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What is an EMI?
EMI stands for Equated Monthly Installment. It is the amount comprising a portion of the interest and the principal loan amount which is payable by a borrower to the lender every month
What is a Pre-EMI?
As soon as your loan is sanctioned the banks usually pay the builder amounts in a periodic basis (based on payment schedule as per agreement). Builders usually set milestones and on achieving these milestones the bank pays the builder a certain amount.
Until the complete loan amount is actually given to the builder by the bank, the borrower has to pay a simple interest at the rate agreed upon with the bankers. This interest is called Pre-EMI which is payable up to the date from which the payment of EMI actually commences.
How many types of Housing Loans are available?
Banks and other financial institutions offer mainly the following:
Home Loans - This is the basic housing loan for the purchase of a new home which covers cost of Villas/Apartments and parking space, deposits and charges, stamp duty and registration charges.
Home Improvement Loans - For implementing repair works and renovations in a home that has already been purchased by you.
Home Construction Loans - For the construction of a new house.
Home Extension Loans: For expanding or extending an existing house
Home Conversion Loans - The existing loan on a house is transferred to a new house, including the extra amount required, eliminating the need for pre-payment of the previous loan.
Land Purchase Loans - For both home construction or investment purposes.
Bridge Loans - For people who wish to sell the existing house and purchase another and need finance for the new house, until a buyer is found for the old house.
Balance Transfer - To pay off an existing housing loan and avail of the option of a loan with a lower rate of interest.
Refinance Loans - To pay off the debt you have incurred from private sources such as relatives and friends, for the purchase of your present house.
Loans To NRIs - As per requirements of NRIs who want to buy a house in India
Stamp Duty Loans - This loan is sanctioned to pay the stamp duty amount that needs to be paid on the purchase of property.
What is the Eligibility for a Home loan?
Eligibility criteria as maintained by most banks and financial institutions are based on three factors viz. age, income and job stability.
He/She must be at least 23 years of age when the loan is sanctioned for salaried employees/ professional and self employed persons/ businessperson.
The repayment should be complete before attaining the age of 65.
Other cases can be taken up as special case and subject to approval of higher authorities of the bank.
The loan applications in which point no. 1 and 2 are not satisfied, a guarantor is taken as additional co applicant satisfying the criteria.
The net income of the concern should be greater than Rs.1,00,000/- per annum for salaried employees/ professional and self employed persons/ businessperson.
Maximum of two persons income of the partners/directors holding a minimum of 25% stake each can be clubbed to the income of the concern.
The net income can be increased/ enhanced by clubbing income of maximum three persons who can either be family members in tree/chain or co-partner in business or co-partner in property.
For a businessperson, his/her business should have a good future and growth.
There should be continuity in the business for the last five years.
The business must be profit making for the last two years.
For a salaried individual, he/she should have a continuous minimum employment for 3 years or more.
He/She can include his/her spouse/parents/children as co-applicant to a maximum of three applicants.
Permanent salaried employees/professional and self employed, persons/businessperson, having regular income to liquidate loan.
Can a NRI (Non Resident Indian) avail housing loans?
Yes. Repayment of loan should be made within a period not exceeding 20 years out of inward remittances or out of funds held in the borrower`s NRE/FCNR/NRO accounts.
How much can a person borrow?
Loans are generally disbursed upto a maximum of 85% of the cost of the flat. The balance 15% cost of the flat is to be funded by the flat purchaser from his own contribution.
What are the documents required at the time of making an Application for a housing loan?
Latest salary slips (proof of income for salaried individuals)
Proof of age
Proof of residence
Bank statements for the previous six months
For self employed, certified copies of balance sheet, profit and loss statement and tax challans / tax returns for the previous 3 years
For partnership/ private limited companies, the articles of association, partnership deed and details about the firm
For NRIs, latest salary certificate specifying, name (as it appears in the passport), date of joining, passport number, designation, perquisites and salary, Photocopy of labour card/ identity card, photocopy of valid resident visa stamped on the passport, photocopy of monthly statement of local bank account, property related documents.
How is the rate of interest calculated in India?
Interest rates vary from time to time and from institution to institution.
What is a fixed-rate housing loan?
A fixed-rate housing loan is a loan where the rate of interest is constant through the entire term of the loan period.
What is a floating-interest-rate housing loan?
A floating interest rate loan is a loan where the interest rate payable is linked to the market conditions such as the bank retail prime-lending rate and rises and falls with the bank rate varies. Hence a borrower bears the risk of interest rate fluctuations. Floating interest rates offered are usually lower than the fixed interest rates.
What is the difference between monthly reducing interest rate and yearly reducing interest rate?
In a monthly reducing interest system the principal on which interest is paid reduces every month as EMI is paid. In the annual reducing system the principal is reduced at the end of the year, and the borrower pays interest on a certain portion of the principal, which is actually paid back to the lender. The EMI for the monthly reducing system is effectively lesser than the yearly reducing system of calculating interest.
What are the repayment period options?
Repayment period options range generally from 5 to 20 years
What are the charges for availing a housing loan?
Processing fees - payable to the lender on applying for a loan and is either a fixed amount not linked to the loan or may also be a percentage of the loan amount.
Commitment fees - in case the loan is not availed of within a stipulated period of time after it is processed and sanctioned, then some institutions levy a commitment fee.
Pre-payment penalty - between 1% and 2% of the amount being pre-paid, is charged by some institutions when a loan is paid back before the end of the agreed duration.
Stamp duty and registration fee on a deed of mortgage.
Miscellaneous costs - such as administrative costs, legal documentation charges, technical consultant charges.
What security is required for a housing loan?
The flat purchased is the primary security and is mortgaged to the lending institution till the entire loan is repaid. Additional security such as life insurance policies, shares, bonds, fixed deposit receipts, national savings certificates can also be offered, as per the requirements of the institution
Do lending companies require guarantors?
Yes. Most of the lending companies require 1 guarantor.What is the time required for approval of a loan application?
About 15 - 20 daysWhat is the time required for disbursement of loans?
Usually loans are disbursed within 5-7 days after completion of verification by the institution, documentation (such as handing over of the original agreement for sale/ lodging receipt to the lender) and completion of all relevant procedures and only after proof that the borrower`s own contribution has been paid by him to the vendor/ builder/ developer.
Do institutions accept joint loan applications?
Do lending institutions offer incentives for housing finance?
Sometimes lending institutions offer incentives for a specified period or under a special scheme. Incentives could be any of the following:
Free accident insurance
Waiving of pre-payment penalty
Waiving of processing fee
Which sources, other than banks, can give loans for purchasing a flat?
A loan for purchasing a flat can be availed of from the following sources:
Housing finance company
Against provident fund account, fixed deposits, post office savings
Against shares and debentures of listed companies, government bonds and securities
Private parties such as relatives, friends