Whether you are planning to purchase an apartment, a piece of land, or a whole building structure, or are renovating an existing property, you need to make a massive investment. That is where home loans come into play. Even people who can finance on their own feel at ease taking a home loan. This is because it is easier to pay back loans in affordable installments than to spend a huge amount of money at once. And it also puts less pressure on the borrower.
The good news is the real estate sector in Bangladesh is booming and to cope with the demand, government-approved banks and financial institutions are offering different types of home loans in Bangladesh under easy conditions.
That is to say, you now have many options when it comes to home loans. And it is necessary for you to understand each of them so that you can decide which one is best for your needs.
Here we will be discussing five different types of home loans and other important aspects that are required for you to avail the home loans.
Land Purchase Loans
Under this scheme, a borrower can avail this loan for purchasing a piece of land under certain conditions. A majority of banks or non-banking financial institutions (NBFIs) offer these types of home loans in Bangladesh. Purchasing land provides a flexible option for the buyer to acquire property when the finances are available. Since land is a non-depreciable asset, many borrowers purchase land solely as an investment.
However, with a repayment tenure of up to 12 years, the time period is much shorter than other types of loans. Depending on the financial institution, you can borrow up to 70-75% of the total price of the land.
Home Purchase Loan
Loans for purchasing a new or pre-owned home are the most popular types of home loans in Bangladesh among others. All the major banks and NBFIs of Bangladesh offer home loans in different variants. Depending on the institutions, the tenure of the loan varies and ranges between 1 to 25 years.
You will receive a maximum of 70-85% of the value of the house as a home loan. The interest rate is either floating or fixed and generally tends to be between 9% and 14% with additional percentage charges as processing fees.
Home Construction Loans
Construction loans are specially designed for people who want to construct their houses according to their wishes rather than purchasing a pre-constructed house. But in order to avail this home loan, certain aspects need to be taken into account.
As it varies depending on the condition of your property, the best idea is to get in touch with the bank’s or NBFI’s relationship manager for the exact information. For example, Delta Brac Housing Finance Corporation Ltd can finance up to 80% of construction costs excluding the land procurement cost. This is possible because they are not limited by the debt-to-equity ratio of banks which is 70:30.
When it comes to home construction loans, government employees can enjoy a 4% interest rate from April 2020 from any of the four state-owned banks and also from the Bangladesh House Building Finance Corporation, since 5% of the total 9% interest is paid by the government.
Home Extension Loans
This loan is designed for people who want to expand their existing house by adding a new room or a new floor. However such loans are not available at all banks and NBFIs will offer home extension loans of up to 70-80% of the required fund for these purposes.
The tenure of the loan can be up to 25 years, which means the EMI can be set at the minimum level. A wide array of choices regarding Interest rates ranging from fully variable to semi-fixed to fully fixed rates are also available.
Home Improvement Loan
People who are in need of renovating or repairing their house can avail this loan. This could include up-gradation of electrical items, paint job, water-proofing, electrical wiring, ceiling and tiling repairs or even interior refurbishment.
These loans are given for a short period of time compared to the types mentioned before. Interest rates, on the other hand, can vary depending on the institution.
About Interest Rates
Earlier in 2020, the Bangladesh Bank set the interest of all home loans at 9% for every bank.
And in a new policy, a similar interest rate scheme was also formulated by the government for borrowers from NBFIs who will be enjoying a fixed interest rate of 11% from this July (2022).
However, some financial institutions are still offering more than the fixed interest rates due to other reasons, mostly in the form of variable interest rates.
Eligibility Criteria
When considering a home loan, there are other important aspects and conditions that you have to meet in order to avail a home loan.
Age of the property
Banks usually determine the age through its registration date. Generally, major banks in Bangladesh show more interest to sanction home loans for purchasing newly constructed real estate properties than old ones.
That said, properties aged not more than 20 years are more likely to get a home loan than otherwise. Although banks such as EBL, Bank Asia, etc. might show further flexibility for allowing home loans for old apartments.
Monthly income
Another important parameter when it comes to sanctioning home loans is the borrower’s monthly income. Banks expect a minimum range of gross income per month to choose a potential client for home loan approval.
Most banks in Bangladesh are willing to provide home loans to jobholders and professionals who earn at least BDT 40,000 to 50,000 per month. However, the amount increases for self-employed people like doctors, freelance professionals, consultants, etc. Some banks have flexible rules for Government officials.
Debt-Burden Ratio (DBR)
DBR is another key parameter. DBR is calculated on the basis of a prospective borrower’s monthly gross earnings against his/her liability. Depending on your income, usually, banks won’t offer a loan if the DBR crosses certain limits. However, DBR can be changed depending on the client’s income. For instance, if an individual earns BDT 40,000 and his/her DBR exceeds 45%, naturally, banks won’t offer loans to that person. The same bank, however, can allow home loans to a person scoring 60% when his/her earning is BDT 2 lacs per month.
Age range
Since the repayment tenure of any home loan is continued for a considerably long period of time, banks put emphasis on the borrower’s age during the process of home loan approval. The majority of Banks in Bangladesh offer home loans for individuals aged at most 65 years at the end of the loan tenure. The minimum age to get a home loan varies from bank to bank.
Length of Work Experience
Your work experience is a significant factor in getting a home loan from various banks in Bangladesh. Most banks usually look for 2 to 3 years of experience for service holders, and self-employed professionals. Some banks set a bit higher margin for business owners.
These are the types of home loans in Bangladesh that can help you understand what is best for your needs. Be it construction, renovating, or expanding; for most people borrowing money is the only way to go when it comes to big investments like these. And to avail these loans, you also have to meet other important aspects that banks and NBFIs look for when choosing a potential borrower for home loans in Bangladesh.
Do you have any experience in taking any of these kinds of home loans? Share your thoughts in the comments section below.
