Home Loans

Buying a home is a significant milestone for many, but it often requires financial assistance in the form of a home loan. A home loan, or mortgage, is a sum of money borrowed from a financial institution to purchase a house.

It is secured against the property and is repaid over a period of time with interest. This article aims to demystify the process of obtaining a home loan, discussing its types, features, eligibility criteria, and important considerations.

Types

Indian banks offer a diverse range of housing finance options to meet different needs. Here’s an overview of the major types of home loans available, reflecting offerings from some of India's leading banks:

• New: Designed for first-time buyers to purchase a new house or property.
• Pre-approved: Issued based on an initial assessment of a borrower's creditworthiness, income, and financial position, providing an in-principal loan approval.
• Top Up: Allows existing borrowers to access additional funds over their current home loan.
• Extension/Renovation: For borrowers planning to extend or renovate their existing residence.
• Balance Transfer: Enables borrowers to transfer their existing home loan to another bank, often to benefit from lower interest rates.
• Purchase: Specifically tailored for the purchase of a residential house or apartment.
• Construction: Provided for the construction of a house on a pre-owned piece of land.
• Plot: Aimed at buyers looking to purchase land or a plot for future construction.
• Conversion : Suitable for borrowers who want to buy and move to another property, but have an existing home loan on a different property.
• Improvement: Provided for the repair, improvement, or renovation of an existing property.
• Home Loans for NRIs: Tailored to the housing requirements of Non-Resident Indians (NRIs), including Persons of Indian Origin (PIOs) and Overseas Citizens of India (OCIs).

Each of these loans is designed with specific purposes in mind, catering to a wide range of housing-related financial needs across different segments of the population.

Features

• Loan Amount: Typically up to 80% of the property’s value.
• Interest Rate: Options between fixed, floating, or mixed rates.
• Repayment Period: Can extend up to 30 years.
• Processing Fees: Usually a small percentage of the loan amount.

Eligibility Criteria

• Credit Score: Impact on eligibility and interest rates.
• Income Level: Minimum income requirements vary by lender.
• Employment Type: Salaried, self-employed, or business owners.
• Age Limit: Typically between 18 and 70 years.

Required Document

• Identity proof (Aadhar Card, PAN Card, etc.)
• Address proof (utility bills, lease agreements, etc.)
• Income proof (salary slips, tax returns, etc.)
• Property documents

Required Document (NRIs)

When applying for a home loan, Non-Resident Indians (NRIs) must submit specific documents to verify their income. These requirements differ based on whether the applicant is self-employed or salaried:

For Self-employed NRIs

• Proof of Income: Documentation confirming income if the applicant or co-applicant is a self-employed professional or businessman.
• Business Address Proof: Document verifying the location of the business.
• Financial Statements: Balance sheet and profit and loss accounts audited by a certified Chartered Accountant for the last 2 years.
• Tax Returns: Individual tax return for the last 2 years. This requirement does not apply to NRIs/PIOs residing in Middle East countries.
• Bank Statements: Six months of bank statements from the individual’s and the business/company’s overseas accounts.

For Salaried NRIs

• Valid Work Permit: Document proving the applicant’s legal employment status abroad.
• Employment Contract: A contract provided in English or translated and attested by the employer, consulate, embassy, or an Indian foreign office if originally in another language.
• Salary Slips: Recent salary slips from the last 3 months.
• Bank Statements: Six months of bank statements indicating salary deposits.
• Employer-Issued Identity Card: Along with the latest original salary slip.
• Tax Returns: Copy of the individual tax return for the last assessment year. This requirement does not apply to employees in the Merchant Navy and NRIs/PIOs residing in the Middle East countries.

How to Apply for a Home Loan

• Research and Compare: Evaluate different lenders and loan offers.
• Check Eligibility: Use online tools to check your loan eligibility.
• Gather Necessary Documents: Compile all required documentation.
• Apply: Submit your application online or in-person.
• Property Verification and Loan Approval: Lender verifies the property and approves the loan.

Fees & Charges

When applying for a home loan, various fees and charges can apply, depending on the loan type and lending institution. Below is a breakdown of common fees associated with home loans:

• Processing Fees: A one-time non-refundable fee charged after loan application approval.
• Prepayment Charges: A penalty for repaying your home loan before the end of its tenure.
• Conversion Fees: Charged when switching between loan schemes to benefit from a lower interest rate.
• Cheque Dishonour Charges: Applied if a cheque issued by the borrower is dishonoured due to insufficient funds.
• Fees for External Opinions: Fees for consulting external experts like lawyers or valuators. This fee is payable directly to the expert, not the lending institution.
• Home Insurance Premium: Payable directly to the insurance company to maintain coverage throughout the loan tenure.
• Default Charges: Penalties for delayed repayments, such as failing to meet the schedule for EMIs or Pre-EMIs.
• Incidental Charges: Costs incurred by the bank to recover overdue payments from non-compliant borrowers.
• Statutory/Regulatory Charges: Includes costs related to CERSAI registration, Memorandum of Entry and Deposit, and stamp duty.
• Photocopy of Documents: A fee for obtaining photocopies of loan documents for personal use.
• Change in Loan Term: A nominal fee charged for altering the tenure of your loan.

These fees are part of the home loan process, and prospective borrowers should consider them when planning their finances for a home purchase.

Special Tips to Avoid Home Loan Rejection

Getting a home loan can be tricky, but knowing what to do can help you avoid rejection. Make sure to research your options, read all the terms, check for extra charges, and pay your EMIs on time. Avoid signing without reading, comparing interest rates, missing payments, applying for unnecessary loans, and having too many ongoing loans.