How to get a home loan, details of the accompanying paperwork, and repayment terms

Q- From where can I get home loans?
A- There are several Housing Finance Institutes who are currently providing Home Loans.
•SBP
•HDFC LTD
•ICICI BANK LTD
•LIC HOUSING FINANCE
•IDBI BANK
• Axis Bank

Q- What is an EMI?
A- EMI (Equated Monthly Installment) is the amount payable to the lending institution every month, till the loan is paid back in full. It consists of interest due as well as a portion repayable towards the principal.

Q- What is pre-EMI interest?
A- Pending final disbursement, you pay interest on the portion of the loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is payable every month from the date of each isbursement upto the date of commencement of EMI.

Q- What security will I have to provide?
A- The security for the loan is a first mortgage of the property to be financed, normally by way of deposit of title deeds and/or such other collateral security as may be necessary.
Interim security may be additionally required, if the property is under construction. Collateral or interim security could be assignment to Housing Finance Institutes of life insurance policies, the surrender value of which is at least equal to the loan amount, guarantees from sound and solvent guarantors, pledge of shares and such other investments that are acceptable to Housing Finance Institutes
Please do ensure that the title to the property is clear, marketable and free from encumbrance. To elaborate, there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely

Q- Can I have Co-Ownership in the Property?
A- Yes you can have your wife, son/daughter, father/mother as a Co-Borrower. However you are again requested to check with the Financial Institution regarding their permissible ownership grid.

Q- Is Co-Applicant/Local P.O.A mandatory for applying for Home Loans, even if I don't have a Co-Borrower in the property?
A- Certain Financial Institution has made it mandatory for a Co-Applicant to join in the Loan (irrespective of his/her being/not being a Co-Owner in the property, with a Local Power of Attorney Holder in India. This may further be clarified with the Financial Institution.

Q- What is the minimum loan amount?
A- The loan amount depends on your repayment capability and is restricted to a maximum of 85% of the cost of the property or the cost of construction as applicable.Repayment capacity takes into consideration factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities, stability, continuity of occupation and savings history.

Q- What are the loan tenure options?
A- You have the option of selecting a term you are comfortable with, ranging upto 25 years, provided the term does not extend beyond your reaching 65 years of age or retirement age, whichever is earlier.

Q- Is a personal guarantor a must?
A- No, there is no personal guarantor required in most cases. Please check with your home loan counselor with your specific details.

Q- What security/collateral do I have to provide?
A- Typically the security for the loan is a first and exclusive charge of the property to be financed, by way of deposit of title deeds and/or such other collateral security as may be necessary. The title to the property should be clear, marketable and free from any encumbrances.

Q- Do I need to open an account with Bank for availing and/ or servicing the loan?
A- We will encourage you to start a banking relationship with us so that we will be able to offer host of other value added services, which are complementary to the loan, however opening an account with us is not mandatory.

Q- What are the stages involved in taking a loan?
A- There are three main stages -
1. Application - Whereby you submit a completely filled in application with all necessary documents.
2. Sanction - Whereby you get an approval for a specific loan amount based on the value of your property and repayment capabilities.
3. Disbursement - Whereby the loan amount is transferred.

Q- What is a Monthly Reducing balance?
A- An Equated Monthly Installment (EMI) has 2 components, interest and principal. When the interest is calculated on monthly rests, the principal on which the interest is charged goes down every month. This results in a significant saving for the customer over the tenure of the loan

Q- When can I apply for a loan?
A- Your search for the perfect home loan, even before your have found the perfect property. The moment you decide to buy a home, you can put in your application for a home loan. Yes, you can apply for a home loan even before you have selected the property. The loan amount would be sanctioned or approved for you, based on your repayment capability.

Q- When will the loan be disbursed?
A- Your loan will be disbursed on:
Your identification and selection of the property.
Submission of the legal documents.
Legal and technical clearance of the property
Investment of your contribution towards the property

Q- What are the tax benefits of taking a home loan?
A- You can save significant part of your tax liability if you have taken a home loan. Here's how it works:

Interest paid on the home loan
As per Sec 24(b) of the Income Tax Act, 1961 a deduction up to Rs. 150,000 towards the total interest payable on the home loan towards purchase / construction of house property can be claimed while computing the income from house property. (The deduction stands reduced to Rs 30,000 in case of loans taken prior to March 1, 1999). The interest payable for the pre-acquisition or pre-construction period would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed. This deduction is allowed only for self - occupied property.
The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).

Principal repayment of the home loan
As per Section 80C r of the Income Tax Act, 1961 the principal repayment up to Rs. 100,000 on your home loan for purchase or construction of a residential house property will be allowed as a deduction from the gross total income subject to fulfillment of prescribed conditions. Let us consider a hypothetical example.

Your taxable Income: Rs 5,50,000
Principal repayment for the same year: Rs 1,10,000 and Interest payable for the year : Rs 1,60,000
Total Deductions allowed: Rs 2,50,000 (Rs 1,50,000 towards interest payable & Rs 1,00,000 for principal repayment of the loan)
Thus, your taxable income will reduce to Rs 3,00,000 ( Rs 5,50,000 - Rs 2,50,000 ).

Disclaimer: The taxation implications given above are summarized in brief for the general understanding and reference. The tax material is not exhaustive and not intended to be advice on any particular matter. The clients should verify all the facts, law and contents with the text of the prevailing statutes and seek appropriate professional advice before acting on the basis of any information contained herein as the taxation implications may vary depending upon the facts in each case and the tax laws are subject to change from time to time and Address Store is absolved of any liability to any person, in respect of anything done or omitted to be done by any customer by placing reliance upon the contents of this material

Q- Does the Agreement for Sale have to be registered?
A- In many states in India, the Agreement for Sale between the builder and purchaser is required by law to be registered. You are advised, in your own interest to lodge the Agreement for registration within four months of the date of the Agreement at the office of the Sub-Registrar appointed by the State Government, under the Indian Registration Act, 1908

Q- What is a fixed rate of interest?
A- Fixed rate of interest means that the rate of interest remains unchanged for the specified duration of the loan. This means you do not benefit, if rates of interest drop in the market. Similarly you do not lose if rates of interest increase. Under fixed home loan rates also, banks/HFCs retain the right to increase the rate of interest after the prescribed interval. This provision is mentioned in the loan agreement. This is known as reset clause in the fine print.

Q- What is a floating rate?
A- This is the rate of interest that fluctuates according to the market lending rate. This means you stand the risk of paying more than you budgeted for in case the lending rate goes up.

Q- What are the other costs that usually accompany a home loan?

A- Home loans usually attract following extra costs:

 

a) Processing Charge: It's a fee payable to the lender on applying for a loan. It is either a fixed amount or may be a percentage of the loan amount applied.
b) Pre-payment Penalties: When a loan is paid back before the end of the agreed duration, a pre-payment charge is demanded by some banks/companies, which is usually between 1% and 2% of the amount being pre-paid.
c) 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.
d) Miscellaneous Costs: It is quite possible that some lenders may levy documentation or consultant charges.
e) Registration of mortgage deed.

 

Q- What are the repayment period options?
A- Repayment period options range generally from 5 to 20 years.

Q- How do banks decide on the loan amount?
Usually, most companies give home loan up to a maximum of 85% of the cost of the house. Balance 15%, sometimes called 'seed money', has to be provided by the loan applicant upfront. The amount, for which the applicant is eligible, is determined by the age, income, no. of dependents, monthly outgoing and repayment capacity. This varies from case to case.

Q- Are securities required for home loans?
A- In most cases, the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some institutions may ask for additional security such as life insurance policies, FD receipts and share or savings certificates.

Q- Do I require a guarantor to get a home loan?
A- Some institutions ask for 1 or 2 guarantors.

Q- What is the time required for loan application approval?
About 3-15 days.

Q- What is the time required for loan disbursement?
A- On an average, loans are disbursed within 3-15 days after satisfactory and complete documentation and completion of all relevant procedures, including proof that 15% of the cost has been paid upfront to the seller of the property.

Q- What is Reverse Mortgage ?
A- A loan that enables elderly homeowners, to use their home's equity without selling their home or moving from it. A leading institution makes a check out to the homeowners each month. This payment is really a loan against the value of a home.

Q- Should one go for longterm home loan ?
A- The general consensus seems like if you can afford a 15-year fixed mortgage, you should go for it. The interest rate will be lower, you own your home in half the time, and the payments aren't actually that much higher. But what if you just look a 30-year fixed mortgage and had the discipline to pay enough extra each month to equal the 15-year payment ?

Disclaimer : The purpose of this FAQ is to provide the visitors a general understanding on the various issues relating to House Property. The above FAQ been prepared on the basis of advice received and may vary from person to person, based on facts of such case. Reasonable efforts have been taken in collecting, preparing and providing quality information, but we do not warrant or guarantee the accuracy, completeness, adequacy or currency of the information. The contents of the FAQ are subject to changes / amendments made by the CBDT / Finance Ministry.