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 home loan as this enables you to avail a loan with a lower interest rate.
What is the maximum amount that can be borrowed?
The maximum loan one can take is, for salaried employees 5 times of their annual package and for self-employed 5 times of the income tax return filed. If there are any existing loans running for a buyer then the eligibility for the home loan reduces. In a more simpler language for calculating the eligibility the bank assumes that buyer needs 50% of your monthly earning as regular expenses and the reaming 50% can be spent as an EMI for example if your monthly earning is Rs.50,000 then the bank assumes that you require Rs.25,000 for your regular expenses and the reaming Rs.25,000 you can afford to give as a EMI, so the bank will give you loan of a amount and tenure in which the monthly EMI doesn’t exceeds Rs.25,000/-, suppose if you a personal loan for which you may an EMI of Rs.5000/- then the bank will do the calculation according to Rs.20,000.
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 home loans 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.
- Fixofloty(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 other costs will I incur while applying for a Home Loan?
For a Home Loan, the basic registration charges, transfer charges and stamp duty costs are added to the cost of the home. Some other charges include:
- Processing charge or booking fee – paid to the lender when you apply for the loan. It could be fixed or a percentage of the loan amount
- Pre-payment penalty – if the loan is repaid before the agreed duration, some lenders may charge a penalty, up to 2% of the amount pre-paid.
- Miscellaneous costs – there could be a documentation or legal fee, also known as “application fee”
What are the tax benefits on Home Loan?
There are certain tax benefits available on your Home Loan. The Interest paid on home loan 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 Bank For Approval of Home loan for the Project
- Allotment letter
-
Possession Letter/Possession Certificate
- Conveyance Deed
- Sale Deed
- Lease Deed
- Transfer Deed
- General Power of Attorney
- Collaboration Agreement/Development Agreement/Joint Venture Agreement
- Title search report (latest)
- Non-Encumbrance Certificate (latest)
- Approved Lay-out Plan
- Approved Floor Plans
- Payment schedule along with Cost of Units/Rate List/Brochure
- Mortgage Permission (if lease hold property)
- Bank Account number of the Builder on its letterhead.
- Name of authorized signatories of the Builder with Telephone Nos. and specimen signatures duly attested by the Builder’s bankers.
- Copy of Resolution authorizing the signatories to act on behalf of the Builder.
- Company Profile (in case of new builders)
- Verification of Originals of all copies of documents submitted by the Builder.
- Tower wise list of the flats
- Draft of the documents in favor of the customer.
Documents Required By The Buyer of the property For Approval of Home loan (Salaried)
- Photo ID Proof (PAN Card / Passport /Driving license)
- Address proof (Copy of Passport / Consumer/Utility Bill / Employer Letter.)
- Appointment letter Or Current CTC breakup.
- Latest 4 Months Salary Slip.
- Latest Income Tax Return.
- Latest Form 16.
- Updated 6-Months Bank statement (Salary account and all other accounts)
- One passport Size Photograph signed across of each applicant.
- One Cheque for processing fees
- Loan Sanction Letter (if any Loan)
- Chain of property document.
- Investment proof (photocopy)
Documents Required By The Buyer of the property For Approval of Home loan (Self employed)
- Photo ID Proof / DOB Proof (PAN Card / Passport /Driving License)
- Residence Proof (Passport/Driving license/Any Valid Consumer Bill)
- Office Address Proof (Rent or Lease Agreement / Any Consumer Bill)
- Up-to-date 6-Months Saving A/c. Bank statement (Individual)
- Up-to-date Latest 6-Months All Current A/c. Bank Statement company (All Bank a/c's)
- Obligation Details (if any / OD or CC Limits with Section Letter)
- Last 3-Yrs ITR with computation of income, P&L a/c & Balance sheet (with all annexure & schedules) of all applicants & company.
- Provisional ITR of the company & copy of advance tax challans (if any)
- Last 3-Yrs audit report of the Firm/Company.
- Detailed Firm/Company Profile. MOA/AOA of Company (Pvt. Ltd. Firm) Partnership Deed (Partnership Firm)
- Latest Share Holding Patterns By CA. (Pvt. Ltd. Firm)
- List of assets & Investments.
- Loan Track Record (if any Loan) Processing fee Cheque of (0.5%+ service tax).
Documents Required By The Buyer of the property For Approval of Home loan (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 slip 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 a home loan.
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 home loan 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.
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 home loan as this enables you to avail a loan with a lower interest rate.
What is the maximum amount that can be borrowed?
The maximum loan one can take is, for salaried employees 5 times of their annual package and for self-employed 5 times of the income tax return filed. If there are any existing loans running for a buyer then the eligibility for the home loan reduces. In a more simpler language for calculating the eligibility the bank assumes that buyer needs 50% of your monthly earning as regular expenses and the reaming 50% can be spent as an EMI for example if your monthly earning is Rs.50,000 then the bank assumes that you require Rs.25,000 for your regular expenses and the reaming Rs.25,000 you can afford to give as a EMI, so the bank will give you loan of a amount and tenure in which the monthly EMI doesn’t exceeds Rs.25,000/-, suppose if you a personal loan for which you may an EMI of Rs.5000/- then the bank will do the calculation according to Rs.20,000.
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 home loans 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.
- Fixofloty(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 other costs will I incur while applying for a Home Loan?
For a Home Loan, the basic registration charges, transfer charges and stamp duty costs are added to the cost of the home. Some other charges include:
- Processing charge or booking fee – paid to the lender when you apply for the loan. It could be fixed or a percentage of the loan amount
- Pre-payment penalty – if the loan is repaid before the agreed duration, some lenders may charge a penalty, up to 2% of the amount pre-paid.
- Miscellaneous costs – there could be a documentation or legal fee, also known as “application fee”
What are the tax benefits on Home Loan?
There are certain tax benefits available on your Home Loan. The Interest paid on home loan 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 Bank For Approval of Home loan for the Project
- Allotment letter
-
Possession Letter/Possession Certificate
- Conveyance Deed
- Sale Deed
- Lease Deed
- Transfer Deed
- General Power of Attorney
- Collaboration Agreement/Development Agreement/Joint Venture Agreement
- Title search report (latest)
- Non-Encumbrance Certificate (latest)
- Approved Lay-out Plan
- Approved Floor Plans
- Payment schedule along with Cost of Units/Rate List/Brochure
- Mortgage Permission (if lease hold property)
- Bank Account number of the Builder on its letterhead.
- Name of authorized signatories of the Builder with Telephone Nos. and specimen signatures duly attested by the Builder’s bankers.
- Copy of Resolution authorizing the signatories to act on behalf of the Builder.
- Company Profile (in case of new builders)
- Verification of Originals of all copies of documents submitted by the Builder.
- Tower wise list of the flats
- Draft of the documents in favor of the customer.
Documents Required By The Buyer of the property For Approval of Home loan (Salaried)
- Photo ID Proof (PAN Card / Passport /Driving license)
- Address proof (Copy of Passport / Consumer/Utility Bill / Employer Letter.)
- Appointment letter Or Current CTC breakup.
- Latest 4 Months Salary Slip.
- Latest Income Tax Return.
- Latest Form 16.
- Updated 6-Months Bank statement (Salary account and all other accounts)
- One passport Size Photograph signed across of each applicant.
- One Cheque for processing fees
- Loan Sanction Letter (if any Loan)
- Chain of property document.
- Investment proof (photocopy)
Documents Required By The Buyer of the property For Approval of Home loan (Self employed)
- Photo ID Proof / DOB Proof (PAN Card / Passport /Driving License)
- Residence Proof (Passport/Driving license/Any Valid Consumer Bill)
- Office Address Proof (Rent or Lease Agreement / Any Consumer Bill)
- Up-to-date 6-Months Saving A/c. Bank statement (Individual)
- Up-to-date Latest 6-Months All Current A/c. Bank Statement company (All Bank a/c's)
- Obligation Details (if any / OD or CC Limits with Section Letter)
- Last 3-Yrs ITR with computation of income, P&L a/c & Balance sheet (with all annexure & schedules) of all applicants & company.
- Provisional ITR of the company & copy of advance tax challans (if any)
- Last 3-Yrs audit report of the Firm/Company.
- Detailed Firm/Company Profile. MOA/AOA of Company (Pvt. Ltd. Firm) Partnership Deed (Partnership Firm)
- Latest Share Holding Patterns By CA. (Pvt. Ltd. Firm)
- List of assets & Investments.
- Loan Track Record (if any Loan) Processing fee Cheque of (0.5%+ service tax).
Documents Required By The Buyer of the property For Approval of Home loan (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 slip 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 a home loan.
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 home loan 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.
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