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Home Loan Process

   

 

What do NBFC / HFCs / banks look for while evaluating a Home loan proposal?


While evaluating a loan proposal, financial institutions are concerned about the repaying capacity of the applicant. Several attributes are considered by lending institutions while making this decision.

Financial stability
Financial stability of the borrower and the co-borrower is an important factor while deciding whether to provide a home loan or not. A housing finance company or bank sets a fixed upper limit for the amount of money that can be sanctioned for a particular type of loan. Depending on the creditworthiness of a customer, the amount of money sanctioned to the party can be increased to a certain degree.
 

Factors determining financial stability of a person are:

Salary package
Education
Job stability
Bank statement of past six months
Salary slip of past six months
Property owned
Fixed deposits
Other loans availed

Age factor Age matters especially when the tenure is quite long. The age of the borrower is a crucial factor and most banks ensure that all the EMIs can be paid by him during the earning phase. So, a person who is 45 years old or above will find it difficult to bag a loan with a long tenure, say, for 20 years.

To lend or not to lend
 
To lend or not to lend is often decided by the applicant’s credit history. Credit History is basically a record of an individual's or a company's past borrowing, repayments of loans and credit card bills including information about late payments & bankruptcy. There is a central database available with the four Credit Bureaus namely, CIBIL, Experion, Equifax and Highmark which collects and maintains records of an individual’s payments pertaining to loans and credit cards. These records are submitted to the bureaus by member banks and credit institutions, on a monthly basis.

Credit score
The Credit Score is a 3 digit numeric summary of a person’s credit history which indicates applicant’s financial & credit health. The Score is derived from the credit history as detailed in the Credit Information Report [CIR] and ranges from 300 to 900 points.

General process
The Credit Score plays a critical role in the loan application process.
After an applicant fills out the application form and hands it over to the lender, the lender first checks the credit score and credit report of the applicant.
If the credit score is low, the lender may not even consider the application further and reject it at that point.
If the credit score is high, the lender will look into the application and consider other details to determine if the applicant is credit-worthy.
The credit score works as a first impression for the lender-the higher is the score, the more is the chance of party’s loan application getting approved.
The decision to lend is solely dependent on the lender and CIBIL does not in any manner decide if the loan/credit card should be sanctioned or not.
The score tells a credit institution how likely an individual is to pay back a loan (should the credit institution choose to sanction his/her loan?) Based on his/her pattern of credit usage and loan repayment behavior. The closer is the score to 900, the more confidence the credit institution / bank will have in that person’s ability to repay the loan and hence, the better chances of one’s application getting approved.

Guarantor
If you are a guarantor for someone who has a poor credit record, it may deter your chances of availing a loan. Thus, analyze a person’s basic financial aptitude before becoming a guarantor for that person. If that person defaults, then it may have a bad impact on your credit score.

Credit Greedy
Do not apply for multiple loans in a short span of time. If banks or lending institutions find out that you have multiple loans to repay, they may consider you as a person who is credit greedy and reach a conclusion that you are in urgent need of money. This may force the loan evaluator to be strict while considering your loan application.

Credit interview
As a part of the credit appraisal process, the applicant may be required to visit the bank branch for a credit interview. If the applicant is found to be financially sound with a good credit history and the property is financially viable and legally clear of hassles, then there could be no hiccups for obtaining a sanction of the loan application.

The Property to be purchased
Every buyer does not conduct a detailed research while purchasing a property. However, the money lending institutions are extremely meticulous in this regard. They conduct due diligence to determine if the title of the property and related documents are in order since these guarantee the legality of a project. If any issues are found, then the loan application is rejected. Certain real estate developers who have defaulted in the past might be on the bank’s radar. This could also be a factor to reject the loan. This check helps lending institutions safeguard their interests while safeguard borrowers from getting tangled in a legal issue.
The property’s age is also an important factor to be considered by lending institutions. If you need a loan to purchase a house in a building that is thirty years old, lending institutions will think twice about this. In certain situations if the loan is sanctioned, then it will not be for the entire amount, only a part of the loan will be approved. This hesitance is due to loss preempted because of the possibility of a structural collapse resulting in financial loss.
 

Importance and Advantages of Ratings and Credit Bureaus for Home Loans?

Credit rating is measurement of credit worthiness of a borrower to fulfil their financial commitment. It is measured by a number which reflects the health of your finances in relation to debts. CIBIL, Experion, Equifax and Highmark are a few of the important Credit Bureaus. For ease of understanding, reference is made to CIBIL TransUnion scores which range from 300-900, 300 being the lowest and 900 highest. Credit ratings are derived by assessment of your credit history and it shows the record your past and present borrowing behavior. Banks and other financial institution consider these scores for lending home loans.

Role and Function of Credit Bureaus
India has various credit bureaus which provide risk measurements for various financial entities and hence help mitigate risk on lending. Credit agencies also help government and other institutions to grade investments thus regulating financial markets. They play major role in estimating efficient risk premiums and bringing transparency to credit markets.

Advantages of credit rating agencies:
They provide detailed information with high accuracy
Gather information and analysis at low cost than done directly by financial institution
Their approach and result have credibility in credit market

How Rating Works?
Credit rating agencies like CIBIL gather your credit information from various institution. This data is organized by them and submitted as reports to financial institutions. The Banks use this collective data to determine approval or rejection of your home loan application.

A Good Credit Score Is Important For Home Loans
 
A good credit score is a crucial eligibility criteria for a successful application of home loan. A good credit score is typically over 750, and has higher chances of loan approval. If your scores are low, the banks may reject your loan application outright. Banks verify detailed credit before approving loans, thus even a minor payment backlog has a potential lasting impact on your credit history. Hence, it is always best to make payments on time and keep your debts in check regularly.
A good credit score benefits from lower rate of interests on a conventional home loans.

Factors Affecting Credit Rating

Following are some major reasons for lower credit rating:

High utilization of credit limit
While your credit card has upper limit for withdrawals and spending, it is unwise to use them frequently, it will increase your payment burdens and lend you a low credit score.

Loans
It is always recommended to have a balance of secured (home loan, auto loan) and unsecured loans (credit card, personal loan). Too much of either is bound to get your application rejected.

Payment history
Defaulting on your bills and EMI will have a guaranteed negative impact on your credit scores, it shows to lenders that you are unable to meet your existing credit obligations.

Many accounts, cards, loans
If you have too many accounts (or cards and loans) in your name, it indicates to the banks that your debt burden has increased, hence your application will get rejected.

Improving Your Credit Score
To improve you scores, you need to keep in check the following:

Pay dues on time
Ensure your payments are on time, be it credit cards, personal loans or utility bills. Pay your debts if any, as early as possible.

Do not exceed credit limits
Make sure you do not exceed your credit limits on your credit cards, this will lead to increase in debt burden for you. Keeping overdraft to minimum is ideal to a good rating.

Review your credit history regularly
Keep track and regularly review your credit score, this be beneficial for any future loans.

New credit in moderation
If you have too many accounts (or cards and loans) in your name, it indicates to the banks that your debt burden has increased, hence your application will get rejected.

Process involved in taking a Home Loan
A home is a great investment especially with the development of Indian real estate. Market is open to supply of studio apartments to villas across cities and town. There are varied projects coming in, taking this in consideration the banks have streamlined their loan processing to the respite of new home buyers. It is now fairly easy to apply for loans, many banks provide utmost assistance to procure your dream home.

A guide to loan process
Once you have zeroed in on the property and the bank, you will come across the following loan processing stages:

Application Form
The loan officer will provide you with the form wherein the details need to be populated. Various proofs in form of ID, Address proof, Age proof, bank statements, proof of income etc. will be required for application. The lending institution will further scrutinize these details to assess your loan eligibility. Some lending institutions also have relationship managers sent to provide doorstep service that assist in form filling and collection.

Loan processing fees and Personal Discussion

Post application, the lending institution will charge you non-refundable loan processing fees. They are required to carry out various loan formalities and to go forward with the loan process.
On payment of processing fees, the lending institution will summon you for a personal discussion. The lending institution carries out this exercise to gauge your repayment capacity and to determine the loan amount.
Verification and investigation

Next step is verification of the details. Lending institutions representatives visit your residence or workplace to verify the credentials provided by you. In this process, the references mentioned in the application will be verified for authenticity.

Credit Appraisal
Once the lending institution is satisfied by validity of your details through their investigations, it will move forward to evaluate your loan repayment capacity. This is the most crucial step in loan processing. The lending institution may accept or reject your application, depending upon how convinced they are about your financial capacity to repay the loan principal with interest. Lending institution may give you conditional or unconditional sanction. In case of conditional sanction, you will have to satisfy various conditions before loan disbursal in order for the loan to be approved.

Offer Letter

When investigation and verification is complete the lending institution drafts an offer letter which contains the following:

Sanctioned amount
The interest rate applicable
Fixed or floating interest rate
Loan tenure
The mode of repayment
Special schemes (if any)

The terms and conditions related to home loan

If you agree to conditions in the offer letter, you will need to submit a signed acceptance copy – duplicate copy of offer letter – to the lending institution. It may levy administrative fees at this stage.

Submission of documents and legal checks
You are required to submit legal documents of the property such as deed title, no objection certificate and other legal document. The lending institution will then conduct internal check to ascertain the validity of title of deed. The submission of title document signifies that the property is collateral to home loan, it will be returned only post full payment of loan amount including principal and interest.

Property Verification
Prior to loan disbursal, the lending institution will conduct a technical verification of the property. In case of under construction property, it will evaluate the location of property, stage of progress and construction quality. In case of ready possession property, the bank will check age, ownership, construction quality, locality and legal clearances.
The sole purpose of this verification is to ascertain that your property has undisputed title and it meets the valuation carried out by the lending institution.

Registration of property documents
On completion of all the above formalities, the lending institution is fully satisfied with the legal and technical valuation of the property, the registration process of the loan commences.
You will need to prepare legal documents in the format approved by bank’s lawyers on stamp paper of required denominations.

Signing of agreements and submitting post-dated cheques
On clearance of agreement and property papers from lending institution’s lawyers, it is time to sign the dotted line. Post signing, you are required to submit post-dated cheques as per terms agreed on the agreement.

Disbursement of loan
After the lending institution is sure that financing the property involves no risk, it will disburse the loan amount as per agreed type of disbursal. The disbursal can be in lump sum or in stages.
The lending institution then issue a cheque in favor of the seller or the builder. Mode of payment is partial in case of under construction property and full in case of ready possession properties. Your EMI begins from the day of disbursement.

Conclusion
The above mention procedure is the standard process followed by most lending institutions, though details such as timeline, rate of interest, etc. vary. The lending institutions have now further simplified the home loan process with instant home loan process available online on their respective websites.
 

10 Questions to ask yourself while opting for a home loan



Introduction

If you are seeking loan for your dream home, there are dozens of home loan products in the market. With such variety of loans and schemes by Banks it can be confusing to decide the best home loan for your needs. In such a case, following are the questions you need answered to arrive at a solution.

What type of home loan best suits my need?
There are many types of home loans available in the market, you need to decide which of them is best suited to your needs. Following are some popular types of home loans.
 

Land Purchase Loans


Land purchase loans are taken to buy a plot of land on which the borrower wishes to build a home. These loan can be availed for residential or investment purposes.
 

Home Purchase Loans


These loans are used to finance purchase of new property or old property. The interest rate on these loans is either fixed or floating.
 

Home Construction Loans


This loan is for those who wish to construct their home rather than buy a ready possession property. The process for this loan approval is different from other home loans. The borrower has to account for land cost as a cost component to calculate the total price of the house. He also has to calculate the rough estimate of cost incurred for construction.
 

Home Expansion/Extension Loans


If you already own a house but wish to expand it, this type of loan is perfect for you. Extension means adding extra space to the current structure of your home. This extension can include extra room, floor or balcony, etc. However, lending institutions vary in categorising such loans, some consider it as part of home improvement loans.
 

Home Improvement loans


These loans are taken for purpose of renovation and repairs. It includes all types of renovations and repairs such as internal and external painting, external repair works, electrical work, waterproofing and construction of underground or overhead water tank etc.

In addition to these, there are other types of loans such as Home Conversion Loans, NRI Home Loans, Balance Transfer Loans, Stamp Duty Loans and Bridged loans.

Which type of interest should I opt for?

Home loan interest is dependent on loan amount, tenure, profile of the borrower and credit score. Two common types of interests are fixed and floating. Fixed interest is determined for the entire tenure of loan. Whereas, floating rates change over time, it is a great option only if you foresee the rates to drop.
Nowadays, lending institutions have a reset clause wherein they change the rate of interest, generally 3-5 years into the loan tenure. Some lending institutions offer hybrid loan rates, it remains fixed for 1-5 years and changes to a floating rate. Additionally, certain lending institutions also allow you to convert type of interest by paying fee or penalty.

How much loan do I qualify for?

Lending institutions sanction loan amount post evaluating your credit score. Your credit score is determined based on your past credit history. Thus, before you take a loan, you need to be sure about how much EMI you are willing to part from your income.

How much EMI can I actually afford?

EMI is the crucial factor that influences your decision to buy a home loan. You need to consider all the parameters to calculate the actual EMI you can afford to pay. Your current salary, regular household expenses, savings, expected income and expenses, and your goals for foreseeable future are some parameters that affect your finances.
It is best not to make hasty decision as your EMI will have long term impact on your financial plans. Ideally, your EMI should not be more than 40-50% of your gross monthly household income.

Will this purchase force me to postpone future plans?

Everyone has some plans for future – personal and financial. You need to make sure the mortgage doesn’t force you to postpone these goals. Purchasing a home has serious effects on your financials, you need to be mindful and trade-off. A home is a great buy only if it does not postpone your future commitments and complements your future plans.

How much will be the down payment?

Indian lending institutions provide home loans to the maximum of 80-85% of value of property. They get the property valuation done from their independent evaluator. The value hence determined is lower than the market value. Some lending institutions also don’t account for Stamp Duty and Registration charges in their loan valuation, thus before taking on loan, you need to confirm the amount of down payment payable by you.
Is there a prepayment penalty?
It might so happen that you get a pay raise and wish to clear your mortgages. The RBI regulation and the NHB regulations have made pre-payment easier by asking the banks to not levy pre-payment penalty on floating rate loans paid from any source and fixed rate loans paid from own source i.e. salary.

Are there any other additional costs?

Interest rate is not the only expense payable on home loan. Home loans also privy to expenses such as processing fees, administrative and service fees. It is strictly advisable to get complete fees and expense related information from lending institutions before you opt for any loan. This saves you any unpleasant surprises in future.

Does my bank allow home loan refinance? 

At times due to various financial reasons it might be difficult to repay your mortgage. It is always good to be prepared and review your options beforehand. You can transfer your loan balance to another lending institution to benefit from lower interest rates or to escape from bad service by existing lender.
However, such changes also warrant additional fees such as processing and/or pre-closure fees.

Are there tax benefits?

With such a huge investment, it is delightful to know that it can reap some tax benefits. Home loans are tax deductible under Indian Income Tax Act. Section 80 C and Section 24 allow for tax deduction on home loan for repayment of principal amount and interest amount paid respectively. Thus lowering your effective cost of borrowing.
 

Everything you need to know about Home Loans



Introduction

What is a home loan?

Investopedia defines home loan as “A loan given by a bank, Mortgage Company or other financial institution for the purchase of a primary or investment residence. In a home mortgage, the borrower transfers the title to the lender on the condition that the title will be transferred back to him once the payment has been made, and other terms of the mortgage have been met.”

What are the types of home loans available?

There are many types of home loans available in the market, you need to decide which of them is best suited to your needs. Following are some popular types of home loans.

Land Purchase Loans
Land purchase loans are taken to buy a plot of land on which the borrower wishes to build a home. These loan can be availed for residential or investment purposes.

Home Purchase Loans
These loans are used to finance purchase of new property or old property. The interest rate on these loans are either fixed or floating.

Home Construction Loans
This loan is for those who wish to construct their home rather than buy a ready possession property. The process for this loan approval is different from other home loans. The borrower has to account for land cost as a cost component to calculate the total price of the house. He also has to calculate the rough estimate of cost incurred for construction.

Home Expansion/Extension Loans
If you already own a house but wish to expand it, this type of loan is perfect for you. Extension means adding extra space to the current structure of your home. This extension can include extra room, floor or balcony, etc. However, lending institutions vary in categorizing such loan, some consider it as part of home improvement loans.

Home Improvement loans
These loans are taken for purpose of renovation and repairs. It includes all types of renovations and repairs such as internal and external painting, external repair works, electrical work, waterproofing and construction of underground or overhead water tank etc. In addition to these, there are other types of loans such as Home Conversion Loans, NRI Home Loans, Balance Transfer Loans, Stamp Duty Loans and Bridged loans.

Can A Home Loan Be Pre-Approved?

Yes. Pre-approved loans is a principle sanction given by lending institutions for a particular loan amount. It requires submission of documents such as Income Tax Returns, bank statements, income proof, ID proof etc. The lending institution carries out various checks and pre-approves your loan. Pre-approved loan is useful when you need resources to book the property at earliest.
However, lending institutions are not obligated to provide the loan. This type of loan is preferred because it has higher negotiation power with the builder/seller and quicker disbursal.

What Is The Tenure Of A Home Loan?

Generally the tenure of the loan is from 10-25 years. Post consideration of interest and amount, the following three factors determine the tenure of loan: Your age, your income capacity and purpose for purchase of property. Hence, tenure varies person to person.

Does Tenure Affect The Loan Cost?

Yes, longer the tenure more interest you will have to pay. It is better to shorten your tenure by marginally increasing your EMI than to stretch EMI across more years.

What Are The Interest Rates Offered For Home Loans?

In a completive banking atmosphere, the interest rate differ across banks and lending institutions. There are two types of interest that lending institutions charge - fixed and floating. Fixed interest is determined for the entire tenure of loan. Whereas, floating rates change over time. Certain lending institutions charge a hybrid of both.

What Is An EMI And Pre-EMI?

Equated Monthly Installments (EMI) is a fixed monthly amount paid by the borrower at each month. They are used to pay-off the principal and interest on the loan.
Pre-EMI refers only to the interest portion on the disbursed loan. The actual EMI is paid only post completion of property. This EMI is applicable in case of under-construction home loan.

What Are: Daily Reducing Loan, Monthly Reducing Loan And Yearly Reducing Loan?

Three methods of EMI calculation used are Daily Reducing, Monthly Reducing and Yearly Reducing. In the annual method EMI the interest is paid monthly but that adjustment toward interest and principal is done only at end of year. For monthly and daily reducing method, the concept is the same but the adjustment is made on monthly and daily basis respectively. Shorter length of time is cheaper, hence daily reducing method is the cheapest method.

What Are The Additional Costs That Usually Accompany A Home Loan?

Interest is not the only charge that lending institutions levy. There are other charges you need to be aware of and get information about the same from your bank. Processing charges, commitment fees, pre-penalty charges are some additional costs that accompany a standard home loan.

Do I Need To Furnish Any Security To Get A Home Loan?

Some banks ask for collateral security against your loan. You can furnish life insurance policies, National Saving Certificate (NSC) or another property as security. In case of home loan, the mortgaged property itself is the collateral.

Do I Need A Guarantor To Get A Home Loan?

Not always. Lending institutions may insist on guarantor in case the borrower travels frequently overseas or has a transferable job. Guarantor is insisted in case of personal loan since no asset is attached to it. Since in case of home loan, the collateral is the property itself there is no compulsory requirement of guarantor. However some cases, the lending institution may insist on guarantor, when sanctioning loan.

I Have Two Housing Loans On Two Different Properties. Can I Get Tax Rebate For Both The Loans?

According to Income Tax Act, if you hold two properties to your name only one can be considered as self-occupied, the other will deemed as let out properties. While loan on both can be an attractive option, it has some tax implications.
The residential property: Since this property is self-occupied, it bears no income. However, the deduction on home loan is limited only to Rs. 2.5 Lakh subject to certain conditions.
Deemed to be let out property: If the second house is let out as rented property, the rental income is taxable however, the interest paid on loan is fully deductible.
Additionally, amount paid on maintenance and repairs, repayment of home loan, and stamp duty is also deductible from income tax subject to provisions in income tax rules.

Closing a home loan

On payment of the loan amount you can close the home loan either at the end of the tenure or before. Some lending institutions may charge penalty for pre-payment. For closure of the home loan, you are required to submit a request form for closure and return of the original documents. The lending institution will process this form once it is satisfied all the outstanding dues have been paid by you. The process takes minimum 7 days, post which lending institution will return your original property documents and issue a closure letter stating that there are no pending dues.

Pros And Cons Of Foreclosure

When a borrower fails to pay the loan amount, the lender (banks or other financial institutions) attempts to recover the loan balance from the borrower by forcing the sale of the asset used as the collateral for the loan, this legal process is called foreclosure.
 

Pros: Selling of the property allows you to pay your debts and also gives you peace of mind. It can also in some circumstances be used to negotiate lower loan obligations from the lender.
Cons: Foreclosure reflects badly on your credit. It goes on your credit report marring your chances of getting any future loans
 

What is home insurance?



Introduction

Home Insurance is a type of property insurance which covers private homes, building and its contents. It provides financial protection in event that your home and its contents are destroyed. If you’re opting for home loan, it is now required by most lenders.
No insurance policy is the same. They range from standard cover to wide range of extension covers to protect from variety of damages. You need to evaluate your requirements and capacity, before you choose a home insurance policy.

What does a home insurance policy cover?

Most insurance companies provide the following kinds of coverage for your home. The standard policy cover includes:

Structure of your home

Your policy pays towards repair and rebuilding expenses due to damage/destruction to the property by fire, hurricane, fire, lightning, explosion / implosion, aircraft damage, riots, strike, subsidence, landslide, flood and inundation, earthquake, impact damage, terrorism.
In addition to these, you will get coverage for burglary and theft for items damaged within the property. It is recommended that you purchase enough coverage to suffice rebuilding your home.
Personal Belongings

Any damage due to above reasons to your domestic electrical and mechanical appliances are also covered under the standard home insurance policy. The coverage also extends to your other personal items and furniture. However, to insure expensive items such as jewellery, art and collectibles to their full value, purchase a special insurance as extension to your home policy.

Personal Accident

Some insurers extend the insurance to personal accident. Such cover includes compensation in case of accidental death or physical disablement post an accident. You need to check with your insurer what type of package they offer for this. Certain insurers also include liability insurance in their coverage to protect you or your family against law suits due to negligence or events that occur on your property.
Apart from these coverage, there are additional covers or extensions that your insurer will be happy to offer. These extensions can be helpful if your home includes high value assets.

How do lending institution valuate the property for insurance?

Lending institutions value your property at estimated replacement cost. This means, in event your property is destroyed due to a calamity, the bank will pay you the amount it takes to replace plus adjusted inflate costs. The replacement cost does not reflect market value or the purchase price of the property. To get a fair valuation, be sure to get your property appraised for estimated replacement cost. Then go onto choose the coverage suited to your requirements.

What is generally the tenure of a home insurance?

Tenure of a home insurance varies across insurance providers. It is generally from 1-15 years, you can select the tenure based on your requirement and convenience. Insurers also offer multi-tenure policies where you get higher discount for increasing your policy term.

What is not covered under home insurance coverage?

There are certain things that are not covered under home insurance coverage. The damages or destruction due to the following is not covered:

Willful destruction of property
Loss and damage caused by war
Deliberate criminal acts
Loss or damage caused by wear and tear
Pollution and contamination, spoilage
Volcanic eruption or other convulsions of nature
Change of temperature resulting in damage of stocks
Consequential effects of the specified perils
 
 
While claiming a home insurance cover, is an FIR necessary?

The requirements for FIR vary as per the company and the type of home loan. FIR is mandatory in case of damage due to vandalism, burglary, riot, terrorism etc. In such cases, you should file a police report with complete list of items damaged/stolen. However, FIR is not necessary in case of natural calamities.
 

What is the eligibility criteria for availing a home loan?



There is a spurt in home loan applications with the conscious efforts being made by banks and other financial companies to rope in a diversified customer base. Certain eligibility criteria need to be fulfilled before applying for a home loan. The factors of the eligibility criteria as well as some other relevant information related to home loans have been provided for the benefit of those looking to apply for a home loan. Eligibility criteria and the factors affecting them
A whole set of eligibility criteria are set out by the lending institutions for the borrowers to fulfil before being competent to apply for a home loan. Capacity for borrowing- The first thing that banks check is whether the loan amount can be repaid over a long period of time, regularly. This judgement is based on the monthly income. Apart from salary, the institutions also consider incentives, regular bonuses or any other stable source of income which will increase the loan amount. The institutions generally want to ensure that the EMI does not exceed 40-45% of the monthly income. The capacity for borrowing can also be gauged depending on the individual’s credit score that is provided by institutions such as CRISIL after analyzing the person’s financial strength.

Age of the borrower- The lending institutions are assured of security when providing home loans to young people. They usually prefer 10-15 years to be left before one approaches retirement age. Age of the borrower co-relates to the eligibility amount.

Existing loans- The loan eligibility of the borrower goes down if there are regular monthly outflows towards the payment of other loans.

Educational Qualification- Educational qualification is a major criteria in deciding the eligibility criteria for a home loan. Proper educational qualification means better career prospects which in turn means higher income. This assures the banking institutions about the capability of the individual to repay the loan amount.

Nature of profession- A borrower belonging to a stable corporate industry, might be more eligible than those working in the fields that are unstable, even though they might have the same income. A self-employed person might also be allowed a less amount in home loan.

Income stability- Professionals who have been with the same company for a long period are eligible for a higher loan amount than those who keep on changing their jobs continuously. Job hoppers pose the risk of not being able to repay the loan in the stipulated time.

Score of credit- Lending institutions conduct a check on the credit repayment habits of the borrower. If there is no default in the credit habits, then the borrower is considered eligible for a home loan easily.

Dependents-the lending institutions take a note of the number of dependents on the borrower. Presence of many dependents usually mean some sort of financial outflow towards them and as such the loan eligibility might go down. However, the banks do consider any investment structure that is oriented towards the dependents well-being, so that in the presence of such structures, there is no risk of a default Before applying for a home loan, the borrower themselves should conduct a thorough check as to whether they fulfil the eligibility criteria and take steps to fulfil them so that they do not have to return back disappointed.

Home loan Disbursement

Once it has been ensured by the lending institution that the property for which the loan is being availed is legally and technically secure, and all the relevant documents and procedures related to the home loan have been fulfilled, the borrower is handed over the cheque. But before the cheque is released by the bank, the borrower has to provide documents which prove that the amount to be paid by the borrower towards the property is cleared as the banks pay only 80-85% of the total cost.
Disbursement in stages- Lending institutions follow different time frames for disbursing the loan amount depending on the kind of property the loan has been taken.

Full disbursement- If the loan has been availed for a ready-to-move in property or resale property, then the disbursement amount is full and final after the submission of the necessary proof and documents. The amount is disbursed either in the name of the builder of the property or the reseller of the property.

Disbursement in part- Part disbursement of the loan amount is done for properties which are under construction. On a partly disbursed amount, the EMI’s do not start immediately as the calculation is done on the total amount and for a given tenure. The principal on the installments and the interest components are broken up after the disbursement of the full loan amount.
The disbursement of the amount, whether in full or in parts ensures that the borrowers will be able to take possession of the property. However the borrower needs to ensure that the payment receipt of the amount paid to the builder or the reseller is submitted to the bank as it becomes a part of the mortgage documents.

Influence of salary on the home loan amount

Lending institutions are more likely to approve home loans for individuals whose monthly income is able to cover mortgage payment as well as insurance covers.
Evaluation of salary for home loans-the salary of the individual is evaluated in order to assure the lending institutions the loan amount will not become a liability. A few considerations are kept in mind while deciding the loan amount based on the salary of the applicant. DTI-In the evaluation of the financial fitness of an applicant based on their salary, the banks make a note of their capacity to pay off additional debts which is referred to as the Debt-to-Income ratio. This involves the calculation of the debt amount that the individual will be able to pay off from their monthly income on the home loan, apart from additional debts of education loan, car loan etc. A low DTI works positively for the home loan applicant.

Repayment capacity- The income statement of the applicant helps the lending institutions evaluate the repayment capacity of the individual. The home loan eligibility is based on the calculation that the borrower will be able to maintain a decent standard of living with their monthly income after paying 40-45% as EMI on the home loan. In order to increase the home loan eligibility, the applicants should refrain from availing the benefits of reimbursement in terms of medical, car insurance, fuel and maintenance etc.
Applicants with a salary that ensures a stable monthly income and timely repayment of debts have better chances at being considered eligible for a home loan. It is necessary for the applicants to remember that lower salary means qualification for a lower home loan amount.

Eligibility for home loan through co-application

While applying for a home loan, a borrower has the option of taking a co-applicant for the home loan. Subject to certain conditions, two or more persons can be the co-applicants on a home loan. A co-applicant is more of a necessity than a legal requirement. Having a co-applicant increases the loan eligibility as the total eligible income increases.
Benefits of co-application-availing a co-applicant for a home loan comes with certain perks for the borrower.
Increased eligibility- Adding a co-applicant enhances the eligibility of the home loan as the income of both the applicants will be considered while approving the home loan. This also assures the lending institutions that there would be no default on the repayment as, even if one of the applicant is unable to pay, the other will bear the expenses for the same.

Benefits of taxation- Co-application for a home loan provides the borrower as well as the co-applicant with taxation benefits. The borrower and the co-applicant (s) get tax rebates individually under Section 24 and Section 80C in respect of the principal and the interest paid. However it is to be remembered that for availing the taxation benefit, the co-applicants have to be co-owners as well.

Other benefits-

In case the property is owned by a woman, jointly or individually, some states levy lower property registration fees. Co-application also reduces the problem of succession issues if the co-owners and co-applicants are married to each other.

While co-application enhances the chances applying for a home loan, it should be remembered that not all people known to the borrower can become co-applicants. Banks have specified the relations who are eligible to be co-applicants and this usually involve blood relations or a married relationship. Co-application also comes with a liability because in case of the death of the principal borrower, the responsibility of repaying the loan falls on the co-applicant.
Whilst individuals are provided with the option of approaching various lending institutions and banks that fulfill their requirements of a home loan, they have to be aware of the eligibility criteria that needs to be met before applying for one.
 

What is Balance Transfer of a Home Loan?



A borrower keeps a hawk eye on the home loan which has a long tenure, as; a part of the monthly income goes off into the payment of the EMI on the loan. It is advisable for the borrower to look for opportunities to reduce the interest rate after paying the monthly installments diligently for a few years. One of the best ways to this is to go for a balance transfer of home loans.

Definition

Home loan balance transfer is a refinancing option wherein the unpaid principal amount of the loan is transferred at a lower rate of interest to another bank. The bank that had extended the original loan amount is given the unpaid amount and the borrower has to pay the EMI to the new bank. If the EMIs have been paid regularly by the borrower then there is usually no problem involved with the balance transfer.

Advantages of balance transfer of home loan

It is usually suggested that the EMIs should always be kept within manageable limits. If the rates of interest are creating a huge dent in the monthly budget of the home, then borrowers have the option of transferring the loan amount to banks that are offering a lower rate of interest. The balance transfer of home loans has a few advantages associated with it.
Lower rate of interest- One major advantage of transfer of home loan is that it provides the borrower with the option of paying a lower rate of interest on the outstanding loan amount

Reduced cost- It helps save on interest cost by reducing the cost of borrowing and hence the cost of ownership of home

Freeing of cash- Encashment on the increased market value of the house can free up significant amount of cash, which can be used to expand one’s personal interests or investment in another property

Transfer with a top up- Sometimes the transfer of the balance on home loan, lets the borrower avail an additional loan on the existing loan facility without having the need to mortgage other properties. This additional loan can be used for expanding business interests or for personal use.

Disadvantages of balance transfer of home loan

As attractive as a transfer of home loan on lower interest to another bank sounds, it is necessary to remember that such a venture comes with its own set of disadvantages.

Foreclosure- It is necessary to evaluate the cost associated with balance transfer of home loans as most banks charge a penalty for foreclosure.

Processing fee- A processing fee is charged by the new lending institution upon transferring the balance loan amount. This might prove to be an additional expense on the part of the borrower. Also the process of applying for refinancing involves the same documentation process as applying for a loan for the first time.

Increased tenure- While reducing the cost of EMI on the new loan, the cost of acquiring the home will increase as reduced EMI would mean a longer tenure.

No tax benefit- Availing another home loan takes away the eligibility of the borrower for tax benefits

Need for enough savings- As most balance transfers are done to avoid a financial crunch it is necessary to have enough savings so as to start pre-paying the loan at the earliest

Trap- Sometimes lending institutions use the lower rate of interests only to trap new clients and then increase the rate to exorbitant amounts leading to a loss for the borrower

Opting for balance transfer of home loan

The option of balance transfer of home loans is available for individuals seeking to cash in on a lower rate of interest being provided by other financial institutions on the existing home loan. An individual borrower should opt for a balance transfer keeping in mind certain factors. High interest rate- A borrower should opt for a balance transfer of home loan if after repeated discussion, the current lender has not reduced the interest rate. Some banks offer low interest rates to new customers but continue with the higher rate for the old customers. In such situations, the borrower should start for looking for options with other banks.

Financial difficulty-sometimes in cases of financial difficulty, a simple restructuring of the EMI can prove to be a lifesaver. It is in such cases that the borrower should look for financing options that provide a lower rate of interest. If the options are feasible to the requirements than it is suggested that the balance transfer should be done at the earliest as a dwindling credit might prove to be a hurdle on borrowing

Reduced EMI- A borrower can go for balance transfer of home loan if there is a desire to simply reduce the EMI

Points to be kept in mind

Transferring the balance of home loan seems to be a good option for those with varied economic requirements, but it is necessary to keep note of certain things before finalizing such a transfer.

Authenticity- The borrower needs to ensure that the reduced interests rates are not just a promotional gimmick and that the lender has proper credentials

Customer support- The borrower should ensure that the new lender has proper reviews in terms of their service quality and customer support. Otherwise the process of transfer becomes onerous

Applicable costs- The borrower should ensure that in the process of transferring a balance of home loan, applicable costs in terms of processing fees, stamp duty etc. are not too high. Otherwise attempting to save money with lower interest rates will prove to be futile

No Objection Certificate (NOC)- It is necessary to get a NOC from the existing lender regarding the transfer of the loan amount which is to be submitted to the new lending institution to facilitate the process of balance transfer

Tenure- If the tenure left for the repayment of the loan amount is not too long, then the borrower should not consider it a necessity to change the lending institutions as the cost of burden in changing banks will not be really worth it

Balance transfer of home loan might seem like an attractive option. But it is necessary for the borrower to weigh all the related aspects of the balance transfer process, lest it leaves a bitter aftertaste in the borrower’s mouth.
 

Documents required & checklist to be considered for buying different types of properties?



Documents form a crucial aspect in purchasing a property. Having the proper property documents makes the process of buying properties easier. It also helps the buyers in the loan application process. The crucial documents required in the process of purchasing property along with the factors to be kept in mind while property hunting are listed below for your convenience.

Builder Purchase

In this type of transaction, the property is directly bought from the builder of the property.

Documents required- a number of documents are required whilst purchasing property from a builder.

Sale Deed- Sale deed is the legal document that acts as evidence regarding the sale and ownership of property; it establishes the buyer’s proof of ownership.

Record of the land- Land records serve as a validation regarding the registration of the land for constructing the property. This should also involve the land use certificate which ensures that the property is located in a residential zone.

Clearance for Construction- A certificate of commencement issued by the town planning authority and engineering department serves to validate that the builder has received the necessary licenses, sanctions and permissions for laying the foundation of the building.

Planning approval- A document that proves that the planning has been approved by the appropriate authority ensures that the flat that has been booked will not have a run in with the authorities.

Khata certificate- Khata certificate is required for registration of new property and transfer of property. It is a necessity for the property owner.

Joint Development Agreement- This is required to ascertain whether the land is in the name of the builder or the owner so that at the time of buying the property, no outside claims can be made on the flat.

No Objection Certificate (NOC)-An NOC issued by the water, electricity and environment department is required to be provided by the builder to the buyer so as to ensure that the property does not run into legal hassles.

Checklist to be kept in mind- A few important points should be kept in mind by the prospective buyer while going for a builder purchase. Agent- A prospective buyer should hire their own agent who is well versed with the real estate market of the area rather than relying on the agent of the builder.

Builder’s reputation- While scrutinising prospective homes, it is necessary for the buyer to look carefully into the reputation of the builder; whether the houses previously constructed have been delivered on time, any legal issues etc.

Legal advice- Before making any sort of transactions with the builder, the prospective buyer should avail proper legal advice to understand the liability and commitments.

Home inspector- While investing in a new property that is being built, it is advisable for the prospective buyer to hire an accredited home inspector.

Resale of a property constructed by a builder with the presence of a society

In simple terms, resale property is not a new construction and it was previously owned by someone else.

Documents required- For the resale of a property that has a functioning society, and constructed by a builder, a few important documents need to be in place before going ahead with the transaction.
Possession certificate- The buyer should ask for a possession certificate that had been issued by the builder to the previous homeowner. This certificate confirms that the building had been properly constructed. The possession certificate is not reissued, it is simply passed on to the next owner.

Payment receipt- The buyer should enquire about the latest payment receipt of the previous owner to ensure that there are no dues left to be paid to the society.

Encumbrance certificate- This certificate shows whether at a given point of time the property had been mortgaged and whether it has been cleared. It helps to know about all the property transactions till date.

No Objection Certificate (NOC)-A NOC is required from the concerned society of the property in favour of the buyer. It also helps establish that the seller does not have any outstanding payments against the property.

Other essential documents- Apart from the aforementioned documents required during the transaction of a resale property, the other regular essential documents of the sale deed, land record, construction clearance certificate, planning approval certificate, khata certificate, joint development agreement are required

Checklist to be kept in mind- As the property being bought is not a fresh one, it is important to keep certain considerations in mind. Marketable title- Once the buyer has zeroed in on a property, it is necessary to ensure that the property has no other claimants. In case of joint ownership of the property, ensure that the sale has been authorized by co-owners.

Enquiry about existing loan- The buyer should enquire about existing loans that have been availed for the property by the previous owner. Unless original documents of the loan are not available, the prospective buyer will not be able to avail a new loan.

Society charge- The buyer should enquire about the amount that needs to be paid to the housing society upon taking ownership of the property.

Ready apartment- If the buyer is going for a resale apartment, then it should be a ready to move in apartment rather than an under-construction one. The buyer should make a thorough inspection of all the amenities available in the apartment and also ensure that all the utility bills have been duly paid.

Transaction of plot sold by developer

With the increasing scarcity of land and skyrocketing of prices, many people are cashing in on buying plots of land which will reap investments in the future, in terms of reselling the land or constructing a home on the land.
Documents required- Many important documents are required while conducting a transaction involving a plot of land. The most important ones are mentioned below:

RTC extract- RTC extract is a document that contains details of the area of the land, names of all the previous owners and present owners, along with the names of the tenants, mortgage charges and certificates regarding the change of ownership. It helps establish the title of the land.

Land deed- The buyer should enquire about the original land deed of the current owner as well as the previous owner.

Other essential documents- Several other essential documents are required at the time of entering a plot transaction. These include the sales agreement, encumbrance certificate, katha certificate, Joint development agreement, power of attorney and all paid tax receipts.
Other points to be kept in mind- Investing in a land for present or future use is a huge risk and as such a few points have to be kept in mind by the prospective buyer.

Litigation- Ensure that the piece of land is not under litigation by the government for its projects and that it is not a forest land or situated in a coastal zone.

Location- Ensure that the plot of land is located in an area that has the amenities of water and electricity supply, is not repeatedly encroached and is not in a socially and politically volatile zone.

Purchase of redeveloped property

Redeveloped properties are usually buildings and other properties that have been restored to a better condition.

Documents required- Settlement of such a property requires proper documents which are to be provided along with the purchase agreement

Agreement of development- This agreement signed between the developer and the society mentions the terms and conditions under which the building is being redeveloped.

Power of Attorney- Before transacting on a redeveloped property, it is necessary to enquire about who has the power of attorney; the society or the developer.

Intimation of Disapproval (IoD)-This document is issued by the concerned civic body before the commencement of the construction of the structure after demolition.

Sanctioned plans- The buyer should ask for a copy of the sanctioned plans either from the society or the developer. This document includes the floor plans, designs left to be executed etc.

Certificate of commencement- A commencement certificate is issued for the developer after the demolition of the existing society to start working on the redevelopment of the society

Occupancy certificate- To ensure the legality of the property, the buyer should ask for the occupancy certificate that has been issued by the civic body after redevelopment.

Checklist to be kept in mind- Moving into a building that has been reconstructed after demolition might prove to be a risky investment on the part of the buyer and as such it is necessary that the buyers keep a few important points in mind.

Agreement- If no agreement has been signed between the society and the developer than it will prove futile to invest in such a property. In such a scenario, the buyer should rather go for a resale property.

Rights- The agreement regarding redevelopment is signed between three parties; the buyer, seller and developer. It is necessary to keep the developer in the loop regarding the existing rights of the current owner (seller) being transferred to the buyer.

Approval- The buyer should enquire from the developer regarding the approved drawings of the project, IOD and commencement certificate. If these documents are not available, then it is advisable to not invest in such a property.
 

Basic Checklist to be considered when buying an Under Construction Project



Investing in an under-construction project involves a lot of risk. Irrespective of whether the property is for self-use or for future investment possibilities, proper research becomes a necessity to ensure that the ventured money does not go to waste.

Points of Consideration

As laypersons investing in an under construction project, it is necessary to be aware of a few details that will help one notice discrepancies involved in the transaction, if any.

Reputation of the builder- The reputation of the builder, in terms of the track record should be looked into so as to ensure that the previous projects undertaken by the builder have been completed on time and all the amenities mentioned in the plan provided. The buyer should also check whether the builder is approved by the banks before applying for a home loan.

Essential Documentation Approvals- Before investing in an under construction project, it is necessary that the buyers pore through the essential documentation approvals, without which the property will be considered illegal. Intimation of Disapproval (IOD)- The IOD is a list of instructions and conditions that the builder has to follow during the various phases of the under-construction project. It is also known as the Building Permit and the conditions to be followed are divided into three stages- Prior to the commencement of construction work- at this stage, the sanction for the building permit is required from the local construction authorities, electricity supply agencies, water supply agency, the sewage department, etc.

During construction- On being provided with the building permit, the local building authority will have to be intimated 7 days prior regarding the commencement of the construction process. A plinth level notice will also have to be submitted describing the work completed up to the plinth level.

Completion of the construction- At this stage, a completion cum occupancy certificate is to be obtained. If lifts are installed in the building, then a lift inspector will have to provide a stamp of approval regarding the same.

The IOD is valid for one year unless revalidated every year thereafter. The building permit ensures
That the building to be constructed meets the objectives of fire safety and resource conservation
That it follows the requirements under the Environment Protection Authority
Commencement Certificate- It is the permission given by the local development authority to start the construction process. In the absence of this document as well as the IOD, the builder cannot lay the foundation stone of the building or draw the boundary line.

Title Search Report (TSR)-A buyer should go for a Title Search Report (TSR), which is to be provided by an independent lawyer; who after inspecting the various documents states whether the property has a clear marketable title. This means an inspection carried out regarding the history of the property and ensuring that it does not have any pending litigations against it.

Tri-party agreement- To avoid fraudulent transactions, a tripartite agreement is a necessity for under construction properties. The tri party agreement involves the buyer, the primary lender and the construction lender. In cases where the builder is not the owner of the land, either the builder or the landowner should be the confirming party in a tri-partite agreement. This agreement extends the credit of construction to the buyer which needs to be paid off once the construction is complete.

Occupancy/Completion Certificate- It is necessary to take assurance from the builder that the buyer will be provided with occupancy certificate upon the completion of the project. A project will be deemed illegal without the occupancy certificate. A builder can apply for the completion and occupancy certificate together or separately and both are issued within three months of the completion of the project.

Sale Deed- The buyer has to ensure that after being provided with the occupancy certificate, the builder will transfer the property to the buyer’s name at the registrar’s office. The sale deed defines the ownership of the apartment.

Layout plan- A buyer should ask for a layout plan from the builder which has been approved by the local development authority. The layout plan is approved only if it is in accordance with the Floor Area Ratio (FAR) or Floor Space Index (FSI). 5% deviation is allowed from the approved layout plan, otherwise there are serious legal implications for under construction projects. It is also advisable to walk away from projects whose layout plans have not been approved because changes in the layout might prove to be waste of investment. Also ensure that the builder does not reserve rights on a portion of the builder’s flat.

Government approvals- Before investing in an under construction property, it is necessary to ensure that all the government approvals are in place. Non-approval by government departments leads to delay in projects. Hiring a good property lawyer will be helpful in understanding all the approvals from the government that are required for an under construction project.

Land mortgage- If the construction of the property is done on a mortgaged land then it is necessary for the buyer to gain a No Objection Certificate (NoC) from the bank that specifies the details of the building and the flat. The NoC ensures that if the builder cannot repay the mortgage amount, then the buyer will not face any trouble and will not be asked to vacate the flat.

Sample flat- Sample flats are used as a marketing tool to give the buyers an idea about the space and dimension of the building. But the buyer should ensure that the dimensions of the purchased flat are similar to the sample flat and all the amenities mentioned in the agreement are actually included.

Hidden Costs- Before investing in an under construction flat, the buyer should talk in details about all the costs involved in buying the flat. Many hidden costs are present that the builder might spring upon the buyer only at a later stage, causing problems in the budget.

Site inspection- To keep an eye on the construction process and ensure that no fraudulent means are being practiced, the buyer should inspect the construction process at regular intervals.

The Real Estate Bill passed in March 2016 provides safeguards for those who are considering to buy an under-construction property- Registration with the concerned authority is compulsory along with a detailed information about the layout plan, land status, real estate agents etc. 70% of the amount collected from the prospective buyers will have to be kept in an escrow amount so that it cannot be diverted to other projects. If the construction gets delayed, then the builder will have to pay the interest amount to the customer as is being paid by the buyer to the bank. If the builder does not stick to the plans as advertised then they are answerable to the regulatory authority.
The sale has to be made as per the carpet area and not the super area.
Under construction projects provide a lucrative offer in financial terms. But if the risks involved in it are not properly scrutinized, then the financial and emotional strain ends up being far more than the buyer bargained for.