10 OCTOBER, 2022

Fintech institutions offer Second Home Loan. You can choose either the financial partner where you are paying your first home loan EMI or any other lending institution.

You must have applied for the first one by doing thorough research, like comparing the home loan interest rates of various lending institutions, their processing fees, etc. You must follow the same approach for the second home loan but with more rigorous research than the first one.

And if you feel that your current home loan interest rates and services are not good enough, it's time to look for a different lending institution. Do comparisons on the basis of interest rates, tenure, tax benefits, loan amount, etc. then make a final call.

Here is how you apply for Second Home Loan,

  • Confirm your second home loan eligibility
  • Submit a duly filled application form for a Second Home Loan
  • Provide ID proofs like a PAN Card, Voter ID, Passport, Driving License, Aadhaar Card, etc.,
  • Provide address proof like Voter ID, Driving License, Passport, Utility Bill, Aadhaar Card, etc.
  • Provide property documents like House Allotment Letter, Margin Payment Cheque, Agreement to Sale Copy, etc.
  • Provide income proof like ITR (Income Tax Return), Profit & Loss Account Statement for the previous 2 to 3 Years, and Audited Balance Sheet

 

What are the Impacts of First Home Loan EMI on Your Second?

As a homeowner, if you are still paying the EMI of your first home loan and the amount is very high, the loan provider checks how this will impact your EMI of the second home loan.

Generally, to fix home loan payments, it is proposed that EMI payments for the second home loan should not exceed 50% of your net monthly income. However, this 50% is not fixed, and if the lending institution believes that your income is good enough to manage more than 50%, the appropriate loan amount will be provided.

But to be on the safer side for paying first and second home loan EMI easily, pick a loan amount that keeps financial needs within 50% of your net monthly income. For people with lesser income, the loan amount sanctioned will be lesser.

What Happens After Application & Documentation?

The lending institution will fully assess your documents, and if there are no glitches, in-principle approval of a second home loan is authorised. After that, a team of legal and technical experts is sent to investigate your second home.

Now, the legal experts assess the legality of the property you wish to buy/build. However, suppose you are buying a new property; your seller will be the sole owner. If the legal verification is completed, the lending institution will get a green signal based on the reports submitted by the legal team.

On the other hand, the technical team will check the property map in question very carefully and compare whether the construction matches the specifications.

After that, the team will file a technical report indicating the property's approximate value to the lending institution. The lending institution uses this information to decide the loan amount. The credit managing team of fintech institutions also determines the loan amount by assessing your financials.

After the above steps conclude, you must visit your area's property registrar's office and register your property by signing a sale deed. You have to include two eyewitnesses for property registration as well. Once the registration process is completed, the lending institution will hold on to the original sale deed copy and issue a cheque for the second home loan amount to the seller. You must repay the loan amount in required EMIs and within the tenure.

Second Home Loan Eligibility

Each lending institution has different second home loan eligibility criteria for approval. However, some of the common factors on which second home loan eligibility in India depends are

  • If you are still making EMI loan payments for your first home, the second home loan application will be the same as the first one. In this case, it is best to approach the existing lending institution to increase the chances of approval.
  • Your repayment history will strongly influence your chances of getting a second home loan. If you have paid your EMIs promptly within the deadline, you will have a higher chance of getting a second home loan. You can also try to get a lower interest rate through negotiation.
  • The down payment for the second home also determines the home loan amount
  • Your net monthly income is another crucial factor. It must cover your current EMI and second home loan EMI.
  • If you have already completed your previous home loan, the credit score will be a contributing factor in deciding your eligibility for second home loan eligibility.
Tax Benefits for Second Home Loan

The second home loan offers tax benefits similar to the first one. A tax benefit of Rs. 1.5 Lakh or less is provided on the principal amount under Section 80C and Rs. 2 Lakh for interest repayments under Section 24 of the Income Tax Act in a financial year. However, if you are letting out the second home, there is no upper limit for tax deductions on the interest payments.

Conclusion

Owning a second home is a sign of your financial growth and can help you move into a better house or create a second source of income through rent. If you are already paying your first home loan EMI and looking to borrow a second home loan, then all the points discussed above will come into play, and being aware of them can increase the chances of loan approval in the first attempt itself.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.