Real Estate INDIA

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  Information on Home Loans

When to apply for home Loans: One can apply anytime after deciding to acquire or construct a property, even if the property has not been selected or the construction has not commenced. The loan amounts are sanctioned in principle to let buyers know what amounts they are eligible of. Actual disbursements start after satisfactory validation of all necessary documents and completion of specific procedures.

Eligibility conditions for a home loan: While determining the loan eligibility of a customer, lending institutions primarily focus on the repayment capacity. The repayment capacity is determined by taking into consideration factors such as income, age, qualifications, number of dependants, spouse's income, assets, liabilities, stability and continuity of occupation and savings history.

Maximum loan amount: Housing finance institutions generally finance upto 75%-85% of the asset value. Depending on the institution, the maximum loan amount may vary from Rs.1 lakh to Rs.1 crore.

Repayment period options: Repayment period options generally range from 5 to 15 years. A few HFC's offer a 20-year repayment period, albeit at a higher interest rate.

Payable fees and charges: Home loans are usually accompanied by the following additional costs: a) Processing fee: It's a fee payable to the lender on applying for a loan. It is either a fixed amount not linked to the loan or may also be a percentage of the loan amount. b) Prepayment Penalties: When a loan is paid back before the end of the agreed duration a penalty is charged by some banks/companies, which is usually between 1% and 2% of the amount being pre paid. c) Commitment Fees: Some institutions levy a commitment fee in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned. d) Miscellaneous costs: It is quite possible that some lenders may levy a documentation or consultant charges.

Security for the loan: In most cases, the property to be purchased itself becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some companies may also require additional security like the assignment of life insurance policies, pledge of shares, NSCs, units of mutual funds, bank deposits or other investments.

Documents required at the time of application: Following are the documents that lenders require at the pre-approval stage:

Proof of Age
Copy of Bank A/C statements for the last 6 months
Copy of latest credit card statement
Passport size photograph

For salaried employees:
Salary and TDS certificate
Latest pay slip
Letter from employer

For self-employed/businessmen:
Copy of audited financial statements for the last 2 years
Copy of Registration Certificate of establishment under shops and Establishments Act/Factories Act

Tax Benefits: One can avail of tax sops both on the principal as well as interest paid on home loans. With effect from 1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax Act 1965: Principal amount of repayment of loan along with other savings such as PF, PPF, Life Insurance premium etc up to a maximum of Rs 1,00,000/- will be eligible for deduction from gross income.

Insurance of Property: Many HFCs insist on insurance of the purchased property against fire and other allied perils. Even in the absence of a mandatory clause, it is advisable to insure the property against potential contingencies.

Time required for loan disbursement: The average time required for loan disbursement is 3-15 days subject to satisfactory and complete documentation and completion of all relevant procedures.


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