Everything You Need To Know About Rural Housing Loan

Everyone wants their home to call their own. It is challenging for people from remote locations to obtain home loans with reasonable housing loan interest rates and flexible repayment terms. Rural home loans come in handy in this situation. They can use rural home loans to buy a house in the country, whether it’s brand new, already built, under construction, or just a plot of land.

This rural housing loan helps realise the government of India’s goal of “Affordable Housing for All.” It provides unique advantages like lenient eligibility requirements, almost no processing costs, and minimum documentation requirements. Housing loan interest rates in rural areas range from 6.90% to 14% yearly. The rural housing loan’s maximum repayment period is 30 years, and loan amounts can range from 2 lakh to 1 crore rupees.

Let’s look at the specifics of rural home loans right now.

Features of Rural Home Loans

• The processing charge for the loan is either non-existent or very low.
• Some financial organisations include a free insurance policy with this loan.
• It has a longer and more flexible repayment period.
• It comes with a customised documentation process.
• In many cases, there is a door to door lending servicing also.
• No early payment fee.

Tenure and Amount of Rural Housing Loans

• Possibilities for flexible terms of 3 to 30 years.
• Depending on income, ability to repay, and project cost, loans might range in size from Rs. 2 lakhs to Rs. 75 lakhs.

Eligibility Criteria for Rural Housing Loans

People must fulfil the following requirements to be eligible for rural housing loans:

• The applicant must be of Indian descent.
• The applicant must be at least 21 years old.
• There must be a consistent and steady source of income.
• Anyone with a reliable source of income and a high credit rating can apply, whether alone or jointly with family members like a parent, spouse, or child.
• Agriculturists, business owners, independent contractors, salaried employees, and professionals are also eligible.

Documents Required for Rural Housing Loans

1. Identity Proof – Any one document out of Passport, PAN Card, Driving License, Voter’s ID Card, Aadhaar Card, Ration card
2. Address Proof – Any one document out of Passport, Aadhaar card, Voter ID, Driving licence, Property documents, Ration card, Lease/rent agreement and last three months’ utility bills
3. Income Proof – Any one document out of Income tax returns, last three months’ salary slips, Form 16 and Bank statements of the previous six months.

Note: The types of documents needed will depend on the financial institution.

Benefits of Rural Housing Loans

• Low processing costs: In comparison to other loans, processing costs for rural housing loans are either nonexistent or extremely low.
• Longer repayment terms: There are options for terms of up to 30 years, and farmers are given a particular discount.
• Low-interest rates: The range of enticing housing loan interest rates is 6.90% to 14% annually.
• Availability: Everyone can get loans if they want to buy a new, already-built, or used residential property in their village, including paid and self-employed people.
• Zero prepayment fees: Rural housing loans are not subject to prepayment fees.
• No unforeseen fees: All fees associated with the loan are disclosed at the time of loan application.
• Moratorium period: For these loans, certain banks provide a moratorium period that may last up to 18 months.
• Insurance coverage: Some banks provide free insurance coverage for rural housing loans.
• Door-to-door service: For rural house loans, some banks provide a door-to-door service option and personally guide the person through the entire process.
• Special consideration for farmers: There is no mandatory requirement for farmers applying for home loans to submit Income Tax Returns (ITR).

Drawbacks of Rural Home Loans

• Increase of the property cost – When one avails of a home loan, the total cost of the property hikes as there is a housing loan interest component that adds up to the principal amount borrowed.
• Long-term commitment – A home loan goes on for many years, on average, 10-12 years. Any unforeseen situations impact the ability of a person to pay the EMIs.
• Opportunity cost – Opportunity cost, as used in business economics, refers to a profit, benefit, or value that must be forgone to obtain or achieve anything else. When compared to other asset classes of investing, real estate has provided substantially lower returns over the past few years. The rural housing loan is viewed as a missed opportunity because of its long term.

Security for Rural Home Loans

1. Primary: Registered mortgage of the house/plot or any other tangible security including agricultural land
2. Collateral: Banks cannot give a loan against agricultural land under SARFAESI Act. Moreover, a ‘farmhouse’, is exempted under Sec.60 of CPC. Hence, the bank must explore other possibilities for obtaining collateral security, wherever available.

Repayment of Rural Housing Loans

Home Loans should be repaid over <30 years in equated monthly/quarterly/half-yearly/yearly instalments. The period of repayment and the amount of instalment should be decided on a case-to-case basis or a realistic basis. The repayment could be made as per the instructions and options available with the bank.

Frequently Asked Questions

1. Who is considered to be a weaker section? 

The National Housing Bank’s (NHB) Circular of Refinance Schemes for Scheduled Commercial Banks, which went into effect in 2013, explains the weaker sections and rural areas.

2. which areas are considered to be rural?

A “Rural Area” is any area that is a part of a village or small town with fewer than 50,000 people, as determined by the 1991 Census.

3. Can applicants who live in rural areas obtain a loan to build or modify a home?

Yes, clients may apply for a loan to build, buy, or renovate a home in a rural region.

Wrapping up

In the end, deciding to take out a home loan is a personal decision based on various variables, such as one’s financial capabilities. One should exercise prudence when making any financial decision.

Read more about rural housing loans only on Piramal finance. Piramal Finance offers Home Loans, Secured & Unsecured Business Loans, Corporate Loans and various other loans, with lower EMIs at great interest rates