar to those for regular home loans. Some of the pointers you need to keep in mind include the following:

  • You can apply with your spouse or any other co-applicant for the loan in order to increase eligibility.
  • Self-employed and salaried professionals can apply for these loans and the minimum age restriction is usually 21 while the maximum age limit is between 60-65 years.
  • Companies or firms may also apply for these loans although their eligibility criteria will include several other documents in most cases.
  • All property owners should be co-applicants for home improvement or renovation loans.
  • Your monthly net income should match the eligibility criteria for the amount that you are seeking and you should have a stable source of employment and income proof.
  • You should have a good CIBIL or credit score, preferably above 750.
  • Your debt to income ratio, i.e. the ratio of your outstanding debt to your income should not be too high.

Documentation Needs

You will naturally require several documents when it comes to applying for home renovation or improvement loans. These may include the following:

  • Passport size photos
  • Latest Form 16 and salary slips
  • Last 6 months’ bank statements
  • Original property title deed
  • Architect’s quotation for the estimated project cost
  • Self-employed professionals and those engaged in business will have to provide IT returns along with other documents required by the lender.
  • You have to provide KYC documents which include age, identity and address proof.
  • Some lenders may ask you to get an insurance policy done for your home in order to provide coverage for the amount of the loan with the financial institution being the sole beneficiary. However, this is not something that happens often.

Of course, it goes without saying that there are several other documents that lenders may ask for and you will have to provide the same speedily in order to ensure swift processing of your loan. Make sure that all your necessary documents are ready prior to applying for the loan.

Other vital information to keep in mind

Before you apply for the loan, make sure that you choose between fixed and floating interest rates at least from a general perspective. Fixed interest rates will remain unchanged for the entire loan tenor while floating interest rates fluctuate with market conditions and changes in the repo rate and other factors. They may go up or down in the future depending on market trends. However, in the long run, the cost of the loan generally goes down with floating interest rates due to transmission of rate cuts to borrowers.

You should also keep in mind that you should use an online eligibility calculator before applying for the loan. Make sure you choose the amount carefully and also use an EMI calculator for working out the amount that you have to repay every month. This should be factored into your monthly budget and you should be ready to pay the same without any hassles. If your credit score is on the lower side, take your time and increase it before applying. You can start by clearing out unsecured debt and debts that come with high rates of interest in order to increase your loan eligibility and credit score. Also make sure you repay EMIs on time in order to consistently maintain your CIBIL score prior to applying. Do not apply at multiple places together since this hampers your credit score as well.


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