Home loans are an essential financial tool for you if you are planning to purchase or renovate a property. They allow you to make a significant investment while paying back the loan in affordable installments. Bangladesh’s real estate sector is currently experiencing a boom, with government-approved banks and financial institutions offering various types of home loans under easy conditions. In this blog, we will explore different types of home loans in Bangladesh and their eligibility.
What are the Different Types of Home Loans in Bangladesh?
Let’s know what are the home loan types first. They are as follows:
- Home Purchase Loans
- Land Purchase Loans
- Home Construction Loans
- Home Renovation Loans
- Home Extension Loans
- Home Equity Loans
Now, let’s have a thorough discussion of each.
1. Home Purchase Loans
Home loans are one of the most common types of loans offered by banks and Non-Banking Financial Institutions (NBFIs) in Bangladesh. Typically, you can use these loans for purchasing a new or pre-owned home. The loan amount you can receive from a bank or NBFI depends on various factors such as the value of the house, your income, and your credit score. In Bangladesh, most banks and NBFIs offer home loans with tenures ranging from 1 to 25 years. This means you can choose a loan repayment period that best suits your financial situation. But it is important to note that longer repayment tenures might result in a higher interest rate.
When it comes to the loan amount, banks and NBFIs generally offer a maximum of 70-85% of the value of the house as a home loan. This means that you will need to make a down payment of 15-30% of the value of the house. You can use this loan amount to purchase a new or pre-owned home or for the construction of a new home. The interest rate on home loans in Bangladesh can either be floating or fixed. Floating interest rates are linked to the market and can fluctuate over the loan tenure, while fixed interest rates remain the same throughout the loan tenure. The interest rates offered by banks and NBFIs on home loans in Bangladesh generally range from 9% to 14%, although they might vary depending on the institution and the borrower’s creditworthiness.
Banks and NBFIs can also charge additional percentage fees as processing fees along with the interest rate. These fees are charged to cover the administrative costs associated with the loan application and approval process. The processing fees can range from 0.5% to 1.5% of the loan amount. Overall, home loans in Bangladesh are a popular financing option for those looking to purchase a new or pre-owned home. It is important for you to carefully consider your financial situation and repayment capacity before taking on a home loan. It is also advisable to shop around and compare the home loan offerings of different banks and NBFIs to find the best deal.
2. Land Purchase Loans
Land purchase loans are a type of home loan offered by banks and NBFIs in Bangladesh that allow borrowers to purchase a piece of land. These loans provide you with the flexibility to acquire land when you have the financial resources available. This is particularly useful for you if you wish to invest in land as a non-depreciable asset or plan to construct a house on the land in the future. Many banks and NBFIs in Bangladesh offer land purchase loans, subject to certain eligibility criteria and conditions. These criteria and conditions might vary between institutions, but in general, borrowers must have a regular income and a good credit score to qualify for a land purchase loan.
The repayment tenure for land purchase loans is typically shorter than other types of home loans, with a maximum repayment period of up to 12 years. This means you need to repay the loan amount within a shorter time, which can result in higher monthly installments. The loan amount you can avail of for purchasing land depends on various factors, such as the total price of the land, the borrower’s income, and credit score. Banks and NBFIs in Bangladesh typically offer up to 70-75% of the total price of the land as a loan, which means you need to make a down payment of 25-30% of the total price of the land.
You need to conduct due diligence and research before taking on a land purchase loan. You need to ensure that the land you intend to purchase has all the necessary approvals and permits and is legally sound. You also need to carefully consider your financial situation and repayment capacity before taking on a land purchase loan.
Precisely, land purchase loans provide borrowers with the opportunity to acquire land for investment or construction purposes. These loans have a shorter repayment tenure compared to other types of home loans and you can avail up to 70-75% of the total price of the land, depending on the financial institution. But you need to carefully consider your financial situation and conduct due diligence before taking on a land purchase loan.
3. Home Construction Loans
A construction loan is the type of loan for you if you want to construct your own home instead of purchasing a pre-existing one. The loan covers the costs of construction, including materials and labor. Certain other factors need to be considered when applying for a construction loan. The eligibility criteria for a construction loan vary depending on the lender and the condition of the property. It is recommended that individuals interested in obtaining a construction loan contact the bank or non-bank financial institution’s (NBFI) relationship manager to get the exact information.
For instance, Delta Brac Housing Finance Corporation Ltd will finance up to 80 percent of the construction expenses, excluding the cost of land procurement. This is possible because they are not limited by the debt-to-equity ratio of banks, which is usually 70:30. However, the exact percentage of financing can vary depending on the specific circumstances of the borrower and the lender’s policies.
Again, government employees in Bangladesh can enjoy a 4% interest rate on home construction loans from April 2020. This reduced interest rate is available from any of the four state-owned banks and the Bangladesh House Building Finance Corporation. The government pays 5% of the total 9% interest, making it more affordable for eligible borrowers. Overall, obtaining a construction loan can be viable for you if you want to build your dream home. Consider the eligibility criteria and terms and conditions of the loan before making any decisions.
4. Home Renovation Loans
Renovation or repair loans are designed for you if you need to renovate or repair your home. These loans cover the costs of various repairs and upgrades such as electrical work, painting, waterproofing, electrical wiring, ceiling and tiling repairs, and interior refurbishment.
Unlike construction loans, which are meant for building new homes, renovation loans are given for a shorter time. The exact duration might vary depending on the lender and the borrower’s needs. Interest rates for renovation loans can also vary depending on the lending institution. The rates can be fixed or variable and might depend on various factors such as the borrower’s credit score, income, and loan amount.
Consider the loan terms and conditions before applying with utmost care. Some lenders might require collateral, such as the borrower’s home, to secure the loan. Others can have restrictions on the types of repairs and upgrades that can be done with the loan funds. In short, renovation or repair loans can be a good option for you if you need to make repairs or upgrades to your home. Compare different lenders and their terms and conditions to find the best option that fits your needs and budget.
Read also: How to make your flat looks elevated and cozy
5. Home Extension Loans
A home extension loan is designed for you if you want to expand your existing home by adding a new room or floor. These loans are not available at all banks or non-banking financial institutions (NBFIs), but some institutions offer home extension loans of up to 70-80% of the required funds for these purposes. The tenure of the loan can be up to 25 years, which means that the equated monthly installment (EMI) can be set at a minimum level, making it easier for the borrower to repay the loan. The exact duration of the loan might vary depending on the lender and the borrower’s needs.
Interest rates for home extension loans can vary depending on the lending institution. Borrowers may have a wide range of options regarding interest rates, including fully variable, semi-fixed, and fully fixed rates. The interest rate can depend on various factors, including the borrower’s credit score, income, and loan amount.
As mentioned before, consider the loan terms and conditions carefully before applying. Some lenders might require collateral, such as the borrower’s home, to secure the loan. Others might have restrictions on the types of extensions or renovations that can be done with the loan funds. Overall, home extension loans can be a good option for you if you want to expand your existing home. Compare different lenders and their terms and conditions to find the best option that fits your needs and budget.
6. Home Equity Loans
This loan lets you borrow against the equity you have made up in your home. Equity means the difference between the property’s present market value and the remaining mortgage balance. Homeowners who have already paid off a significant portion of their home loan can be eligible for a home equity loan.
Eligibility for a home equity loan is usually based on the amount of equity in the property and the borrower’s credit score. The lender will typically require an appraisal of the property to determine its current market value, and then subtract the outstanding mortgage balance to determine the amount of equity that the borrower has in the property. The amount that can be borrowed through a home equity loan will depend on the amount of equity in the property, the lender’s policies, and the borrower’s creditworthiness.
Interest rates for home equity loans can be lower than other types of loans because the borrower is using their home as collateral. Home equity loans can be used for a variety of purposes, including home renovations, debt consolidation, and other major expenses. Carefully consider the terms and conditions of the loan, including the interest rate, repayment period, and any fees or charges associated with the loan. Precisely, a home equity loan can be a good option for you if you have built up equity in your home and need to access funds for major expenses. Compare different lenders and their terms and conditions to find the best option that fits your needs and budget.
Eligibility Criteria
You need to meet certain criteria to get a home loan. Let’s know the criteria:
Monthly Income
Bangladeshi Banks typically need a minimum gross income range per month from probable clients requesting home loan approval. Most banks offer home loans to jobholders and professionals who earn at least BDT 40,000 to 50,000 per month, while the required amount might be higher for self-employed individuals such as doctors, freelance professionals, consultants, etc. Government officials might have flexible rules for income requirements.
Property Age
Generally, Bangladeshi Banks consider the registration date of a property to determine its age and are more inclined to provide home loans for newly constructed real estate properties rather than older ones. Typically, properties that are less than 20 years old have a higher chance of being approved for a home loan, although some banks like EBL and Bank Asia can be more flexible in approving loans for older apartments.
Age Range
Banks consider the borrower’s age during the home loan approval process as the repayment period is long. In Bangladesh, most banks offer home loans to individuals aged up to 65 years by the end of the loan tenure. The minimum age requirement for a home loan may differ depending on the bank.
DBR or Debt-Burden Ratio
DBR is a significant factor considered by banks to approve loans. It is calculated based on the borrower’s monthly gross income and liabilities. Banks typically have a maximum DBR limit, which varies depending on the borrower’s income. For example, if someone earns BDT 40,000 and their DBR is over 45%, banks might not offer them a loan. But the same bank can approve a home loan for someone with a DBR of 60% if their monthly income is BDT 2 lakhs.
Work Experience Length
Work experience plays a crucial role in getting a home loan from banks in Bangladesh. Generally, banks require service holders and self-employed professionals to have at least 2 to 3 years of experience. Again, some banks can have higher requirements for business owners.
Interest Rate Facts:
In 2020, the Bangladesh Bank established a fixed interest rate of 9% for all home loans provided by banks. The government later introduced a similar fixed interest rate scheme for borrowers from NBFIs, with a fixed interest rate of 11% starting from July 2022. Despite these fixed interest rates, some financial institutions may still offer higher interest rates due to other factors, usually in the form of variable interest rates.
Final Words:
Now, you must have got a clear idea about the different types of home loans in Bangladesh and their eligibility. Consider your eligibility criteria, interest rate, and all other relevant details carefully before applying for a home loan. If you have any queries regarding a real estate property or want to get your dream home, please contact an authentic real estate development company.
Frequently Asked Questions
In Bangladesh, most banks and financial institutions offer home loans for the purchase or construction of residential properties, such as flats, apartments, or houses. Some banks can also provide loans for the purchase of land to build a residential property on it. The property must have clear and marketable title deeds, and the borrower must provide proof of ownership or purchase. Again, the property must comply with local zoning and construction regulations. It is best to check with the specific bank or financial institution for their eligibility criteria for home loans.
The best banks for house loans in Bangladesh are Midland Bank and Standard Chartered Bank. Among NBFIs for house loans, the best ones are Delta BRAC Housing Corporation Limited (DBH), and Lankabangla Finance Limited.
The eligibility criteria for a 60 lakhs home loan might vary depending on the specific bank or financial institution’s policies and guidelines. Here are some common eligibility requirements that most banks in Bangladesh can consider for a home loan of 60 lakhs:
Age: The borrower should be between 21 and 65 years old at the end of the loan tenure.
Income: The borrower should have a regular and stable source of income to repay the loan, and the loan amount should not exceed the borrower’s repayment capacity.
Work Experience: The borrower should have a minimum of 2-3 years of work experience in the same field or business.
Credit Score: The borrower should have a good credit score, indicating a history of timely payments and responsible credit behavior.
Property: The property being purchased or constructed must comply with local zoning and construction regulations and have clear and marketable title deeds.
These are just general eligibility criteria, and different banks can have varying requirements. It is always best to check with the specific bank or financial institution for their specific eligibility requirements for a 60 lakhs home loan.
The three classifications of loans are:
Secured Loans: These are loans that are backed by collateral, such as property, vehicles, or other assets. The collateral acts as security for the loan, and if the borrower fails to repay the loan, the lender can seize and sell the collateral to recover the outstanding amount.
Unsecured Loans: These loans aren’t backed by any collaterals. As there is no collateral to secure the loan, the lender may charge a higher interest rate to compensate for the risk. Credit cards, student loans, and personal loans are some unsecured loans.
Demand Loans: These are loans that the lender can demand repayment for at any time. These loans typically do not have a fixed repayment schedule, and the borrower might be required to repay the loan in full at any time. Demand loans are usually short-term and can have a high-interest rate.
Loan eligibility criteria refer to the specific requirements that a borrower must meet to be considered for a loan from a bank or financial institution. The eligibility criteria can vary depending on the type of loan, the lender’s policies, and the borrower’s profile. Here are some common loan eligibility criteria that banks in Bangladesh consider:
Age: The borrower should be between 21 and 65 years old.
Income: The borrower should have a regular and stable source of income to repay the loan, and the loan amount should not exceed the borrower’s repayment capacity.
Credit Score: The borrower should have a good credit score, indicating a history of timely payments and responsible credit behavior.
Work Experience: The borrower should have a minimum of 2-3 years of work experience in the same field or business.
Employment Status: The borrower should be a salaried employee, self-employed, or a business owner with a stable income.
Property: If the loan is for the purchase or construction of a property, the property must comply with local zoning and construction regulations and have clear and marketable title deeds.
Existing Loans: If the borrower has existing loans, the lender may consider the borrower’s debt-to-income ratio (DTI) to ensure that the borrower can manage their debt obligations.
These are just general loan eligibility criteria, and different lenders can have varying requirements. It is always best to check with the specific lender for their specific eligibility requirements for the desired loan.