What is the loan scope for those buying a second home?

The treatment of a loan application for buying a second or third home for investment purposes is significantly different from that of an application for a weekend getaway. Most banks would be happy to find for an investment property, albeit with certain restrictions like lower quantum of funding (LTV), higher interest rate etc. Very few banks would be interested in funding for a weekend getaway since these properties tend to be far away from city limits and cannot be easily disposed off when required. The best option to get funding for such properties is if the developer has managed to tie up with banks to offer loans to potential buyers, else it would be prudent to explore options like top up on existing loans. Income tax benefits on home loans are available for

a)    Repayment of principal amount by an individual is allowed as tax deduction up to Rs. 1 lakh.

b) Repayment of home loan interest up to a maximum of Rs. 1.5 lakh is allowed as deduction for self-occupied property.

For availing the above deductions the property needs to be fully constructed.



How does this differ from first home purchase loan?

There is no difference in the processing of a second loan, the bank would ask for income documents to arrive at loan eligibility and property documents to get legal and technical evaluation done. Certain banks may charge a higher interest rate and also offer lower loan amounts when compared to a first home loan. Approaching the same bank where you have availed the first loan would make processing easier since you have already established a track record with the bank and they may be in a position to offer you certain concessions on documentation, interest rate, fees etc.



How would existing loan being repaid affect this?


Any existing EMI would be factored in by the bank when arriving at the eligibility for the new loan. If the pending EMI’s on a loan are for a short period (say 3 – 4 years), this would probably mean that the balance outstanding on the loan would be on the smaller side. It would be prudent to repay that loan fully since you will be able to get a much higher eligibility for the new loan. Always do remember to maintain a good track record on loans, credit card payments as credit history has a large bearing when new loan proposals are evaluated.