How to apply home loans in India
1. When can I apply for a home loan?
You can apply anytime after you have decided to acquire or construct a property, even if the property has not been selected or the construction has not commenced. Besides,you can also avail of the loan facility even if you want to renovate or extend your home.
2. How do I make an application?
You need to approach a Housing Finance Company with the latest salary slips and TDS form 16 of the last to financial years of yourself and your co-applicant, if any. The loan officer after going through the details of the documents will informally tell you the loan amount you are eligible for and the terms of the same. You need to submit the application form along with the necessary documents. On receipt of the application form, the HFC reviews it, asks questions wherever necessary and convey its decision to the applicant. You are advised to visit more than one company since you are likely to get better terms/ larger loan amount if you shop for the best deal.
3. What are the types of home loans available?
There are a variety of home loans available:
a. Home Purchase Loans
b. Existing Home Improvement Loans
c. Home Construction Loans
d. Home Extension Loans
e. Home Conversion Loans
f. Land Purchase Loans
g. Bridge Loans
h. Balance Transfer Loans
i. Refinance Loans
j. Stamp Duty Loans
k. Loans to NRIs
a. Home Purchase Loans:This is the basic home loan for the purchase of a new home.
b. Home Improvement Loans: These loans are given for implementing repair works and renovations in a home that has already been purchased by you.
c. Home Construction Loans:This loan is available for the construction of a new home.
d. Home Extension Loans: This is given for expanding or extending an existing home. For example addition of an extra room etc.
e. Home Conversion Loans: This is available for those who have financed the present home with a home loan and wish to purchase and move to another home for which some extra funds are required. Through a home conversion loan, the existing loan is transferred to the new home including the extra amount required, eliminating the need for pre-payment of the previous loan.
f. Land Purchase Loans : This loan is available for purchase of land for both home construction or investment purposes
g. Bridge Loans: Bridge Loans are designed for people who wish to sell the existing home and purchase another. The bridge loans helps finance the new home, until a buyer is found for the old home.
h. Balance Transfer Loans: Balance transfer loans help you to pay off an existing home loan and avail the option of a loan with a lower rate of interest.
i. Refinance Loans: This loan helps you pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present home.
j. Stamp Duty Loans: This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.
k. Loans to NRIs:This is tailored for the requirements of NRIs who wish to build or buy a home in India. EMI is the Equated Monthly Installment payable till the loan is paid back in full. It consists of a portion of the interest as well as the principal. Some of the incentives offered by lending institutions are :i) Some companies sanction the loan without requiring you to identify property as a pre-requisite for eligibility. ii) Free accident insurance iii) Discounts iv) Waiving of pre-payment penalty v) Waiving of processing fee vi) Free property insurance
4. Can one take a home loan for construction in a city while working in another city?
Yes, you can take loan for construction in one city while working in another city. The HFC's generally service this loan after getting details of the plot legally verified.
5. How much time does it take to get an application processed and the loan getting sanctioned?
It takes around fifteen days for processing of one's application if the documentd are in order.It takes another week for the company to check out the property papers and make the disbursement.
6. What is the maximum amount which I can borrow?
Home loans are generally provided for in the range of 75%-85% of the asset value.The amount of loan varies from institution to institution and it may vary from Rs.1 lakh to Rs.1 crore.
7. How is the maximum amount derived?
The maximum amount which one can borrow is a function of many factors which includes primarily the purpose of the loan. In addition, ones residential status whether resident in India or non-resident will also have a bearing on the maximum amount of loan that one can borrow. Generally, if one is a resident Indian, then he can borrow upto 85% of the cost of the property.
8. How is my loan eligibility determined?
The primary concern of the HFC's in determining the loan eligibility is that you are comfortably able to repay the amount you borrow. Your repayment capacity is determined by taking into consideration factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities, stability and continuity of occupation and savings history.
9. What are the repayment period options?
Repayment period options range generally from 5 to 15 years. A few HFC's also offer a 20-year repayment period, usually at a higher interest rate. As a non-resident, you can avail of a loan only for a maximum period of 7 years.
10. What are Collateral Securities taken by the Housing Finance Companies?
HFCs usually take some additional securities which are called collateral securities. These may be in the form of guarantee from one or two persons, assignment of life insurance policies, deposit of shares, and units or other securities. These additional securities are taken with the hope that if a loan is not paid back recourse may be taken to such securities instead of depending upon the mortgage of the property which is the last resort. Guarantors, when alerted, become very effective persons in prevailing upon the borrowers to fulfil their obligations.
11. What is the range of interest rates offered?
The interest rates may vary from institutions to institutions and generally range from about 12.5% to around 16%.
12. How is the interest calculated on my loan?
Most HFCs follow the yearly reducing-balance method, which accounts for your principal repayments only at the end of their financial year. Thus, you pay interest on the principal that you have already returned to the HFC. The effective interest rate is thus higher than the quoted interest rate by around 0.7%. Banks and some HFCs, in contrast, follow the daily or monthly reducing-balance method, which results in a lower interest burden.
13. What is the basis of interest rates calculation?
The interest on home loans in India is usually calculated either on monthly reducing or yearly reducing balance. Monthly reducing : In this system the principal on which you pay interest reduces every month as you pay your EMI. Annual Reducing : In this system the principal is reduced at the end of the year, thus you continue to pay interest on a certain portion of the principal which you have actually paid back to the lender. Which means the EMI for the monthly reducing system is effectively lesser than the second system of calculating interest.
14. What is the fixed rate of interest?
Some HFC's have fixed rate of interest which means that the interest rates remain unchanged for the entire duration the loan. This basically means that you do not benefit, even if the rates of interest drop in the market.
15.What is a floating rate of interest?
This is the rate of interest that fluctuates according to the market lending rate.
16. What are the fees and charges payable and when are they payable?
Home loans are usually accompanied by the following extra costs:a) Interest Tax : is the tax payable on the interest paid on a home loan and not the principal. This tax is some times included in the interest rate of the loan, or may be charged separately as interest tax. b) Processing Charge : It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. The loan amount received by you can be less than the processing fee. c) Prepayment Penalties: when a loan is paid back before the end of the agreed duration a penalty is charged by some banks/companies, which is usually between 1% and 2% of the amount being pre paid. d) Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned. e) Miscellaneous costs: It is quite possible that some lenders may levy a documentation or consultant charges. f) Registration of mortgage deed.
17. What security do I have to provide for the loan I want to take?
Security for the loan is a first mortgage of the property to be financed, normally by way of deposit of title deeds. The title should be clear and marketable. Some HFCs may also require collateral security like the assignment of life insurance policies, pledge of shares, NSCs, units of mutual funds, bank deposits or other investments
18.What are the documents required at the time of application?
The common documents that the financiers require at the pre-approval stage are: Proof of Age Copy of Bank A/C statements for the last 6 months Copy of latest credit card statement Passport size photograph Signature verification from your banker If you are salaried, you need to produce:Salary and TDS certificate Latest pay slip Letter from employerIf you are self-employed you require:Your business track record Copy of audited financial statements for the last 2 years At the disbursal stage (for property already located), you need to submit:Allotment letters Photocopies of title deedsAgreement to sell Encumbrance certificateFor self-construction:Approved plans and clearance certificates along with estimates
19.What are the tax benefits available?
Tax benefits available are as under : (a) Exemption under Sec 88 of IT Act (Rebate) for repayment of principal upto Rs.10,000/-. (b) Deduction under Sec 24 of IT Act for interest payment on housing loans upto Rs. 75,000/- (in respect of self-occupied house property acquired or constructed with capital borrowed on or after 1.4.99, and acquisition or construction whereof is completed before 1.4.2001. Tax benefits vary in case of rental.
20. Who can be a Co-Applicant?
A. Co-Applicants are the Co-Owners of the property in respect of whom the financial assistance has been sought. Usually joint applications are from : husband-wife, father-son or mother-son.
21. What is the EMI?
EMI or Equated Monthly Installments, refers to the fixed sum of money that you will be paying to the housing finance company every month. The EMI comprises both interest and principal repayment. The size of the EMI depends on the quantum of loan, interest rate applicable and the term of the loan.
22. Can I repay my loan ahead of schedule?
Yes, you can pay your loan ahead of schedule. However, it must be noted that housing finance companies charge a fee for early redemption of loan. This fee can vary between 1-2% of the loan amount being prepaid.
23. Does the property have to be insured?
You will have to ensure that the property is duly and properly insured for fire and other appropriate hazards, as required by the HFC during the period of the loan and will have to produce evidence each year and/or whenever required by the HFC. The HFC will be the beneficiary of the insurance policy. This is an added cost that will add to the final cost of purchase of the property.
24. What is the difference between a Monthly Reducing EMI and a Yearly Reducing EMI
Yearly Reducing EMI-In this system of calculating EMI the principle is reduced at the end of the year,thus you continue to pay interest on a certain p ortion of the principle which you have actually paid back to the lender Thus the EMI for the monthly reducing system is effectively lesser than the Yearly reducing system of calculating the Interest.