Loan School

They say you mustn't trust a man till you know his house. Everyone likes hearing people say Wow, what a beautiful house you have! From cave dwelling, we have evolved and now a house provides far more than just shelter...it also becomes a source of pride. A Housing Loan is used as finance to help you buy or modify that perfect home.

The different Housing Loan products can be classified as:

What is a housing loan?

They say you mustn't trust a man till you know his house. Everyone likes hearing people say "Wow, what a beautiful house you have!" From cave dwelling, we have evolved and now a house provides far more than just shelter...it also becomes a source of pride. A Housing Loan is used as finance to help you buy or modify that perfect home. The different Housing Loan products can be classified as:

Home Loan

Home Extension Loans

Home Improvement Loans

Land Loans

NRI Loans

Home Equity Loans

Short term Bridging Loans

Balance Transfer
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Who can apply?

As long as you want to buy a house in India, you can apply for a Home Loan. You could be a Resident Indian or an NRI; you could want to buy a property now or in the future, but you may still apply for a Home Loan. In case you go with the last option and want to wait before you consider nests, all you have to be sure of is the amount you are willing to spend on this property and the HfIs will let you know your eligibility based on your income which will help you plan out your budget. To find out your eligibility, please use our calculator.
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General Terms and Conditions of a Housing Loan Product

You are allowed to visit zoos on the condition that you do not feed the animals. When you're 18, you are allowed to go for that late night party on the condition that someone drops you home before 12. Every step we take requires condition to be fulfilled. Similarly, these are the general terms & conditions of a Home Loan. For more details, please refer to the individual product.

  • LTV Ratio will not exceed a particular percentage. This percentage differs from HFI to HFI and the components of the value of property are covered in Cost of Property
  • Elastic can be stretched only to a certain extent. The loan tenure also will not go beyond 20 years. However, HFIs do provide for different tenures with different terms and conditions.
  • Your EMI normally does not exceed 50% of your Gross Monthly income.
  • The total monthly payment towards all the loans you have availed of, including the present one, will normally not exceed 50% of your Gross Monthly Income.
  • Your loan eligibility is calculated using LTV, IIR and FOIR norms and the lowest from the three is chosen.
  • Your profile is considered by the HFI before your repayment capacity is judged.
  • If the HFI insists on a personal guarantor, you need to provide one before the disbursement of your loan.
  • Your property should be both technically and legally clear before your loan can get disbursed by the HFI.
  • In case you have bought an under construction property, your loan will be partly disbursed, as per the stages of construction and PEMI needs to be paid on it.
  • The disbursement, in most cases, will be in the name of the builder or the seller or the society or the development authority unless you have made some payment to them.
  • Repayment of the loan is either via Deduction Against Salary, Post Dated Cheques, standing instructions or by cash / DD.
  • You can either choose to repay the loan using the Annual rests or Monthly rests.
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Charges applicable to Housing Loans

The different kinds of charges applicable to Home Loans are listed below:

  • Upfront Fees
  • Rate of Interest
  • Legal and Technical Charges
  • Stamp Duty and Registration Charges
  • Personal Guarantee from Charges
  • Cheque Bounce Charges
  • Delayed Payment Charges
  • Additional Charges
  • Incidental Charges
  • Prepayment Charges
  • PDC Swapping Charges

Legal and technical charges :

Some HFIs charge you for the legal and technical checks undertaken on your documents and property, by lawyers and the technical team of the HFI.

Stamp duty and registration charges:

If you go in for a registered mortgage, these charges incurred by the HFI are passed onto you. Sometimes these charges are rather heavy depending on the State laws in the state from where you purchase your property.

Personal Guarantee form charges:

A piece of paper signed does not have much value unless stamped and validated by the concerned authority. That power of attorney document that you signed with your spouse would not be credible unless signed on a Rs.100 stamp paper. Similarly, HFIs currently charge you a minimum of Rs.100 to get the personal guarantee validated and stamped in the eyes of the law.

PDC swapping charges:

In case you want to exchange the PDCs you gave the HFIs for EMI repayments because of a change in bank accounts, a change in EMI amount, etc., the HFis might charge a flat fee for it.
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Repayment capacity

Your repayment capacity is judged according to your income and your income is considered differently if you are salaried and differently if you are self-employed. Income is used to calculate the amount of money that you will be able to shell out every month towards your loan installment using IIR and FOIR norms. FOIR calculation also takes into account the installments of loans you are currently repaying. The lower between the IIR and FOIR is chosen as your maximum repayment capacity. This is then compared to the loan amount that you have requested for and the loan eligibility as per LTV norms and the lowest of these would be your final loan eligibility.

Salaried

Self-employed
Any extra income on your salary slip (including overtime, etc.) is subtracted Any non-recurring income that affects profit (like sale of asset) is subtracted.
50% of the average variable income over the last 6 months is added Any non-recurring expense that adversely affects profits and was not capitalized (like repairs and maintenance) is added
Any fixed cash or voucher payment that can be proved is added. 50% of the average depreciation of the last two years is added.
HRA that can be received and is not being received is added.  
50% of the average annual income of the last two years is added.  

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Credit Documentation

Would you trust any Tom, Dick or Harry with any matter at all? We all require a certain assurance from people before we trust them; some sort of guarantee that they are trustworthy. For HFIs this guarantee rests in the form of tangible documents. Credit documents are required by all HFIs but vary in kind based on your occupation, employer, qualifications, experience, etc. Credit documents can be classified as

Income documents:

: Money money money...no one can take a chance on the credibility of money matters because at the end of the day, business is business. Almost everything about your loan is based on your income and therefore proof regarding the same is required by the HFI to ensure that no miscommunications occur.

Personal documents:

Previously, tribes and clans had passwords without which you could not enter into the territory; as proof of who he was, King Solomon had a ring as identification. Throughout history, proof of identity has been important as mistaken identity has never been uncommon. To prevent any such shams, HFIs also require a set of documents, for a general Home Loan Product, identifying who you are.

He following list out all the documents needed. {under this line will be placed the document sent separately as an excel sheet}

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Legal Documentation

We might be living in the electronic age but that doesn't take away the importance and monopoly of paper as everything to do with law will always be on paper. To stick by this unwritten rule, there are legal documents that need to be submitted by you to the HFI for mortgaging and these differ from state to state and also depend on your property type. The following form a broad outline of the documents required and a detailed list can be found here.

  • Copy of the offer letter sent by the HFI, accepted by you.
  • Title documents of the property which include
    -Duly registered sale agreement.
    -Receipts of your own contribution.
    -Allotment letter
    -Registration receipt
    -If needed, land documents indicating ownership.
    -Possession letter
    -Lease agreement, if the property is bought from a development authority
    -Mortgage deed if the HFI opts for a registered mortgage.
  • No Objection Certificate from the developer, society or development authority
  • Personal Guarantees, if required.
  • Documents for alternate or additional security.
  • Post dated cheques for the EMIs.

These documents do NOT cover the entire list needed and if it is a resale property, the pertaining agreements, etc. will also need to be attached.

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Tax Benefits

Tax benefits are currently available only under Home Loans and Home Extension loans. The details are given under the respective sections.
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Property Insurance

Some events are not in our hands and are completely unavoidable. Floods, drought and storms uproot trees and destroy the land. Along with this the birds lose their homes and while building a nest may not be that bad and the loss is not that great, the money that you invest in your cosy home might just be washed away. For this reason insuring your property is a good idea as you safeguard the asset against damage or loss.. Property insurance is not compulsory though some HFIs insist on a mortgage redemption life insurance policy and you will therefore get a reduced interest rate. Some of the points that need to be noted regarding property insurance are:

  • You can choose the tenure of your insurance.
  • The premium is charged up front
  • The longer your tenure, the greater the discounts insurance companies offer you.