Know Home Loans Housing Loan Finance In India

Saving up for your dream home? Home Loans can make this dream a reality. Below are the FAQ’s before going in for a Home Loan.

What is a Home Loan?

Home Loan or funding in the project to the buyer is one of the most important factors for the sales of the property. 95% of the properties are bought on home loans, with the increase of all white transactions in Indian market some of the buyers are forced to take home loan as they don’t have sufficient money to pay the builder. Normally the loan provided in case of a residential property is maximum up to 75% of the property value and in case of commercial loan property it is around 60% of the property value. NRI’s are not eligible for commercial loans. The banks never finance 100% of the property value as they want to keep margin money as a security in case there is a default from the buyer of the property or if the market crashes and the existing vale of the property goes down.

What are the different types?

Through a Home Loan, one can purchase or construct a new house/ apartment; a Home Improvement loan is offered to those who wish to renovate their houses; a Home Extension loan is for consumers planning to add extra space to their house such as a new room or a new wing; a Loan against Property is offered for a individuals seeking loan against an already existing property; a Land Purchase Loan is provided to consumers buying land as an investment, maybe to build a house later on and a Balance transfer loan is basically a home loan to pay off an existing housing loan for nri as this enables you to avail a loan with a lower interest rate.

What is the typical repayment duration?

Home loans are given for a minimum period of 1 year and maximum period of 30 years; the tenure of loan depends upon the age of the individual. The maximum age for taking a loan is 65 years i.e. if someone is 55 years old then he or she can take a loan with tenure of maximum 10 years. If somebody wants to increase the tenure he has to make a co-applicant (Family member) with a younger age.

What are the types of interest rates?

The Rate of Interest on housing loan for nri depend on repo rate, reverse repo rate & CRR (Cash Reserve Ratio), all the three are governed by RBI, changes in any of the three leads to the change in PLR (Prime Lending Rate) which leads to the change in rate of interest. PLR is normally reset in every three months.

Rate of interest are of three types –

Fixed rate of Interest - which means that the rate of interest is fixed for entire tenure and is not affected by the change in PLR.

Floating Rate of Interest – which means the rates of interest varies with the market condition and changes with the change in PLR.

Fix Loty(Partly fixed & Partly Floating) Rate of Interest: - which means that the rate of interest is fixed initially for the first 2 to 3 years and then gets converted to floating rate of interest.

What are the tax benefits on Home Loan?

There are certain tax benefits available on your Home Loan. The Interest paid on housing loan for nri is eligible for an exemption for income tax purpose, the maximum exemption allowed in a financial year is 150,000/-, however no exemption is

allowed to the person in case of a under construction property. The buyer can claim the exemption after the completion of the property equally in the next 5 years after completion. For example the possession of the property happens in 3 years and you took the loan in 1st year and paid interest of 25,000 in the first year, 35000 in the second year and 40,000 in the third year, the total interest paid by you in three years before completion will be 100,000. Now you can claim it equally in the next five years i.e. 20,000 each, in the fourth year if you pay an interest of 60,000 then you can claim an exemption of 80,000 (60,000+20000), the maximum exemption cannot exceed Rs.150,000 in a financial year.

NRI’s don’t get any income tax benefit for the interest paid on home loan.

Process of Sanctioning and disbursal of Home Loan

Sanctioning of Loan: - A buyer depending upon his classification i.e. salaried, self-employed, NRI needs to deposit all the documents required with the respective bank from which he needs to take the loan. Bank does its legal formalities and takes around 7-10 working days for the sanctioning of the loan if the buyer is found eligible; if the loan is not sanctioned then all the documents are returned to the buyer.

Disbursement of Loan: - Bank normally takes around 7-10 working days for the disbursal of the loan once it is sanctioned. The following documents are required by the bank for disbursing the loan: -

Original documents of the property – Builder Buyer Agreement, Allotment Letter & original payment receipts.

Lien mark Letter: - It is a request letter by the buyer of the property to the builder of the property allowing taking a loan.

Permission to Mortgage: - This document is required by the bank from the builder that the builder has no objection in allowing the buyer to take a loan on the said property.

No Objection Certificate (NOC): - In many cases a builder takes a loan for a bank for the complete project i.e. the entire project is mortgaged with some bank by the builder. In this case if a buyer wants a loan then a NOC is required from the first bank by the second bank.

Indemnity Bond: - This is normally required by the bank in case of down payment cases, it says that the bank will not be responsible if something goes wrong with the project in future for example if the project is scrapped then the bank has full right to recover the loan from the buyer of the property.

Tripartite Agreement: - It’s an agreement made between the builder, bank & the buyer mentioning the terms and condition of the purchase.

Documents required by the Buyer of the property For Approval of housing loan for nri (NRI’s)

Only NRI (Non Resident Indian), PIO (Person of Indian origin) and OCI (Overseas Citizen of India) can take home loan in India

Employment Contract

Latest work permit

Visa stamped on passport

Salary slips for past 6 months

Overseas Bank Statement for past 6 months

NRE/NRO Bank Statement for past 6 months

ID card by employer

Official Email Id

Credit Bureau Report

Company Profile

Continuous Discharge Certificate (in Merchant Navy cases)

Power of Attorney as per Bank’s format, it’s mandatory for a NRI’s to give his Power of Attorney to any of its family member or friends for availing housing loan for nri.

Important Points Relating to home loan

Co-applicants can be only in blood relation, the idea is clubbing the income of the applicant and co-applicant so as to facilitate them to get a higher loan amount, however, combinations of father – daughter & brother – sister are not allowed but combination of husband & wife is allowed.

A buyer can avail only three home loans at one time.

NRI’s don’t get any income tax benefit for the interest paid on home loan.

NRI’s, PIO, OCI living in some particular countries are barred from taking housing loan for nri for example NRI/PIO/OCI of Pakistan, Bhutan, Bangladesh, Afghanistan, Sri Lanka etc. are barred from home loans in India

Self-employed NRI’s don’t get home loans for buying Indian Property.

Funding of a project from nationalized banks normally starts at the advanced stage of the project.

{Source: http://www.1stkeys.com/blog/27/know-home-loans-housing-loan-finance-in-india.htm}