Realizing the dream of homeownership in smaller cities is becoming easier as banks open their coffers for loans.

Obtaining a home loan has become somewhat easier in smaller cities, fueling the growth of the home loan sector across the country. Tier-II and Tier-III cities account for 64% of the total loan volume.

India’s smaller cities are witnessing the highest volume of home loans and the most significant home construction activity. This rising demand is driving the growth of the home loan business nationwide—a trend highlighted in a report by SGA PR.

According to the report titled “Housing Finance in India: The Silent Giant of Retail Credit,” approximately 64% of the country’s home loan volume originates from Tier-II and Tier-III cities. Demand for home loans in these cities surged by 81% year-on-year. Factors such as rising incomes, improved infrastructure (including better roads), new employment opportunities, and rapid urbanization are inspiring residents of smaller cities to purchase their own homes.

Buying a home is easier than in metro cities

Housing prices in major cities have risen sharply over the past few years, widening the gap between the income of average families and the cost of homes. In contrast, homes in smaller cities and towns remain relatively affordable. Consequently, these cities are rapidly becoming the preferred choice for first-time homebuyers.

However, banks and financial companies face certain challenges in these regions. Many customers are self-employed or lack the standard income records typical of salaried employees. Assessing the repayment capacity of such customers cannot be done simply by reviewing a salary slip.

Home loans are going digital

The process of obtaining a home loan is also rapidly digitizing. According to the report, approximately 60% of housing finance applications were processed digitally in 2020; by 2024, this figure had risen to around 92%. Customers can now access information about lenders, check their eligibility, submit documents, and initiate the loan process—all from the comfort of their homes. This is helping customers in smaller towns gain access to a wider range of lenders.

Small Towns: The Biggest Strength

India’s home loan market is not merely shifting from branches to apps; human intervention will remain essential alongside digital technology in the future. Human involvement will be particularly crucial for tasks such as property verification, assessing self-employed borrowers, and understanding the local dynamics of smaller town markets. Consequently, India’s smaller towns could emerge as the greatest strength of the home loan business in the coming years.