NEW HOME LOAN

Home Loan:

Home Loan  is a loan provided by a bank or a financial institution to fulfill the dream of owing a house . The loan is used to purchase a new/ resale house, construct a house or to buy an under construction house from a builder. The demand for home loans is very high in India and it is a much sought-after product today. Apart from fulfilling the dream of having owned house, it will also help in wealth creation in the long term. Now with the disposable income of Indians going up drastically when compared to the late 90s , there are many people who avail home loan to add more property to their asset list. Property is proven to be an appreciating asset.This is because the price of the house is expected to rise over a period of time. This makes financing of such a purchase by borrowing a good way to own and create an asset without having all the funds for the purpose.

Significance of Home Loan :

The property prices in India have shot up quite significantly. Owing a house from one’s savings is a a very difficult task . With rising levels of income and loan offers from virtually every banks makes it easy for fulfilling this basic need . The loan is secured in nature and hence the tenure offered for such loans are very high when compared to other loans. The rate of interest is also very low vis a vis other loan products. The uniqueness of home loan is the borrower get benefited from tax savings because interest outflow up to Rs. 150000 during a financial year can bet set off against salary/business income . Similarly principal amount to the extend of Rs 100000 can also be availed as a deduction under Section 80 ( C) of the Indian Income Tax Act , 1961. The ability to repay the loan over a long time period also makes the entire borrowing affordable for the individual because it fits the monthly outgo within his/her income. It is the easiest way to create an asset thereby giving tax benefits as well.

Special Features of home loan :

  • Home loans are secured loan
  • The property financed is mortgaged with the financier
  • Home loans are typically long term loans
  • Repayment option of up to 20 years
  • The interest rates are low
  • Borrower can avail tax benefits
  • Property can be jointly owned
  • Income of family members can be clubbed for higher loan
  • Can be used for investment purpose

Home loans are sanctioned after taking into consideration several factors . Some of the criteria are listed below:

  • The property should have a clear and marketable title
  • The property to be funded should be approved by banks/financial institutions.
  • The applicant should  have a stable source of income.
  • The applicant must be at least 21 years of age.
  • Loan tenor is determined by the retirement age of a person.
  • The maximum tenor of a home loan is 20 years.
  • Previous credit history plays a vital role in sanctioning of loan.
  • Loan eligibility depends on the  net earnings of the applicant and the repayment capacity.
  • Eligibility would also depends on  valuation of the property .
  • Spouse’s income can be added  for enhancing loan eligibility.

Points to remember:
The below mentioned points need to be kept in mind while availing a home loan

  • Funding may vary in the range of 80% to 85% depending on the financier.The balance portion  need to be taken care by the borrower from his savings or other sources.
  • In case of resale property, look for the age of the property since banks fund  for a tenor which they are comfortable after doing a valuation of the property. Most banks consider the  age of  a building as 60 years and the loan should get over within this age of the property.
  • If the property is already approved by a bank/ financial institution, the faster the sanction is.
  • If the borrower is looking to buy  a property which is not approved by a bank, then proper check need to be done to ensure the property has a clear and marketable title.
  • Banks offer both Fixed rates and Varibale rates( Floating rates)
  • Rates  can go up depending on the market conditions. Increase in rate can result in increase in the loan tenor or higher EMI.
  • Fixed rates offered by banks need not be fixed for the entire tenor of the loan.
  • Tax benefits offered to home loan borrowers  may change in future
  • Any volatility in money market conditions which  affects bank’s books will have a cascading effect on your home loan.

HOME LOAN ELIGIBILITY

Following are eligible to apply for an Home Loan:

  • Salaried individuals
  • Self employed professionals/businessmen
  • NRIs

You can include your spouse/parents/children as co-applicant if you require higher eligibility

The amount of Loan sanctioned depends on various factors. Basically it depends on the Income and Loan obligations of the applicant and coapplicant. It will be normally 48 to 60 times of net salary and for selfemployed 4 to 5 times of annual income.

Besides this the cost of the Property being purchased is also a deciding factor. Normally banks fund upto 85% of the property valuefor new properties and upto 75% of repurchase properties. Funding will not go beyond the above limits.

Customer eligible loan amount will be least of the both.

Documentaton:

1.  Personal Documents:

The common list  of documents for both Salaried and Self Employed applicants are as follows:
1. Photograph
2. Identity proof
3. Address proof
4. Qualification proof( applicable only for Self Employed Professionals)

2.  Income Documents :

1. Salaried

  • Latest  3  salary slips
  • Form No. 16  of last 3 years. Alternatively appointment letter or service certificate   indicating employment continuity would suffice.
  • Latest bank statement of  six months where salary credit gets effected.

2. Self Employed

  • Latest 3 years audited financials along with Income Tax Returns , Computation of income and all schedules.
  • Latest 12 months bank statement of main business banking.

3. Property Documents :

1. New Property from Builder ( both underconstruction and completed)

  • Draft Agreement between buyer( borrower) and builder
  • Project approval letter by the bank

2. Resale property

  • Draft agreement between buyer and seller
  • Copy of the registered agreement between the seller and the previous owner /builder along with the index II and Registration Receipt
  • Copy of all previous chain agreements  along with its Index II and Registration Receipt
  • Copy of  Share Certificate if society is formed
  • Copy of Commencement Plan
  • Copy of the Sanction Plan
  • Copy of the completion certificate( Occupancy Certificate)
  • Copy of latest property tax receipt

Please note all original documents need to be submitted to the bank at the time of executing the loan agreement with the bank along with the NOC from builder/ society to mortgage the property.

FAQ’s :
1. Who is eligible for a Home loan?
Any one who has got a stable source of income is eligible to apply  for  a home loan. The income can be salary income, business income, rental income etc.
2. How  much loan  can I get ?
Loan eligibility is calculated on the basis of your income and valuation of property.  Banks/ Financial Institutions take into account  your repayment capacity. Generally loans are given to the extent of 80-85% of the property valuation and the final sanction is subject to the repayment capacity.
3.Can I also include my spouse’s income when calculating my loan eligibility?
Yes, your spouse’s income will also be included while calculating your loan eligibility. Also you can club your parents income, brothers income for loan enhancement. In case of self employed applicants’ , partners income can also be clubbed for loan enhancement.

4. Can I get a home loan on the property which I owe since many years ?
No, you cannot get a home loan on a property which is already owned by you. However if you have purchased a property and within 6 months if you want to avail a home loan , the same would be considered by the bank. After 6 months you would be eligible for only a loan against property, and the interest rates for this loan is generally higher than that on a home loan and the tenor of such loans are shorter. Moreover , you will not be able to avail income tax benefits on it like on a home loan.
5. Can I  avail home loans  from  different banks on a same property?
Yes, you can avail home loans  from different banks( only for sanction purpose) . However ,the property can be  mortgaged to only  one bank and hence you need to finalise one bank for completion of formalities.
6. Am I eligible for more than one home loan against different properties?
Yes, you can avail multiple home loans on different properties. The banks are primarily interested in the repayment capacity of a person  and if they are  comfortable with it you will not have any problem getting home loans for different properties at a time.
7. I have a piece of land. Can I get a loan for construcing a house?

  • Yes, if the land comes under non agricultural use, then you can get a home loan to construct  for residential purpose.
  • You need to provide an architect estimate for the construction plan.
  • Tax benefits for such loan starts only after completion of the house.

8. Can a non-resident Indian (NRI) avail a home loan? 
Yes, non-resident Indians can avail a special NRI home loan to buy a property in India. However it is at the discretion of the bank to sanction such loans. Most of the banks fund NRIs for a shorter tenure and charge a higher interest.
9. How do I ensure the property has got a clear title?
Many banks have their panel lawyers to conduct title search for properties.  Banks sanction loan only after they receive a report that there are no encrumbances and it has got a  clear and marketable title. In many cases  builders get their projects pre-approved by banks. These lenders thoroughly examine the legal documents of the title to that project, the stage of construction, and the builder’s track record to complete a project in time. The time taken to sanction loans from approved projects are comparatively lower.
10. What does Pre-EMI mean? 
Many a times  a borrower will opt for an under construction property and hence the bank make disbursements in parts, depending on the progress in the construction. However till the full loan is disbursed, you pay a simple interest at the rate you have already agreed upon with the lender. This is known as Pre-EMI. Once the full disbursement is made, you start paying your actual EMI from the next month.
11. What is  the difference between a fixed rate and floating rate  home loan?
In fixed rate home loan, the interest rate remains the same throughout the tenure of your home loan.
In floating rate home loan, the interest rate charged by a lender keeps changing with respect to the movements in Prime lending rates ( PLRs) of bank. Whenever there is a hike in the PLR, floating rate customers’  EMI would go up. Alternatively the tenor of the loan goes up .
12. What are the tax benefits that I can avail of by repaying a home loan?
You will be eligible to claim tax benefits on both the interest and principal components of your repayment during that financial year.

  • Under Section 24, you can claim up to Rs. 1,50,000 or the actual interest repaid, whichever is lower. (Also note that you can claim this interest only when you are in possession of the house.)
  • Under Section 80C, you can claim the principal up to the maximum amount of Rs. 1,00,000. But this is subject to the maximum level of Rs 1,00,000 across all 80C investments.
  • To avail the above tax benefits, you will need to produce a statement by your lender, showing the repayment of the loan for the year as well as the interest and principal components of the same.

13. Can I get  tax rebates on two housing loans on two different properties. ?
Yes, you can get tax benefits under Section 80C and Section 24 on both housing loans. However, the total amount on which you can get tax benefits will be Rs 1,00,000 and Rs 150,000 respectively across both loans.
14. Will the EMI amount or the tenure of the loan changes during the loan period?
Yes, the EMI amount or the tenure of the loan could get changed if one has availed a floating rate of interest.
15. Do I need to get  property insurance while availing a home loan?
No, it is not mandatory to buy property insurance when you are availing a home loan.  But it is in the interest of the borrower to insure property as it  eliminate risk of loss of property

16. Can I sell the house even when the home loan is not paid off?
Yes, you can sell the house even when the home loan is active. However you  need to inform the lender and get  a consent  from them to sell. The title deeds shall be released to the borrower once all the dues to the bank are fully paid off.

The following is the grid which includes all major banks and non banking financial institutions.

Rate of Interest

10.4% – 12.50% floating

Processing fees

0.25% – 1%

Pre Closure charges

0% – 2%

Tenure

1 year – 20 years

* No guarantor required

* Some Banks will also provide attractive fixed rates for a few years.

* Pre Payment charges are nil for almost all banks but some charge 2% in case of balance transfer.