Affordable Housing Loan: Everything You Need to Know

Many Indians’ cherished dream is to own a home. Unfortunately, due to immense financial burden, this dream sometimes seems unachievable. Consequently, affordable housing loans have been introduced as a way of helping people who belong to the middle and lower-income groups to acquire houses of their own.

This article discusses affordable housing finance in India. It delineates the qualifying factors, interest rates involved, and other advantages accessible to individuals through such plans.

Also Read: Home Loan: All You Need to Know – Godrej Capital

Understanding affordable housing loans

Affordable housing loans are financial products designed to assist individuals in purchasing homes without imposing significant financial strain. These loans cater primarily to the economically weaker sections (EWS) and low-income groups (LIG), facilitating homeownership through manageable repayment plans.

Key features of affordable housing finance in India

Some key features of affordable housing finance in India include:

• Subsidized interest rates: To make homeownership more accessible, the government offers interest subsidies under schemes like the Pradhan Mantri Awas Yojana (PMAY). This reduces the affordable housing loan interest rate, making monthly installments more manageable.
• Extended repayment tenure: Lenders often provide longer repayment periods for affordable housing loans, sometimes extending up to 30 years, ensuring lower monthly payments.
• Minimal processing fees: To encourage more applicants, many institutions reduce or waive processing fees for affordable housing finance.

Eligibility criteria for affordable housing loans

Eligibility for affordable housing loans varies among lenders, but common criteria include:

• Income limits: Applicants must fall within specific income brackets. For instance, under PMAY, the annual income limit is up to INR 3 lakh for EWS and between INR 3 lakh to INR 6 lakh for LIG.
• Property location and size: The property should be within the prescribed area limits. For EWS, the maximum carpet area is 30 square meters, and for LIG, it's 60 square meters.
• First-time homebuyers: Typically, the applicant or their family should not own a pucca (permanent) house in India to qualify for affordable housing loan eligibility.

Affordable housing loan interest rates

As of 2025, affordable housing interest rates in India have become more competitive due to regulatory changes and increased competition among lenders. The Reserve Bank of India's recent reduction in the repo rate by 25 basis points to 6.25% has further influenced lending rates. (Source: Reuters)

Consequently, affordable housing loan interest rates now range between 6.5% to 8%, depending on the lender and applicant's credit profile.

Government initiatives promoting affordable housing

The Indian government has launched several schemes to promote affordable housing finance:

Pradhan Mantri Awas Yojana (PMAY)

Launched in 2015, PMAY aims to provide housing for all by 2028. It offers interest subsidies up to 6.5% for eligible beneficiaries, significantly reducing the cost of borrowing.

Zero Poverty Program

Initiated in Uttar Pradesh, this program allocates funds to ensure access to basic necessities, including housing, aiming to elevate the annual income of poor families to at least INR 1.5 lakh.

Mukhyamantri Seheri Awas Yojna

Launched by the Haryana government in 2024, this scheme provides financial assistance of INR 1.5 lakh to urban poor families with an annual income up to INR 1.8 lakh for constructing pucca houses.

Benefits of affordable housing loans

• Enhanced affordability: Subsidized interest rates and extended tenures make Home Loans more affordable for low and middle-income groups.
• Economic growth: Increased homeownership stimulates demand in the real estate sector, leading to job creation and economic development.
• Social upliftment: Access to affordable housing improves living standards, health outcomes, and educational opportunities for families.

Recent developments in affordable housing finance

The affordable housing sector in India has witnessed significant developments:

• Tax relief measures: The government's 2025-26 budget introduced income tax cuts to boost middle-class spending, positively impacting the real estate sector. (Source: Reuters)
• Expansion of housing finance companies: Firms like Mahindra & Mahindra Financial Services are expanding their mortgage loan businesses, offering various housing finance options, including participation in government affordable housing loan schemes. (Source: Reuters)
• Rising home prices: Home prices in major cities are expected to rise by 6.5% in 2025, driven by demand from affluent buyers. (Source: Reuters)

How to apply for an affordable housing loan

To apply for a Home Loan for affordable housing:

• Determine eligibility: Assess your income, property details, and other criteria against the lender's requirements.
• Choose a lender: Research various institutions offering affordable housing finance and compare their terms.
• Prepare documentation: Gather necessary documents such as identity proof, income proof, property papers, and any other documents specified by the lender.
• Submit application: Fill out the loan application form and submit it along with the required documents.
• Loan processing and approval: The lender will evaluate your application, conduct verifications, and, upon approval, disburse the loan amount.

Also Read: How Loan-to-Value Shapes Your Home Buying Experience

The Bottom Line

Affordable housing loans have transformed the landscape of homeownership in India, making it attainable for a broader segment of the population. With supportive government initiatives, competitive interest rates, and expanding housing finance options, now is an opportune time to explore affordable housing finance.

If you want affordable housing, apply for a Home Loan to make your dream home a reality. With such low-interest financing options, a Home Loan can help you buy, build, or renovate a house without excessive financial strain.

Moreover, if you want to calculate your monthly EMIs accurately without putting in a lot of mental labour, use an online EMI calculator.

FAQs

Q.1. What do I need to know before applying for a Home Loan?

A. Before you apply for a Home Loan, gauge your income, monthly expenses, assets, securities and liabilities. Lenders will assess this information to determine your eligibility for the loan.

Q.2. What is an affordable housing loan?

A. An affordable housing loan is a credit facility designed to help lower and middle-income individuals and families purchase or build a home. It typically comes with the advantages of lower interest rates, extended loan tenures, and potentially lower down payment requirements.

Q.3. What are the RBI guidelines for affordable housing?

A. According to the revised RBI guidelines, the cost of an affordable house should not exceed INR 65 lakh in metro cities like Delhi, Mumbai, and Bangalore, and INR 40 lakh in non-metro cities.

Q.4. What is the concept of affordable housing?

A. While different countries define affordable housing differently, the core concept remains the same — meeting the housing needs of lower and middle-income households.

Q.5. What is the limit of affordable housing?

A. Currently, there is a monetary cap for affordable housing of INR 45 lakh and the real estate sector is pressing to push the cap to INR 75-100 lakh, considering rising construction costs and inflation.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.