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Buyer's Guide

Everything You Need To Know To Make an Investment

Home Loan FAQs

Home Loan FAQs

A. An Introduction to Home loans

  1. What is a Home loan?

Home loan is the sum of money a bank or financial institution lends you to help you Buy your dream home.

By taking a home loan from a bank or a housing finance company you pledge your home as the lender’s security for repayment of your loan. The bank or financial institution will hold the title or deed to the property till the loan has been paid back with the interest due for it.

Home loans are generally taken for long tenures as the loan amount is usually a huge sum. A home loan can be taken anywhere between 5 and 30 years. The amount of loan one is eligible for is dependent on the individual’s credit profile.

  1. What is a down payment? What are the ways in which I can source my down payment?

Generally as a thumb rule, banks or financial institutions will be funding less then 30Lacs for 90% of the cost of the property and 10% of the money is expected to be paid as a down payment for the loan And Banks or financial institutions will be funding greater then 30Lacs for 80% of the cost of the property and 20% of the money is expected to be paid as a down payment for the loan.

Opting for a personal loan if you can afford that cost as well, pledging your investments, getting loan against your insurance policy etc. are some ways to liquidate your assets and pay your down payment.

  1. What are the steps involved in taking a loan?

There are three steps to a home loan application –

  • Application – You submit a completed application form with all the essential documents.
  • Sanction – You get an approval for a specific loan amount based on the value of your property and repayment capabilities.
  • Disbursement – The loan amount is transferred to the applicant.
  1. Are there any specific loans available for NRIs?

Yes, there are specific loans that are tailored for the requirements of NRIs who wish to build or buy a home in India.

B. Loan eligibility and Cost

1. Who is eligible for a home loan?

Indians with a regular source of income, which includes salaried individuals, self-employed professionals, self-employed business people, NRI individuals and existing property owners who can pledge it as security for the loan, are all eligible for a home loan. The individual applying for the loan should be above 21 years of age, when the loan period begins and should be less than 65 years when the loan period closes.

  1. What are the other factors, which are relevant for home loan eligibility?
  • Purpose of the loan – (purchase of property, improvement, purchase of land)
  • Age
  • Income (savings history)
  • Experience & Qualification (stability and continuity of occupation)
  • Employer
  • Existing loans
  • Number of dependents
  • Credit History (Past repayment history)
  • Resident status (The maximum loan that can be sanctioned to a resident Indian have no limits)
  1. What are the factors included in the total loan cost?

The actual cost of the property is included in the total cost calculation of the home loan.

  1. How much loan can I avail?

The amount of loan you can avail depends on factors like salary details, qualifications, employer/business, years of experience, growth prospects, alternate employment prospects and sources of other income, if any. Generally, about 50% of your monthly gross income can be availed as your loan amount.

For self-employed applicants, profit is the benchmark that determines loan value. The longer the time frame for repaying the loan the lower the EMI and this also means you can opt for a larger loan amount. The loan amount you are eligible for is also dependent on other factors like the company you are employed with, the location of your residence and your credit history.

To know how much money you are eligible for, to compare banks and figure who offers you the best loan bargain.

  1. What are the other costs that usually accompany a home loan?

Home loans are usually accompanied by the following extra costs:

  • Processing Charge: It is a fee paid to the lender when you apply for a loan. It could either be a fixed amount not linked to the loan or could also be a percentage of the loan amount.
  • Pre-payment Penalty: 0%
  • Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed within a stipulated period of time after it is processed and sanctioned.
  • Miscellaneous Costs: Some lenders may levy a documentation or consultant charge.

6. Can you detail some of the incentives offered by housing finance institutions?

  • Some lending institutions sanction the loan without requiring you to identify a property as a prerequisite for eligibility
  • Free accident insurance
  • Discounts
  • Waiving of pre-payment penalty
  • Waiving of processing fee
  • Free property insurance
  1. When can I take a home loan?

You can take a home loan before or after identifying the property you want to purchase or when the property is under construction or for purchasing a plot of land for investment or to renovate an existing home.

  1. Can I have a co-applicant for a home loan?

Yes, it is good to have a co-applicant. This can help you increase the loan amount you are eligible for as the income of the co-applicant is also taken into consideration.

  1. What is EMI? How is it calculated?

An equated monthly Installment (EMI) is the amount of money that is paid back to the lender on a monthly basis. It is essentially made up of two parts, the principal amount and the interest on the principal amount equally divided across each month in the loan tenure. The EMI is always paid up to the bank or lender on a fixed date each month until the total amount due is paid up during the tenure.

The EMI facility helps the borrower plan his budget. The EMI is calculated taking into account the loan amount, the time frame for repaying the loan and the interest rate on the borrowed sum.

  1. What are the different types of interest rates available?

Interest rates are quoted either as fixed flat rates or reducing balance rates. In the flat rate method of interest calculation, the outstanding loan amount is never reduced during the entire tenure of the loan even though you make payments monthly.

In the case of reducing balance interest rates the EMI is calculated on the basis of daily, monthly, quarterly or annual rests. A ‘rest’ indicates the time frame in which the bank will recalculate the EMI based on the amount of loan paid back and the frequency of any compounding interest rate. Suppose you have a loan with an annual ‘rest’ then, though you pay a monthly installment, your benefit kicks in only at year end, here the bank gets to benefit. A monthly ‘rest’ will recognize the reduction in the loan amount on a monthly basis, a quarterly rest does it every quarter while a daily ‘rest’ will do it each day. The more closely the rest matches the frequency of your payments, the lower the total interest paid as the total outstanding loan amount is reduced by your monthly payments more frequently.

  1. What are the factors I need to keep in mind while comparing loans from different financial institutions?

A loan applicant needs to keep a few things in mind when comparing loans. The applicant needs to determine the kind of loan and the amount he wants to apply for. He needs to keep in mind the total cost of the loan, which will be paid up by the end of his loan tenure.

The second step is to understand the terms and conditions under which financial institutions are offering the loan. Finally he needs to evaluate, which loan offer is the best bet for him. To gain access to the most interactive tools in helping you compare and evaluate the best deal you can get from any bank of your choice.

Other factors that you should look out for are customer service levels and the average time the bank takes to process a loan.

  1. Can I avail a tax rebate on my home loan?

Section 80C and Section 24B grant income tax rebates to people who have taken home loans.

These tax deductions are capped at 1.5 Lac for the principal repaid and 1.5 Lac for the interest repaid.

  1. What are the loan tenure options?

You have the option of selecting a loan tenure you are comfortable with, ranging from a minimum of 5 years to a maximum of 30 years, provided the term does not extend beyond your reaching 70 years of age or retirement age, whichever is earlier.

  1. Is it a must to apply for insurance cover for my property?

Though it is not a must, considering the huge sum of money spent on purchasing the property it is a sound practice to have it insured to protect you against any danger that might befall on the property. Usually property insurance comes as an incentive with your home loans after a certain period. Insurance rates are usually very affordable.

  1. What are the things I need to keep in mind before I select a property?

You need to check if the property is approved by the government and if it is registered. You need to evaluate if the location of the property is conducive to your family’s needs. Schools, hospitals, shops, transportation facilities, the reputation of the builder, availability and consistency in the supply of power and water, security, parking facilities, location in a residential area etc. are need to check out.

D. Credit history

  1. What is credit history? How does a financial institution check on my credit history?

A credit history is basically a record of your past repayments of loans and credit card bills. Also, there is a central bank of data available with the Credit Bureau of India Limited (CIBIL), where data from all the banks on existing loans and their repayment patterns of their customers are accumulated. Before approving your loan a financial institution always checks with CIBIL on your loan repayment track record.

  1. Is the repayment track record of my previous loans considered in calculating my eligibility for a new loan?

It definitely has its benefits! A good repayment track record could fetch you a higher loan amount at a lower interest rate as it is standing proof for your money management capabilities. In case of a bad repayment record you will be charged high interest rates and you will find it difficult to obtain a loan.

  1. If my loan application is rejected, does that reflect on my record?

Every time you apply for a loan to a financial institution, your credit report with CIBIL is checked and the inquiry appears on the record. Many such inquiries will adversely affect the interest rates you are charged and will make your borrowing options limited as it suggests you are likely to be facing a financial crunch.

E. Documentation

1. How do I apply for a loan?

You should evaluate your options by presenting your requirements with different banks. Then get your documents ready for the Bank to collect it at your doorstep and begin processing your loan.

  1. Can you provide me with a document checklist, so that I can be ready when the Bank comes to collect it from my residence?

Make sure you check with your Bank or NBFC to figure out which of the following documents you need to submit, as the requirements differ from bank to bank.

Documents Required for Salaried Person:

  1. Filled Application form with Photo and signature (Applicant & Co Applicant)
  1. Salary Slip of latest 3 Months (Applicant.) Salary Slip of latest 3 Months (Co Applicant) if working
  1. Last 2 years Form-16. With ITR (Applicant & Co Applicant)
  1. Appointment letter of Latest company (Applicant)
  1. Last 6 months bank statement of all operative accounts including salary account (Applicant & Co Applicant)
  1. Date of Birth and Id proof- PAN CARD/ PASSPORT/Driving License (any one) (Applicant and Co-applicant)
  1. Residence Proof- Telephone/ Electricity bill (any one)
  1. Proof of Other Loans (Sanction Letter / Repayment Track Record Last 12 months) If any
  1. Qualification Proof in case one is professionally qualified
  1. Processing Fee cheque from your salary account
  1. Photocopy of property paper with complete chain link
  1. 2 of your Visiting Cards.

Note: All documents including the photograph of each applicant and co-applicant should be self attested.

Documents Required for Self Employed Person:

  1. Age, ID proof of applicant and Co applicant (Passport, Pan Card)
  2. Current Address proof of applicant and Co applicant (Electricity bill, telephone bill, Passport any other utility bill)
  3. Office Address Proof
  4. Last 6 months bank statement of current a/c and saving a/c
  5. ITR of last 3 years with supplementary documents (attested by C.A.)
  6. Loan sanctioned if any (Sanction Letter)
  7. Highest Qualifications Proof
  8. Photocopies of Property Papers
  9. 1 photo each of the applicant and the co applicant
  10. Processing Fees: Rs. <……>% of the loan amount. (also add service tax) in favor of

Other Documents (In case of a Pvt. Ltd. Company)

  1. Company Business profile and MOA/AOA
  2. ITR of the company with audit report and schedules
  3. Office address proof
  4. 6 month bank statement of current a\c.
  5. Other Returns like sales tax, service tax (whichever is applicable) for last 1 year
  6. Share holding pattern (attested copy).
  7. O/D,C/C a/c bank statement for last 6 months (if applicable)

Note: If property is in joint name then we require the co-applicant’s documents which are mentioned above.

D. Property Documents

If a flat is purchased from the builder, you need the following supporting documents to submit to the bank.

  1. Original Seal & Signed copy of your Builder Buyer’s Agreement
  1. All original Payments Receipts
  1. Allotments Letter of the Flat
  1. Latest Demand
  • What are the documents that need to submit for disbursement of a home improvement loan?
  1. Title deeds for the past of 13 years
  1. Encumbrance certificate for the past 13 years ‘Khata’ certificate
  1. Most recent tax receipts for the property
  1. Approved plan
  1. License for the extension
  2. Cost estimate from a qualified engineer
  1. Cost estimate from the architect
  • When does a property become ‘pre-approved’?

When a bank has already verified the title documents of the property of a particular builder, it files them in the bank records and labels them “pre-approved”. This means that when a buyer approaches the bank for purchasing a house or apartment in that property, the bank need not do a title verification process all over again.

  • Processing the loan
  • How long will it take for the financial institution to approve my loan?

Loan approvals are at the sole discretion of the financial institution. The time taken to approve a home loan is usually about a week, subject to the fact that all the required documentation has been submitted to the bank.

  1. How soon will I get my loan amount?

Once all necessary documents are submitted and the paperwork completed, including submission of the post dated cheques (PDC) or signed ECS (Electronic Clearing System) form, the financial institution will usually disburse your loan within seven working days of the loan approval.

  1. Does the financial institution verify authenticity of the submitted documents and the details provided in my application?

Yes, the financial institution will verify all submitted documents and the details provided in your loan application. Your application could be declined in case of any discrepancies.

  • Repaying the loan
  • How do I repay my loan?

Loans are paid up by deduction at source from your salary or by issuing standing instructions to your lender for ECS (Electronic Clearing System) where the monthly payment (EMI) will get automatically deducted every month from your bank account.

  1. Can I prematurely close my loan?

You can choose to prematurely close your loan and no penalty is levied for this.

  1. Does it matter if I am late in repayment?

It does matter! You will be levied a fee for late payment and the terms for this will be agreed upon when the agreement is signed with your banker.

  1. What if I default on my loan?

All your loan transactions are recorded in a central data bank which is collected at the Credit Information Bureau of India Ltd. (CIBIL). Defaulting on a loan will show up poorly on your credit history and could pose a problem when applying for a loan in the future. Further you will lose your title to the property against which the loan has been secured.

  1. Does it affect my co-applicant if I default on a loan?

Co-applicants are also held responsible for repaying the loan. Defaulting on your loan will affect their credit rating and title as well.

Documents Required For Home Loans

Documents Required for Salaried Person:

  1. Filled Application form with Photo and signature (Applicant & Co Applicant)
  1. Salary Slip of latest 3 Months (Applicant.) Salary Slip of latest 3 Months (Co Applicant) if working
  1. Last 2 years Form-16. With ITR (Applicant & Co Applicant)
  1. Appointment letter of Latest company (Applicant)
  1. Last 6 months bank statement of all operative accounts including salary account (Applicant & Co Applicant)
  1. Date of Birth and Id proof- PAN CARD/ PASSPORT/Driving License (any one) (Applicant and Co-applicant)
  1. Residence Proof- Telephone/ Electricity bill (any one)
  1. Proof of Other Loans (Sanction Letter / Repayment Track Record Last 12 months) If any
  1. Qualification Proof in case one is professionally qualified
  1. Processing Fee cheque from your salary account
  1. Photocopy of property paper with complete chain link
  1. 2 of your Visiting Cards.

Note: All documents including the photograph of each applicant and co-applicant should be self attested.

 

Documents Required for Self Employed Person:

  1. Age, ID proof of applicant and Co applicant (Passport, Pan Card)
  2. Current Address proof of applicant and Co applicant (Electricity bill, telephone bill, Passport any other utility bill)
  3. Office Address Proof
  4. Last 6 months bank statement of current a/c and saving a/c
  5. ITR of last 3 years with supplementary documents (attested by C.A.)
  6. Loan sanctioned if any (Sanction Letter)
  7. Highest Qualifications Proof
  8. Photocopies of Property Papers
  9. 1 photo each of the applicant and the co applicant
  10. Processing Fees: Rs. <……>% of the loan amount. (also add service tax) in favor of

Other Documents (In case of a Pvt. Ltd. Company)

  1. Company Business profile and MOA/AOA
  2. ITR of the company with audit report and schedules
  3. Office address proof
  4. 6 month bank statement of current a\c.
  5. Other Returns like sales tax, service tax (whichever is applicable) for last 1 year
  6. Share holding pattern (attested copy).
  7. O/D,C/C a/c bank statement for last 6 months (if applicable)

Note: If property is in joint name then we require the co-applicant’s documents which are mentioned above.

Tax Benefit Information

Availing a home loan comes with multiple benefits. Home loans let you achieve your goal of buying a new home and make you eligible for tax benefits. These tax benefits can contribute towards your EMI flow and savings. Take a look at the following points and calculate your tax benefits based on your loan amount.

The home loan borrower enjoys Tax Benefits on both Interest paid & the Principal re-paid. Under Section 24(d) of Income Tax, the deduction of interest payable on the home loan is up to a maximum of Rs. 1,50,000.

Under Section 80(c) of Income Tax, Principal amount for the repayment of loan along with other savings & investments is eligible for tax deduction up to a maximum limit of Rs. 1,50,000.