Thursday, June 28, 2018

FAQs on Home Loan

FAQs on Home Loan

The banks usually offer the following types of loans on interest:

  • Home Purchase Loan: It is the most common type of loan taken for purchasing a new residential property or an old house from its previous owner.
  • Home Improvement Loan: Home improvement loans are given for executing repair and renovation work at home.
  • Home Construction Loan: These loans are sanctioned to construct a house on a piece of land you have already purchased. The loan approval and application process for these loans is somewhat different from the other commonly available home loans.
  • Home Extension Loan: Home extension loans are offered for expanding or extending an existing house. To cite a few examples, addition of an extra room, a floor etc.
  • Land Purchase Loan: This type of loan is granted for the purchase of a plot of land for both residential or investment purposes.
  • Home Conversion Loans: These loans are available for people who have already purchased a house by taking a home loan but would now want to buy and move to another house. With these loans, they can fund the purchase of the new house by transferring the current loan to the new house.
  • Balance Transfer Loan: These loans are availed to transfer one’s home loan from one bank to another. It is usually done to repay the remaining amount of loan at lower interest rates or when a customer is unhappy with the services provided by his existing home loan provider and wants to switch to a different bank.
  • NRI Home loans: These are specialized loans, structured to suit the requirements of NRI’s who wish to build or buy a home in India.
  • Loan against Property (LAP): These loans are given or disbursed against the mortgage of a property.

You would be required to submit the following documents:

  • Proof of Identity: PAN, Driving license, Voter ID, Aadhar Card
  • Proof of Income:
    • Salaried Applicants: Latest 3 Months salary slip showing all deductions and Form 16 for the last three years.
    • Self Employed Applicants: IT returns for the past 2 years and computation of income for the last 2 years as certified by a CA

In the fixed interest rate scenario, the interest remains constant throughout the loan period irrespective of the changes in market conditions while in the floating interest rate scenario, the interest can decrease or increase depending on market fluctuations.

The interest on home loans is usually calculated either on monthly reducing or yearly reducing or daily reducing balance by Bank. ‘SBI charges interest on daily reducing balance’.

Specifics are mentioned below:-

  • Annual reducing method: In this system, the principal, for which you pay interest, reduces at the end of the year. Thus, you continue to pay interest on a certain portion of the principal that you have actually paid back to the lender. This means that the EMI for the monthly reducing system is effectively less than the annual reducing system.
  • Monthly reducing method: In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
  • Daily Reducing method: In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than in the monthly reducing system and a year is treated as consisting of 365 days irrespective of leap or non-leap year.

Home loans are usually accompanied by the following extra costs:

  • Processing Charge: It is the fee payable to the lender upon applying for a loan. It is either a fixed amount not linked to the loan amount or a percentage of the loan amount.
  • Pre-payment Penalty: When a loan is repaid before the scheduled duration, a penalty may be charged by some banks, which is known as the pre-payment penalty. SBI at present does not charge any pre-payment penalty.
  • Miscellaneous Costs: Bank may also ask for documentation or other consultation charges, like Advocate Fees for Search Title Clearance and Valuer’s Fees

As per Section 80C of the Income Tax Act, you are allowed separate deductions on the principal and interest amount of the home loan amount, along with other entities like ULIP, EPF, PPF, ELSS and NSC’s. In case of the principal amount, you can claim a deduction of upto Rs 1.5 lakhs while in case of interest, it is upto Rs. 2 lakhs. The amount of stamp duty and registration is also eligible for tax deduction, subject to certain conditions.

It is important to note that the tax break can only be claimed for the year in which the construction of the property has been completed.

Generally, banking & finance institutions pay around 75% to 85% of the cost of the property bought. The remaining 25% to 15% of the amount is paid on an up-front basis, which is popularly known as the down payment.

The language of the registration document must be the one that is commonly / prominently used in your district. According to Section 19 of the Indian Registration Act, the Registering Officer or the Registrar has the discretionary authority to decline the registration of your document if it is presented in a language which is not commonly used in the district, unless and until it is accompanied with the authentic translation of the language in use.

Yes, you can execute a Special Power Of Attorney to get your property registered by someone else.

A Power of Attorney allows a person to grant another person the right to make decisions regarding the person’s assets, finances and real estate properties.

There are two types of power of attorney. First, the ‘General Power of Attorney’ where a property owner confers ‘general’ rights. The rights include but are not limited to sell, lease, sub-lease etc. The second one is the ‘Special Power of Attorney’ wherein only a specific right is given by the owner to the chosen person.

Registration of a property includes necessary stamping and paying of registration charges for a sale deed and getting it recorded at the sub-registrar’s office of the concerned jurisdictional area. If a property is purchased from a developer directly, getting it registered amounts to an act of legal conveyance. In case the purchased property is a second or third transaction, it involves a duly stamped and registered transfer deed. Nowadays, property registration process has been completely computerized in most states.

It refers to the registering of documents relating to transfer, sale, lease or any other form of disposal of an immovable property. Registration is compulsory by law for all properties under Section 17 of the Indian Registrations Act, 1908. Once a property has been registered lawfully, it means that the person in whose favour the property has been registered, is the lawful owner of the premises and is fully responsible for it in all respects.

  • Original copies of the chain of title agreements and Building Plan approvals
  • Original registration and stamp duty receipts
  • Possession Letter
  • Original share certificate (In case of societies)
  • Proof of payment of all dues like maintenance charges, electricity bills, phone, water and property taxes up to the date of handing possession
  • NOC from the Society or any other concerned body confirming that there is no objection to the transfer
  • Project approvals can be verified from the corporation or the sanctioning authority’s office
  • Ownership documents can be confirmed from the Sub Registrar’s office wherein they are registered
  • Share certificates related to societies can be verified from the concerned society itself

Clear and marketable Title, Sale Deed, Encumbrance Certificate, latest tax receipts, Occupancy Certificate, Building Plan Approvals and Possession Certificate.

New Sale Deed, PAN Card and photographs.

Sale Deed, No Objection Certificate (NOC) from builder, NOC from banks, Building Plan approvals, Completion Certificate, PAN Card and photographs.

Allotment papers of the plot, Building Plan approvals, Transfer Deed (in case of multiple owners), Sale Deed, PAN Card and photographs.

EMI or Equated Monthly Instalment is a fixed amount paid by you to the bank on a specific date every month. The EMI’s are fixed when you borrow money from the bank as a loan. EMI’s are used to pay both interest and principal amount of a loan in a way that over a specific number of years, the loan amount is repaid to the bank alongwith interest.

  • Sale Deed
  • Title Deed
  • Approved Building plans
  • Completion Certificate (For Newly constructed property)
  • Commencement Certificate (For Under-construction property)
  • Conversion Certificate( If agricultural land is converted to non-agricultural)
  • Khata Certificate (especially in Bengaluru)
  • Encumbrance Certificate
  • Latest Tax Receipts
  • Occupancy Certificate

You can own as many properties as you want.

Home loan is the money borrowed from a bank or a housing finance institution on interest for buying / constructing / upgrading a residential real estate property.

SBI  have a branch network that is unmatched in terms of reach. SBI also have specialised retail loan processing centres and Home Loan Sales Teams across the country to cater to the housing loan requirements of individual customers.

As home loans involve a large sum of money, the tenure generally varies between 3 to 30 years.

Longer the tenure you have, the lesser will be your EMI but higher would be the interest outgo. In shorter tenures, you pay a greater EMI, but the loan gets repaid faster and you pay less by way of interest.

Under the Pre-EMI option, the borrower is required to pay only the interest on the loan amount that will be disbursed as per the progress on the construction of the project. The actual EMI payment starts after the possession of the house.

Yes. One can avail of a pre-approved loan from the bank.

The general eligibility conditions are as follows:

  • The borrower should be a resident of India or an NRI
  • He / she should be above 18years of age at the beginning of the loan
  • Repayment should be up to the age of 70 years.

Apart from other criteria and norms of the lending bank, the home loan amount is generally calculated on the basis of your EMI and NMI ratio, where NMI is the take-home pay after taxes and other payroll deductions. The EMI/NMI ratio varies in the range of 20% to 70% for different Net Annual Income slabs. The loan amount can be increased by including a co-applicant.

Yes, your salaries can be clubbed for the purpose of calculation of the loan amount. This can be done either when the property is jointly held with the spouse or the spouse stands as a guarantor. Thus, we ensure a great deal of flexibility in the entire exercise of financing your house.

On an average, loans are disbursed within 3-10 days after satisfactory and complete documentation and completion of all the required procedures.

Yes, a single woman can get a loan. Banks like SBI  has a special scheme for them called the SBI Her Ghar scheme, under which women enjoy concessional rate of interest.

Yes, you can sell the property with the prior consent of the financing bank.

If the buyer wants to take a loan to buy the property, the process is much easier if he/she approaches the same bank. In these cases, the bank does not need to release the property papers to another bank before getting the payment.

If the buyer wants to make a payment outright, he can make it to the bank directly. The property papers will be released only after the bank has recovered the entire loan amount and other dues

What we do is, before you choose the house you want to buy, we give you an in-principle approval based on your income and capacity to repay. This makes the entire process of identifying and buying a house easier and more flexible. You won’t be under pressure to identify a house as you know how much funds the bank would make available to you.

It is generally advantageous to go for a home loan as it helps you in availing tax benefits. However, please consult your CA or tax advisor to discuss the pros and cons.

SBI requires a mortgage of the property for which the loan is being taken. Where mortgage can’t be provided, other tangible security would need to be provided. The title of the property should be clear, for which a certificate would be required from the Bank’s approved advocate, safeguarding your interests as well as Bank’s interests.

Additional security may be required where the house is under construction. This may be for an interim period, by way of tangible security or guarantees from sound and solvent individuals.

Home insurance policies cover the house structure as well as its contents or possessions. Many insurance policies also combine various personal insurance features too.

Under personal possessions, home insurance companies generally cover furniture, electronic/electrical gadgets and jewellery under personal possessions. However, the maximum liability of these items depends upon the type of insurance cover sought or valuations done by the bank.

Property valuation is done by multiplying the built up area of the property with the cost of construction per square feet. This is the usual method followed by most banks.

Yes. FIR is compulsory in cases where insurance is claimed for malicious damages, riots, terrorism, burglary, theft and larceny. In case of a fire incident, you need to submit the assessment report compiled by the fire department as well.

As per India’s Foreign Exchange Management Act (FEMA) 1999, a person resident in India is a person residing in India for more than 182 days during the course of the previous financial year (April-March) and who has come to or stays in India either for employment, business or for any other vocation.

PIO means an individual (not a citizen of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal or Bhutan), who at any time has held an Indian passport, or who or either of his parents or grandparents were a citizen of India according to the Indian Constitution or the Citizenship Act, 1955.

As per India’s Foreign Exchange Management Act (FEMA) 1999, an NRI or Non Resident Indian is a citizen of India or a foreign national of Indian origin living outside India for the purpose of employment, business or any other vocation, which would indicate his intention to stay outside India for an indefinite period of time. An Indian would also be termed as an NRI if his stay in India is less than 182 days.

No. Tax benefits are available for NRI’s only if you file your returns and subsequently become eligible to avail the tax benefits .

The housing loan needs to be paid for the entire tenure of the loan by way of direct remittances from abroad through normal banking channels or from other financial accounts as may be permitted by RBI. Generally, payments are done through NRO, NRE, NRNR and FCNR accounts. These accounts change on the basis of RBI regulations.

Repayment of the loan is required to be made by the borrower within a maximum period of 30 years subject to the stipulation that the loan should be liquidated by the age of 60 years or by the age of retirement, whichever occurs earlier.

The eligibility is calculated in the same way as is done for resident Indians with a special emphasis on:

Individual (s) over 18 years of age with a steady source of income who

  • are Non Resident Indians (NRIs) holding a valid Indian passport
  • are persons of Indian Origin (PIOs) holding a foreign passport

NRIs eligible for Home Loans under the Scheme may include

  1. NRIs, with total work experience of 2 years in India or abroad, who have taken up jobs/professions/other economic activity abroad for better prospects
  2. NRIs with a job contract for a minimum period of 2 years abroad after completion of 6 months in the employment and presently holding a valid job contract /work permit.
  3. Indian citizens working abroad on assignments with foreign Governments/ government agencies or International/Regional Agencies like the UNO, IMF, World Bank, working with Merchant Navy etc., Officials of the Central and State Governments and Public Sector Undertakings deputed abroad on temporary assignments or posted to their offices (including Indian Diplomatic Missions) abroad

In case of residential properties, the repatriation of sale proceeds is restricted to not more than two such properties, if the property was purchased from funds held in an NRE Account.

Additionally, the amount repatriated out of India should not exceed the amount paid for acquisition of the immovable property in the foreign exchange received through normal banking channels or from the funds held in FCNR or NRE Account.

Yes. The RBI has granted general permission for sale of property. However, wherein another foreign citizen of Indian origin purchases the property, funds towards the purchase consideration should either be remitted to India or paid out of balances in non-resident accounts maintained with banks in India.

Under the existing general permissions available, an NRI/PIO may purchase residential/commercial property in India out of the funds remitted to India through normal banking channels or through funds held in his NRE/FCNR (B)/NRO account. No consideration would be paid outside of India.

Yes. A person resident outside India can hold immovable property acquired by way of inheritance from a person resident in India as per the provisions of Section 6(5) of the Foreign Exchange Management Act, 1999.

No. NRI’s do not require any consent from the RBI to buy immovable property in India, provided the property is residential or commercial in nature.

Yes. Based on the merits of the case and requirements/ eligibility of the borrower, the Bank may sanction an amount higher than the amount taken over from other bank/ financial institution for purposes of renovation/ extension/ furnishings. Similarly extended repayment period may be sanctioned provided that at all times the criteria regarding maximum permissible finance and security margin under the Bank’s scheme are not diluted.

Yes. Total loan quantum, will however, continue to be determined by eligibility criteria based on income, EMI/NMI ratio, LTV ratio etc. applicable to Home Loans scheme.

Yes. Home Loan with Home Top up loan can be taken over subject to Maximum Loan To Value of 75 % in case of SBI Bank and fulfillment of other terms and conditions of balance transfer.

Yes. Under the general RBI guidelines, NRI/PIO may acquire residential/commercial property by way of a gift from a person resident in India or an NRI or a PIO.

Yes.

No. An NRI or a PIO cannot buy a property in India jointly with a foreign citizen.

No. A person resident outside India cannot acquire by way of purchase agricultural land/plantation property/farm house in India.

No. There is no limit placed on the number of residential properties that an NRI can buy in India.

 

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