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Any Indian Resident, Non-resident Indian or Person of Indian Origin can apply for a home loan if they are 21 years of age at the origin of the loan and 65 years or below at loan maturity. Housing Finance Companies (HFCs) usually give home loans for properties located in India to people who are employed or self-employed, with a regular source of income.
On the basis of the principal at the start of every month, the interest is calculated in monthly rest. For annual rest, this is done at the beginning of every year.
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 during the year. The effective interest rate is thus higher than the quoted interest rate by around 0.7 per cent. Banks and some HFCs, in contrast, follow the daily or monthly reducing balance method, which results in a lower interest burden.
Collect a loan application form and confirm the needed documents.
Visit more than one company since you are likely to get better terms / larger loan amount if you shop for the best deal.
At your chosen HFC, submit the duly filled loan application along with the required documents and an application fee (around 1 per cent). They will then interview you on the same. After conducting an appraisal of your application, the HFC will give an in-principle sanction of your loan.
You now have to submit your property documents, which should show a clear title. The HFC will check these and levy an administrative fee (around 1 per cent). It will then disburse the loan, either fully or in installments, directly to the builder / seller of the property.
An individual can apply for a home loan even before the property has been selected. The loan amount is sanctioned based on the ability to repay. This helps in planning a budget while purchasing the house.
Processing and administrative fees, pre-payment charges and delayed payment charges, legal fees, technical fees, stamp duty and registration of mortgage deed are all likely areas of expenditure.
Usually a spouse can be a co-applicant. Other immediate family members are also acceptable to some companies, depending on merits. If both partners are working, it is better to have your spouse as a co-applicant since this will entitle you to a much larger loan.
Loan eligibility is calculated based on the ability to repay. Factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities, stability and continuity of occupation and savings history are taken into consideration.
You can repay the loan in Equated Monthly Installments (EMIs) comprising principal and interest. Repayment by EMIs commences from the month following the month in which you take full disbursement. Till then, you only need to pay the interest on the amount disbursed.
Before final disbursement, you may have to pay interest on the portion of the loan disbursed. This is called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of EMI commencement.
Most HFCs offer the fixed rate as well as the variable rate options to customers.
A rate of interest that is constant throughout the duration of the loan is known as a fixed rate loan.
A floating rate is when the interest rate on the loan changes according to the rates in the market during the period of the loan.
If interest rates are falling, a floating rate loan is a better option. But when interest rates are rising, opt for a fixed rate loan, because you will then know in advance what your EMIs will be.
Yes. You are eligible for certain exemptions on both the principal and interest components of the loan as per the Income Tax Act, 1961. The principal repayment of the loan up to Rs 10,000 is eligible for a rebate @ 20 per cent U/s 88 of the IT Act. The income tax exemption limit for interest paid on housing loans is Rs 75,000 per annum on self-occupied houses. Therefore an interest payment of up to Rs 6,250 per month can be deducted from taxable income in arriving at the total income tax payment of an individual.
Yes, these loans are available from some HFCs. However the loan terms may be different from the usual housing loans.
A guarantor is insisted on by the HFC so as to ensure that the loan is paid back in full and in time. The guarantor is responsible for the repayment of the loan if the borrower is unable to do so.
You could do this, but some HFCs require a pre-payment fee to be paid. Check with your HFC.
Can a loan be switched over if I have obtained it at a high rate of interest, but another HFC is offering a better interest rate ?
The maximum amount is 85% of the cost of the property, including the cost of land, subject to a maximum amount of Rs 1 crore.
Generally, the amount is up to 2.5 times your gross annual income. But your equated monthly installments usually should not exceed 35 per cent of your gross monthly income. Besides this, HFCs will assess your eligibility based on your ability to repay.
Usually in a period of between 5 to 15 years, but definitely before you retire. A few HFCs also offer a 20-year repayment period, usually at a higher interest rate.
A first mortgage of the property to be financed. The title should be clear marketable. Some HFCs may also require collateral security like the assignment of life insurance policies, pledge of shares, NSCs, units or mutual funds, bank deposits or other investments.
Yes. In many Indian states, the agreement between the builder and purchaser has to be registered. This can be done at the office of the sub-registrar appointed by the State government.
The property should be insured against fire and other hazards and the HFC will have to be the beneficiary of the policy.
It will take around 15 days for the processing of your application if your documents are in order. Make an application only if you are eligible for the loan since the HFC will not return the application-processing fee. It will take another week for the company to check out your property papers and make the disbursement.
You will have to make your payments towards the property price up-front before the HFC disburses any installment of the loan.
You must submit the property papers and pay an administrative fee (approximately 1 percent). When the HFC clears these papers, you must take the first disbursement of the loan within a stipulated period (usually three months) and avail of the entire loan within about a year's time.
The loan can be either disbursed in full for outright-purchase / ready properties or in a few installments for under construction properties. The disbursement will be made taking into account the requirement of funds and the progress of construction.
Yes. But the loan will have to be repaid before the sale is effected. Some HFCs allow the transfer of loan to the buyer of the property, depending on his eligibility for loan.
Yes, this is allowed by HFCs.