Home Loan

HOME LOAN simply means a sum of money borrowed from banks or financial institutions for constructing or purchasing a residential property.

Generally, you can avail a HOME LOAN up to the maximum limit of:

• 90% of the agreement value if the loan amount is less than ₹30,00,000/-.
• 80% of the agreement value if the loan amount is between ₹30,00,001/- to ₹75,00,000/- and
• 75% of the agreement value if the loan amount is above ₹75,00,000/-.

 

However, if the above limit does not suffice, you have an option of availing top-up loan on the same property provided the following conditions are satisfied:

• The property is fully constructed and ready to occupy with a possession letter and occupancy certificate in place.
• The market value of the property is at least 10% higher than the agreement value.

 

HOME LOAN can be availed for either of the following purposes:

• Constructing a residential property.
• Purchasing an old/new residential property.
• Purchasing a non-agricultural plot to build a house.
• Transferring the HOME LOAN balance from one bank to another bank.

 

UNDER WHAT SCENARIOS CAN YOUR HOME LOAN APPLICATION GET REJECTED?

Getting through the tedious home buying process and shortlisting the best HOME LOAN lender is a very stressful experience that every home buyer goes through.

As a home buyer, you are flooded with so many HOME LOAN offers, each one of them looking better than the other that you are left confused about where to go and what to do.

Most importantly, which bank will sanction the loan based on your specific requirements is the biggest question that remains.

Here, you must note that HOME LOAN lenders have their defined set of criteria according to which they sanction loans. Not all lenders will be flexible enough to lend to everyone who walks in. Some will have stricter norms while others may be more liberal.

Sometimes, due to inadequate knowledge, homebuyers end up with the wrong lending institution where not only does their loan application gets rejected but they also end up losing all their time, money and energy.

Hence, it is very important to get your basics clear before submitting your documents to banks and taking a leap forward.

The following are some of the common reasons which may form the basis of rejection of your HOME LOAN application by many banks or institutions.

• You may require a loan of more than 80% of your agreement value. Sometimes more than 90%.
• The carpet area of your property is less than 200 sq ft.
• You are buying the property jointly with your siblings.
• The building does not have an “Occupancy certificate”.
• Bank statement reflects cheque bounces.
• Poor CIBIL records.
• Insufficient income.
• One of the chain agreements is unregistered.
• Financial irregularities like changing jobs too frequently, filing 2 years ITR in the same year especially just before applying for a loan, delay in salary payments, the gap in employment, salary being paid in cash etc.
• The building is too old and the structure has become too weak to sustain for long enough.
• Some of the builders or projects are not approved by the lender and many more.

Likewise, there may be many other reasons due to which the bank or a financial institution may turn down your application. Hence, it is in the best interest of all home loan applicants to understand the policies of the bank to which they are submitting their documents.

 

HOME LOAN PRODUCT VARIANTS

HOME LOANS have many products to cater to the diverse need of home loan applicants. Hence, it is the responsibility of every borrower to find out which product complements their requirements.

1. Term Loan – “Term Loan” is the regular HOME LOAN product where you are expected to make minimum EMI payments every month for a specified period at a specified rate.

Assuming, the remains unchanged and no prepayments are done at all, the loan continues until the end of the original tenure.

Once the last installment is paid and all pending dues are cleared, the loan stands closed.

 

2. Home loan overdraft facility – The HOME LOAN overdraft facility is one of the best and the most innovative developments in the HOME LOAN space. It can help borrowers save up to 100% of their HOME LOAN interest and pay off their loan faster without waiting for interest rates to change or having to make any prepayments at all.

This facility gives borrowers the liberty to transfer all excess funds that are lying idle in their savings account (at a low-) into their HOME LOAN account (at a higher ) and save HOME LOAN to the extent of extra deposits that they have made over their EMI.

It is known by different names across banks. It is popularly known as “”, “Home Saver”, “Home Credit”, “Smart HOME LOAN facility” etc. Please click here to find more details about the product.

 

3. NRI Home Loan – Non-Resident Indians are also eligible to buy properties in India for which they can avail NRI HOME LOANS from various banks and financial institutions.

 

4. Pre-approved loan – “Pre-approved loan” helps you check your loan eligibility before getting the property registered and incurring major expenses towards stamp duty and registration charges.

There have been various instances in the past where home buyers have suffered huge losses towards payment of and booking amount before confirming their loan eligibility.

To begin with, you are required to submit all your and to the bank.

 

5. Flexi Loan – Fresh graduates who have recently started their careers may want to buy a house but may not have enough salary at that juncture to secure a minimum HOME LOAN they require.

For such individuals, banks have introduced a “Flexi loan” facility where they can avail of a higher loan by up to 20% over their original eligibility.

These kinds of loans are usually given to applicants below 35 years of age.

 

6. Home Loan Balance Transfer – The process of transferring a HOME LOAN from one bank to another for better prospects and for availing various other benefits like a top-up loan facility, restructuring the loan, reducing EMI or availing better interest rate etc. is known as “Balance Transfer”.

 

7. Top-up Loan – Top-up loan is an extension of HOME LOAN which is as good as a personal loan given against the mortgaged property.

A borrower may want to renovate their house or want to go on a vacation or start a business for which he can apply for such a facility.

Since such loans are backed by collateral, it usually carries a much lower rate of interest as compared to unsecured loans.

The funds under “top up” loan is transferred into the borrower’s personal savings account so that they can use it towards any of their personal expenses except activities like gambling, trading etc. that is speculative in nature.

However, it should be noted that since this loan is an extension of HOME LOAN, it is available to existing HOME LOAN borrowers only.

 

 

DIFFERENCE BETWEEN BANKS AND NBFCs

Sr. No.	DESCRIPTION	BANKS	NBFCs
1.	Interest calculation method	Daily reducing*	Monthly reducing
2.	Benchmark rate	Repo rate	Retail prime lending rate
3.	Regulator OR Governing body	Reserve Bank of India	National Housing Bank
4.	HOME LOAN overdraft	Flexible	Rigid
5.	Cost of Funds	Low*	High*
6.	Passing on rate cuts	Proactive*	Reactive*
7.	Process timelines	Slower	Faster
8.	Flexibility	Low	High

 

 

ELIGIBILITY CRITERIA FOR HOME LOAN

All lending institutions have their defined set of eligibility criteria that they follow while sanctioning loans.

These criteria are supposed to fall in line with the bank’s internal policies and regulatory guidelines at large.

Also, they differ from one institution to another due to which you may come across a scenario that your loan application is turned down by one lender however, got approved by another.

The following are some of the common eligibility criteria that most banks follow.

1. Age – If the applicant is salaried, they should fall between the age of 21-60 years. However, self-employed individuals can go up to 70 years of age.

 

2. Location – Either the property, the place of residence or the place of work should be located in the city in which the loan application is being made.

 

3. Loan to Value Ratio – The maximum of 90% of the total agreement value can be borrowed if the loan amount is restricted to ₹30,00,000/-, 80% of the total agreement value if the loan amount falls between ₹30,00,001/- to Rs. 75,00,000/- and 75% of the total agreement value beyond that.

Kindly note that and are not supposed to be included in the total agreement value.

 

4. Citizenship – A resident, as well as non-resident Indians can buy a property and avail of the loan facility in India but not foreign nationals.

 

5. CIBIL Score and repayment history – CIBIL records should be in good standing and not reflect default in any of the loan repayments in the past. Also, a CIBIL score of 700 or more is good enough to help them comfortably secure a loan.

 

6. Financial and Job Stability – Changing jobs too frequently, filing multiple ITRs in the same year especially just before applying for a loan, delay in salary payments, a gap in employment, salary being paid in cash, etc. display instability and may lead to rejection of your loan application.

Also, an applicant should be a confirmed employee and in case he/she has changed the job, he/she should have received at least one salary credit from the new employer to avail the loan.

 

7. Income / Repaying Capacity – Most banks will accept the maximum of 70% of your net monthly income as your total loan repaying capacity.

It also includes all existing s that you are currently paying towards other loans. Hence, having too many loans with high payments can reduce your overall loan eligibility to zero.

 

UNDER WHAT CIRCUMSTANCES SHOULD YOU CONSIDER TRANSFERRING YOUR HOME LOAN BALANCE TO ANOTHER LENDER?

Sometimes, given the circumstances, transferring a loan to another lender is the only choice borrowers may have. However, what are those circumstances?

The following are some of the situations under which you must consider transferring your home loan balance to another lender.

1. Reduce EMI to improve cash flow – For most borrowers, HOME LOAN EMI consumes the major portion of their salary. Due to this, they are hardly left with any surplus for managing their monthly cash flow or making investments towards their future financial goals.

In worst cases, some borrowers are so cash-starved that they are compelled to take more loans for managing their current and future cash flow requirements thus leading them to a debt trap. Hence, such a situation should be dealt with smart planning.

It should be noted that on floating rate HOME LOANs are no longer applicable. Hence, you can choose to keep your obligation low and allocate savings towards managing your cash flow and making .

Any surplus thereafter can be used towards making prepayments every month if you wish to. This way you can not only finish your loan faster but also take complete control of your financial situation and reduce dependency on loans for current or future expenses.

To make every opportunity count, you can get your HOME LOAN transferred to a lender that is more customer-centric and more proactive in passing on rate cuts to their customers. Don’t let go of a great deal for good deals. They are deceiving at times. There are a many more .

 

2. The current lender does not reduce interest rates proactively – Most borrowers complain about their current lenders not being proactive in passing on rate cuts to their existing customers when the market rates decline.

This happens while they continue to offer much lower rates to new borrowers to attract more business and improve their profitability. Some banks pass it on but only partially.

Such behavior is very unhealthy for borrowers in the long run as this instantly put them at a disadvantage and leads to either of 2 outcomes:

Firstly, unaware, they continue to keep paying high for years where the major portion of their EMI goes towards their loan . They hardly realize that the principal outstanding balance is hardly reducing. And by the time they realize, lacs of rupees are already being lost.

Due to this, their tenure hardly reduces even after years of repayment. In worst cases, it is also found to have increased beyond their age of retirement.

Secondly, they find out the gap and request their existing lender to reduce rates after paying a small conversion fee or get it waived if they threaten to switch their loan to a different lender.

But the question in both cases is, what about the extra which they have already lost.

Are their lenders going to reverse that? And do borrowers have enough time and patience to keep a track of such irregularities all the time?

Hence, you should avoid being victim to such practices and rather choose a lender who is more proactive and fair at passing on rate cuts immediately after the rate cuts are announced rather than waiting for the day where you find out about the same and approach your lender with a request to lower your rate.

Normally, you face such problems mostly with lenders whose rates are not linked to and with lenders who give loans on zero margin with high .

They do this to survive the stiff competition as that’s the easiest way to lure new borrowers which are undoubtebly temporary and short term in nature.

 

3. Service Issues – This is another challenge that many borrowers face with their existing lenders. Please note the fact, that no bank in India has zero dissatisfied customers. Even the best in class institutions have attritions and complaint rates.

Hence, before you decide to switch over, please take stock of issues that you have withyour lender and assess whether your reasons for discontent are the regulatory restrictions on the bank which remain the same across the industry or whether it is the bank’s intent and attitude towards their customers.

 

4. Availing top-up loan – Top up loans on the existing HOME LOANs are like a blessing to all HOME LOAN borrowers who are facing a financial crunch and need funds to bail themselves out of the financial crisis.

Top-up loans are as good as personal loans which can be used for various purposes like going on a vacation, starting a business, wedding expenses, medical emergencies, higher education, Repair/renovation/extension of the existing house, etc. However, it cannot be used for any of the speculative activities like stock investing, gambling, etc.

One of the basic differences between the and is the availability of collateral.

Personal loans are unsecured loans hence their rate of interest is very high

Top up loan, on the other hand, is given against the same property on which the HOME LOAN is availed and hence it is very economical.

The eligibility for a depends on property valuation and income eligibility of the borrower.

 

5. Availing a better product – HOME LOAN overdraft facility is gaining a lot of popularity these days for its ability to help borrowers save lacs of rupees that they otherwise, lose to interest payments.

The money thus saved can be used towards making pre-payments and finishing their loan faster. Imagine, your HOME LOAN is being paid off faster without waiting for to change or having to make any pre-payments at all.

This is possible with the help of a which is most commonly known as “” by SBI, “Smart HOME LOAN” by HSBC, “Home Saver” by Standard Chartered, “HOME LOAN Advantage” by Bank of Baroda and so on.

Under this facility, a HOME LOAN borrower can transfer the entire balance that is lying idle in their savings bank account to their HOME LOAN account.

The number of days the money is parked in that account, the bank does not charge them any on that amount at all. This helps them save a lot of money on loss without impacting their cash flow. Click here to learn more about the product.

 

6. Opting for a bank over NBFC – Banks normally have an edge over non-banking finance companies on various grounds.

Loans being offered by banks are linked to “” due to which they are more proactive in passing on rate cuts to their existing borrowers unlike NBFCs whose rates are linked to “Retail prime lending rate”.

Repo rate linked loans offer higher stability to borrowers in the long run where rates are more regulated and fall in line with RBI policies. Also, the rate reduction happens automatically.

Secondly, most banks charge on while NBFCs usually follow method while calculating their loan interest.

Thirdly, facilities are been offered by many banks now unlike NBFC.

 

A PIECE OF ADVICE THAT YOU MUST CONSIDER WHILE TAKING A HOME LOAN

The following are some of the suggestions that every HOME LOAN borrower can consider taking to protect the value of their investment.

Things you must do

1. Know your loan eligibility beforehand – Every borrower must get their CIBIL report and overall income eligibility checked before getting the property registered and incurring expenses towards the payment of stamp duty, registration charges and HOME LOAN processing fees.

Many times, banks turn down their loan application after incurring all the expenses for obvious reasons that could have been known earlier.

 

2. Check the schedule of charges and other terms of the loan before signing up – Keeping transparency in dealings and following business ethics is the least every customer expects out of any given bank or financial institution that they deal with.

Unfortunately, it is not the practice that’s commonly being followed by many of the representatives of such banks or financial institutions.

Due to this, a HOME LOAN applicant often tends to overlook certain hidden terms and conditions or charges which are critical to know at the time of making an application.

They are taken aback at a much later stage where opting out may not be the available choice that that may have but to accept what’s being offered helplessly.

Hence, it is every borrower’s responsibility to understand such critical terms of the transaction like the cost involved, break up of rates being offered, products, etc. before making an application.

To ensure this, request the final offer to be sent on an email rather than accepting it verbally and read the fine prints of the final loan contract before accepting the disbursement.

 

3. Always opt for maximum tenure – Gone are the days where HOME LOAN lenders used to charge their borrowers penalties for making prepayments towards their HOME LOAN whenever they tried to repay their loan faster to save interest.

If you are already living hand to mouth, don’t choke your cash flow further by keeping your high just to save .

Instead, you can simply opt for the lowest possible and make some extra payments voluntarily each month by adding a fixed amount to your with no penalties involved.

That way, you can continue to save and manage your cash flow at the same time.

 

4. Always opt for automatic payments – In this electronic age, many borrowers still believe that physically walking into the bank and depositing their EMI cheque every month is the ideal way of servicing the loan and keeping their payments regular.

Such borrowers must learn the benefits of an “Electronic clearing service” (ECS) where their is deducted automatically from their bank account each month.

This option is not only convenient but also a much safer and foolproof method of keeping your payments regular.

Manual processes are subject to many errors or delays and any missed or delayed payment can result in penal interest, late charges and negative credit reporting which can have long-term implications on the borrower’s credentials.

Hence, signing up for standing instruction or ECS is the ideal way servicing EMI payments these days.

To sign up, one needs to submit a duly filled and signed NACH mandate in case they have a bank account with the bank other than the HOME LOAN provider and “Standing Instruction Form” if the savings account is with the same bank from which they are availing a HOME LOAN.

 

5. Always cover a loan with basic term insurance – Your house does not belong to you until your HOME LOAN is paid off and your HOME LOAN provider releases the lien.

If your bank for any reason stops receiving payments from you, they will give you not more than 3 months time to clear all pending dues. Post the given deadline, they will start the to recover their money by selling your property.

Imagine, if something happens to you and your family are left with nothing but 2 choices.

Either make arrangements to repay the HOME LOAN or lose the house.

Nobody would want their families to land in this situation whatsoever. Hence, always get your HOME LOAN covered with basic .

 

6. Look beyond interest rates and low processing fees – Those with inadequate knowledge easily get carried away with attractive rates and discounts that lending institutions often offer to lure customers.

Very few understand that such discounts and attractions are only temporary and short term in nature. It does more harm than good in long run as such borrowers fail to read the fine prints and understand the intention behind offering such unrealistic offers.

Why are few lenders offering exorbitant discounts to lure customers whereas others are comfortably getting customers without giving any discounts at all?

As it is precisely said, those trying to save pennies are only left with pennies in the end.

The difference can be due to the product which the other lender is offering which is more effective in the long run and can help you save a lot of OR they may be calculating on “” instead of “” OR their rates are linked to repo rates and many more.

All these factors are more important to have than some temporary and short-term benefits that some borrowers give in to.

 

7. Include wife and other family members in the property for better rates and tax efficiency – Adding other family members including a woman in the property comes with the package of the following 5 benefits.

 

• Benefit 1 – It can boost your overall loan eligibility if you are earning.
• Benefit 2 – Higher take-home income as all of you can separately claim tax benefits.
• Benefit 3 – Most banks offer a marginal discount on interest rates just for having a woman as a co-owner in the property and loan.
• Benefit 4 – It will help them build a credit score for all.
• Benefit 5 – It lowers your financial burden as EMI payment is distributed with the co borrower.

 

8. Always pay the missed EMI in the same month – Sometimes, owing to financial hardships, borrowers may end up giving a miss to their monthly EMI in any particular month, of course due to unavoidable circumstances and genuine problems.

Such borrowers need not panic. Every bank understands that every missed is not out of wrong intent.

Ensure you make the payment before the end of the month as banks usually do credit reporting every 30 to 45 days. The late fee however could be charged but it will not have long term implications on the borrower.

 

9. Evaluate what components are considered and not considered for loan eligibility – Many borrowers are mistaken by believing that stamp duty and registration charges will be included in the overall property cost which determines their loan eligibility.

That is not true. Even a slight miscalculation can put their entire property transaction in jeopardy as there is no option to undo it.

Likewise, any income from investments like FDs, mutual funds, stocks etc. is not considered for loan eligibility.

Hence, one should be very careful about such critical aspects while planning property transactions.

 

10. Take experts opinion – Dealing with banks directly can be misguiding many times due to a narrow approach. The bank employee you are dealing with may not be an expert in this subject.

Also, it can get very confusing for a loan applicant to make a final decision as every banker puts their best foot forward and talks about products and benefits that their bank is offering.

Hence, one should always look for fair advice and suggestions from the aggregators or agents who deal with multiple banks and have good knowledge about the domain.

They are the experts in this field and are in a much better position to share insights that can help you make an informed decision.

 

Things you must avoid doing

1. Don’t blow all your salary on EMI. Keep room for investments – Do not get over-enthusiastic in paying off your home loan faster at the cost of your investments and other financial commitments.

A HOME LOAN is a long-term commitment, hence borrowers are bound by decisions for a really long time that they make at the time of signing up.

Paying more voluntarily always works out better than paying more out of obligation. Hence, it is always advisable to keep your home loan minimum and keep enough room for managing your monthly cash flow and as well.

At the same time, create reserves for contingencies and other anticipated expenses otherwise, you may end up taking another loan later. Anything left can be used for making prepayment with no penalties involved.

 

2. Avoid including your company in property loans – This applies to self-employed individuals who own their businesses. Banks often try to convince and insist such individuals to attach their company’s financials to the loan.

Doing so can often do more harm than good to such individuals.

It should be noted that the is abolished only on floating rate loans taken by individuals only. For any reason, if the company is included in the loan, the company then becomes liable to pay a penalty either for prematurely closing the loan or for transferring it to some other lender for better prospects.

In such cases, banks can often take advantage and refuse to lower your rates knowing that transferring the loan will be the last option you will resort to given the that goes up to 2% to 4% of your loan outstanding balance. Hence, avoid including the company in property loans unless required.

 

3. Don’t put an application with multiple banks – Every bank report HOME LOAN inquiries to credit bureaus. Hence, making multiple applications with different banks simultaneously may not only raise questions for doing so and show hunger for credit to further impact your credit rating but may also cost you more on processing charges.

 

4. Don’t make over commitments to sellers or builders by blindly trusting bank timelines – HOME LOAN is subject to multiple processes like pre-sanction, legal check, valuation, home/office and site verifications and processing.

Due to all of the above processes, loan approval is subject to delays and rejections due to various challenges involved in all of the above stages. Many times, due to the high volume of loan applications and bank’s internal challenges, delays in processing become inevitable which borrowers or banks may not be able to foresee.

Hence, one should always be mindful of all the above factors and keep a cushion before making commitments to any party on timelines.

 

5. Keep lenders with a good market reputation at the top of the list – Applicants with a sound profile and good credit history have the luxury of selecting a lender of their choice.

Hence, they should prefer taking loans from reputed banks as such institutions are more competitive and stable in the long run.

Many small-scale banks and financial institutions on the other hand are more liberal and flexible in sanctioning loans due to which they carry a higher rate of interest.

Moreover, they lack stability in the long run as they offer loans to borrowers with low creditworthiness and weak profile which keep their NPAs under pressure and eventually pass it on to their existing portfolio of borrowers.

 

6. Do not avoid conservative banks with strong due diligence and exhaustive evaluation process – Many applicants complain of a lengthy and stringent evaluation process that certain banks carry out while sanctioning loans.

To make things worse, some applicants get frustrated and switch to another lender who skips certain critical processes and verifications, demands lesser documents and sanction loans in no time.

This is where things often gets messed up.

Here, one should understand that due diligence is a very critical process that a bank undertakes.

It does more good to a borrower than the lending institution as their life savings is at stake if the fails.

Being inconvenienced is always better than being sorry.

A small gap if goes unnoticed can cost you fortune and make you go through unnecessary stress later. Hence, being patient is of utmost importance while carrying out property related transactions.

 

7. Don’t submit the file with incomplete documentation – This is one of the most common reasons why your loan process gets delayed and in worse cases comes to a halt.

Documents checklist more or less remains constant across all financial institutions and all applicants are expected to hand over all documents in one go as per the checklist provided.

Any deviation in the whole process can prevent the loan processing officer from giving their clear opinion about your proposal to sanction the loan.

Hence, being systematic with paperwork will not only save you time but also save inconvenience caused to many parties involved.

 

8. Never let your processing fee bounce – Cheque bounce is a very critical offense whether it is involving your loan processing fees or any other transaction.

Do not stop payment of processing fees or for any reason without informing your banker about the same even if your loan gets rejected.

Doing so may simply get you blacklisted by such banks for unethical behavior and cause permanent damage to your .

 

9. Choose to reduce the EMI instead of tenure after part payment – We continue to highlight that making extra payment out of choice always works out better than paying out of obligation.

HOME LOAN terms once set cannot be undone or changed later. Hence, one has to be well planned while signing up for the loan.

Keeping the HOME LOAN low will not only help you release pressure on your monthly cash flow but also help you keep your future financial life peaceful. If you still want to prepay, you can do that voluntarily without any financial impact.

Moreover, you continue to receive for a longer period along with other benefits as mentioned in the section.

The savings can either be used towards making prepayments of the loan or investing for better returns.

Hence, repaying the loan faster at the cost of other benefits makes very little sense as the HOME LOAN is the cheapest and can contribute a lot to your overall .

 

REASONS FOR REJECTION OF HOME LOAN APPLICATIONS

Applying for a loan does not guarantee success. Since, home loan approval is subject to various processes like legal check, valuation, other verifications etc., an applicant is always at a risk of facing rejection of their loan application.

The following are some of the reasons due to which your HOME LOAN application can get rejected.

1. Poor Credit Records – Banks and financial institutions always seek customers who are not only eligible to get a loan but also have the right intent to pay it back with interest.

Hence, all lending institutions rely heavily on reports that they receive from credit bureaus like Equifax, Transunion and Criff.

A CIBIL report contains the repayment track record with the payment behaviour and loan repayment patterns of all individuals who have taken a loan or some credit facility from any of the RBI registered lending institutions at some point in their life.

Any default in their loan repayments in the past is reported and can either lower their chances of approval or straight away get them rejected for the loan that they apply in the future.

 

2. Insufficient Valuation – Banks usually give loans up to a certain percentage of the total property valuation. If the property valuation is not enough, the loan amount will either be reduced or rejected as the case may be.

 

3. Being a guarantor for someone else’s loan – Sometimes, borrowers become guarantors to help their friends and family members secure higher loans, unaware that such guarantees can affect their own loan eligibility and reduce their borrowing capacity.

Being a guarantor is as good as being the applicant to the loan. They are reported as  a to and the liability of the borrower in case of default becomes the liability of the .

Hence, if a guarantor applies for a loan, he needs to obtain the 1-year loan account statement and bank statement of the borrower reflecting payments to prove that the payments are being made by the loan applicant only.

 

4. Income / Repaying Capacity – Most banks will accept the maximum of 70% of your net monthly income as your total loan repaying capacity.

It also includes all existing s that you are currently paying towards other loans. Hence, having too many loans with high payments can reduce your overall loan eligibility to zero.

 

5. Improper personal and property documents – KYC, financial documents and other property-related documents are the basic set of documents that banks require to calculate the applicant’s loan eligibility and sanction the loan.

Any shortfall or irregularities found in any of these documents can lead to a rejection of a loan.

 

6. Blacklisted area or builder– Some of the locations or builders may be blacklisted by many banks and lending institutions due to their poor track record and various other reasons.

If a property or a place of residence of the applicant is located in any of those areas then they are least likely to get the loan from these lending institutions.

 

7. Financial irregularities and job instability – Changing jobs too frequently, having 2 years ITR filed in the same year, having cash income, delay in salary payments, no availability of ITR, having a gap in service displays instability and may lead to rejection of your loan application.

 

8. The poor physical condition of the property – Banks usually conduct a structural audit on properties older than 12 years and loan tenure is determined basis the life of the structure. If the property is found to be too old or in a dilapidated condition, your loan is likely to be rejected.

 

9. Customer profile and dependants – Apart from assessing income and property valuation, banks also give utmost importance to a personal discussion that they carry out with all loan applicants. During this process, they try to understand the applicant’s lifestyle and saving habits.

Having limited income with too many dependants, having liabilities higher than assets, bad saving habits etc. can make banks uncomfortable to lend and call for explanations and assurance on repaying the loan.

However, if they are not satisfied with the responses given, they can put a negative mark in their report which can lead to rejection of your loan application.

In some cases, banks can insist on having a and sanction the loan.

 

10. Cheque bounces – Cheques bounces are looked at very seriously and even a couple of instances can lead to rejection of loan application unless justified by the applicant with proof to the bank’s satisfaction.

 

11. Non-availability of Succession Certificate – While purchasing a property, a borrower may come across a situation where one of the property owners has passed away.

In such cases, most buyers still execute the agreement by making all of the deceased’s as confirming parties to rule out any legal claim in the future.

However, as a matter of fact, this is not enough.

In the entire process, one should understand the risks involved in such transactions.

First of all, the number of is rarely confirmed. Even if they are confirmed, there is a possibility that the deceased must have made a “” in favour of the 3^rd party individual which the borrower may not be aware of.

Hence, the buyer should always insist on obtaining the “” and attach a copy of the same in the to rule out any possibility of legal claim in the future.

Most banks with strong and strict due diligence guidelines will refuse to accept such property as collateral and refuse the loan.

 

12. Overfunding and self contribution clause – This issue arises in the case of loans on under-construction properties. The contribution clause simply means that for every payment demand  that the builder raises, the borrower needs to pay an equal proportion of his contribution to the builder before taking a loan disbursement from the bank.

 

13. Inclusion of commercial units in residential structure – If the HOME LOAN application is made for the construction of a residential property, the structure should consist of residential units only. If there is an inclusion of commercial units in the structure, the loan is most likely to get rejected as the construction of commercial units comes under commercial loan.

 

14. Unregistered or incomplete chain agreements – From 10^th December 1985 onwards, all agreements related to the sale of immovable properties should be compulsorily registered with stamp duty paid.

If any of the chain agreements after that period are found unregistered, your loan is most likely to get rejected.

However, some financial institutions still do loans on such properties based on the where they transfer all the risks and responsibilities on the borrower if the claim arises.

 

15. Unavailability of building Occupancy Certificate – “Occupation Certificate” (OC) is issued by the local municipal corporation under whose jurisdiction the building is being constructed.

It is an approval certifying that the said building or a project is constructed in compliance with the structural plan being approved by the local municipal corporation and the building is fit to occupy.

An OC is a must-have document without which the safety standard of the building could be questionable and hence becomes illegal.

Hence, buyers should always ask the developer for the reason for the non-availability of as most of the banks will deny loans to the property that does not have .

 

HOW TO SELECT A GOOD HOME LOAN LENDER?

Selecting a HOME LOAN lender only on the basis of lower interest rates and discounted processing charges can be deceiving.

It is quite possible that due to this narrow approach, you may end up paying much more than what you have imagined.

Hence, every HOME LOAN applicant must be very selective and careful while choosing a home loan lender. The following are some of the criteria that you must consider while selecting your home loan lender.

1. Bank Policies – Different lenders have a defined set of criteria for sanctioning loans. For eg. Some lenders do not give loans to siblings, property not having OC, unregistered Agreement for Sale, etc.

Hence, an applicant should discuss their specific requirements in detail with their banker before submitting their documents to save their time, money and energy.

 

2. Rate of Interest – An applicant must choose a lender offering the lowest rate of interest. However, the lower rate should not come at the cost of other important benefits.

To make the most of your HOME LOAN, you should look for the bank that charges instead of .

The should be linked to with the lowest .

HOME LOAN overdraft facility should be preferred over term loans and many more.

 

3. Processing Charges – Processing fees is one of the important factors that should be considered while applying for a loan. However, other benefits as mentioned above should not be ignored.

 

4. Products – Applicants should enquire about all home loan products available in the market and understand the pros and cons involved.

Certain products come at a higher rate of and look expensive but the savings they offer can be much more than what the regular product at a lower rate could offer.

Also, there are products under which you can avail of a higher loan amount than your regular eligibility.

 

5. Range of Tenure – Different banks offer different ranges of tenure. The maximum tenure being offered by a few banks is 30 years up to a maximum of 70 years of age should be preferred.

 

6. Pre Payment Penalty – Before you opt for the fixed rate of interest, check on the prepayment penalty involved. Prepayment penalty is waived for floating rate HOME LOANs only.

 

BENEFITS OF HOME LOAN

Some people are capable enough of buying a house without taking a HOME LOAN. However, such home buyers should not ignore the benefits of HOME LOANS.

Once the property purchase transaction is completed and the payment is done to the seller, the opportunity of availing a HOME LOAN is also lost.

The following are some of the most useful benefits of availing a HOME LOAN facility.

1. Tax Benefits – It helps borrowers lower their tax slab and save tax. The interest paid up to Rs. 2,00,000/- in a financial year is eligible for tax deduction under section 24 and the principal repaid up to Rs. 1,50,000/- during the same year is eligible for tax deduction under section 80C.

So, borrowers can avail the total tax benefit of up to Rs. 3,50,000/-.

 

2. Making better use of funds – A HOME LOAN is the cheapest loan available. Additionally, it brings along a lot of other benefits.

Once the property is purchased and payment is made, the luxuries of having a HOME LOAN are lost until you buy another property. Hence, instead of using your own funds, you can avail the HOME LOAN for the maximum amount possible and use the money you have for other expenses like home renovation, creating reserves for contingencies or other purposes for which you may require to take more loans in the future.

The remaining amount can either be invested towards future financial goals or can be prepaid without penalty or simply parked in the HOME LOAN overdraft account to maintain liquidity.

 

3. Top-up loan – Top-up loan has come to the rescue of many borrowers facing financial crisis.

This facility is extended to HOME LOAN borrowers only. If you do not have a HOME LOAN, you cannot avail a top up loan.

Top-up loan is the cheapest loan available for personal use. Moreover, this option prevails until the loan is fully paid off.

 

4. Taking advantage of SMART home loan – As discussed above, a HOME LOAN is the cheapest loan available. To top it up, the HOME LOAN overdraft facility can further help you reduce interest outgo.

Borrowers can even roll their monthly salary or emergency funds and surplus cash into this account and earn attractive out of it.

 

5. Due diligence done by the bank – Property purchase is a very technical subject and a complicated transaction. Due to its technical nature, the possibility of missing out on certain critical aspects is very high.

Moreover, having inadequate knowledge about the subject can expose you to certain risks like fraud, unavailability of important documents, unresolved legal issues, structural and valuation issues, etc. The risk can be big enough to put your entire at stake.

Hence, the best thing to do here is take a HOME LOAN from a reputed and conservative bank who have a team of experts like valuers, property specialist and advocates who conduct stringent due diligence on the said property and minimize the risk at minimum cost.

 

6. Subsidies further reduce cost – This benefit is available to HOME LOAN borrowers only where all eligible borrowers are entitled to receive an upfront benefit of up to Rs. 2,67,000/- in the form of subsidy under PMAY as a part of CLSS.

Once approved, the subsidy amount is credited to the borrower’s account which in turn reduces their outstanding balance.

 

7. Helps improve credit score – Making timely payments of HOME LOAN EMI helps improve your credit score. In case, someone has a low CIBIL score due to bad credit history in the past can benefit from this facility as availing a HOME LOAN is easier than having a personal loan since HOME LOAN is a secured loan backed by security or collateral.

 

COST INVOLVED IN AVAILING A HOME LOAN FACILITY

The following is the schedule of charges that you are likely to incur for availing a HOME LOAN facility.

PRE-SANCTION CHARGES

1. Bank Processing Fees – Processing fees are upfront fees that banks charge for processing the loan. The amount differs from bank to bank and ranges from 10,000/- to 0.5% of the loan amount.

 

2. Legal Fees – Fees charged by bank advocates for assessing the property credentials and issuing reports. The amount ranges from 4,000/- to 6,000/-.

 

3. Valuation Charges – Fees charged by valuers for conducting the valuation of the property. The amount ranges from 1,500/- to 20,000/- depending on the size and valuation of the property.

 

4. Structural audit – If the property is older than 12 years, the bank usually conducts a structural audit to verify the residual life of the building and accordingly sanction the loan.

 

POST-SANCTION CHARGES

1. Franking Charges – It is a government tax and the amount is 0.30% of the sanctioned loan amount.

 

2. Notice of Intimation – This is for noting the charge with the sub-registrar office. The amount is 0.5% of the loan amount or 15,000/- whichever is lower.

 

3. Property Insurance – Property insurance is made mandatory by some banks and the premium is usually charged once during the life of the loan.

 

4. Cersai Charges – This is also a kind of tax which is as low as 118/- only.

 

POST-DISBURSEMENT CHARGES

1. Interest Payments – This is interest charged on the outstanding balance as a part of EMI.

 

2. Penal Interest and late payment fee – This is the penalty for being late on making EMI payments.

 

3. Prepayment Penalty – This is a penalty that bank charges for making pre-payments on fixed-rate loans.

 

4. Conversion Fee – Borrowers can request their bank to adjust their interest rates in line with current market rates by paying a conversion fee. The amount ranges from 5,000/- to 10,000/- plus taxes.

 

5. Admin Charges – These are additional charges for providing certain administrative services like issuing a List of Documents, duplicate account statements, providing a copy of original title documents, etc.

 

BASIC INSTRUCTIONS TO ALL THE HOME LOAN BORROWERS

WHAT TO DO AFTER THE LOAN DISBURSEMENT?

The following are some of the instructions that all the HOME LOAN borrowers must follow immediately after they get their loan disbursed.

1. Preserve your original “Sanction Letter” – A “Sanction Letter” specifies all the terms and conditions of your loan contract and is an important document for future reference purposes.

 

2. Get your net banking facility activated – These days with the development of digital platforms, most of the loan related information, availing certain services and obtaining documents like loan account statement, interest certificates, making transactions from overdraft account, viewing updated loan terms like rate of interest, balance amount and tenure, etc. are easily accessible online. Hence, signing up for this facility can help borrowers track their details at ease.

 

3. Request for “List of Documents” from your lender – “List of documents” is a letter that is issued by your HOME LOAN provider as proof that they have collected all original property documents from you and preserved them in their custody.

It is most commonly known as “LOD”.

It is an important document to have when you transfer your loan balance to another lender.

Also, it can come really handy to cross-verify the documents that you receive from your lender after paying off the loan. In case, any document is found missing, you can hold your lender accountable for the same.

Your lender may or may not give you this document proactively. Hence, it is then your responsibility to ask for “LOD” at the time of submitting all the to the bank and check whether all documents are mentioned correctly with dates and document number.

Original documents consist of your original chain agreement, original share certificate, NOC, payment receipts, possession letter, etc.

 

4. Request a copy of the Amortization Schedule from your lender – “Amortization Schedule” gives you the detailed summary with a break-up of all future installments that you will pay until the end of the loan. It shows the allocation of principal and interest from the EMI payment month on month.

Hence, for a 20 years loan, a borrower can get a fair idea on how much his loan outstanding will be after a specific period and out of 240 how much will be allocated towards the principal and the each month.

 

5. Keep a record of Post Dated Cheques – You may have to provide 8 to 10 post-dated cheques (PDC) or undated cheques (UDC) to your HOME LOAN provider at the time of loan disbursement. These cheques are security cheques that your lender will insist on.

In case, the borrower stops making payment, these cheques will be used and sent for clearing. If dishonored, the bank can take legal action against the borrower since cheque bounce is a legal offense.

Please keep a record of all such cheques as you may want them back after closing the loan. You can either insist the bank give a letter specifying the details of these cheques or simply preserve the copy of the counterfoil which is attached to the front or the back of the cheque book.

 

6. Request for tax certificate well in advance – Tax certificate is something every borrower will require at the time of making investment declaration and filing income tax returns.

For declaration, a provisional tax certificate specifying how much principal and will be deducted during a financial year will be required whereas, for tax filing, an actual tax certificate showing the exact amount of principal and interest being paid will be required after the end of the financial year.

 

WHAT TO DO AFTER THE LOAN IS PAID OFF?

The following are some of the instructions that all HOME LOAN borrowers must follow immediately after they pay off their loan.

1. Collect all original documents and “Title Deeds” – While visiting the bank for collecting all original title deeds, do carry the original “List of documents” to cross verify the documents with the details mentioned in the “LOD”. In case it is found that the bank has misplaced any of the documents, then they should be held accountable for the same.

 

2. Obtain original “No Dues Letter” – “No dues letter” also known as “NOC” is a letter issued by the bank confirming that all the pending dues are cleared, the loan is closed and the lien on the said property is released.

It is an important document to preserve for future reference and will be very useful in case of a dispute for incorrect credit reporting. If these documents are difficult to maintain then keep a scanned copy in your digital folder or email.

 

3. Collect all Post-dated cheques – You must have given few blank cheques or post-dated cheques also known as “PDC” at the time of availing the loan which will not be mentioned in the “LOD”. Please remember to collect all unused cheques to avoid any fraud in the future.

 

4. Check CIBIL records – Taking reference from past cases, despite paying off the loan, the bank may miss out on reporting your loan as “Closed” to the credit bureaus or may erroneously misreport it as “Settled” or “Written off” which may dampen your credit score and further delay may cause irreparable damage to your credit history.

Hence, it is of utmost importance to check your report only on www.CIBIL.com 45 days after the loan closure date.

 

5. Get the charge released from Cersai – As we already discussed, the bank at the time of loan disbursement collects 118/- as cersai charges to mark a lien with cersai.

Upon closure of the loan, the same needs to be released and acknowledgment of the same should be kept in record.

 

TAX BENEFITS ON HOME LOAN

All HOME LOAN borrowers are eligible to get tax benefits under 3 sections :

1. Section 80C for principal repayment: The amount paid towards the repayment of principal of the HOME LOAN is allowed as tax deduction under Section 80C of the Income Tax Act. The maximum tax deduction allowed under this section is Rs. 1,50,000/-.

This tax deduction under Section 80C is applicable on a payment basis only and not on an accrual basis, irrespective of the year for which the payment has been made.

The amount paid towards the Stamp Duty & Registration process is also allowed as tax deduction under Section 80C even if the assessee does not take any HOME LOAN.

The best way to use this benefit is by getting the property registered and making these payments between January to March.

For loans on under-construction properties, section 80C benefit is not available.

However, tax benefit under this section for repayment of HOME LOAN principal is allowed only after the building is fully constructed and the occupancy certificate is awarded.

No deduction would be allowed under this section for repayment of principal for those years during which the property was under construction.

 

House Property should not be sold within 5 years

Section 80C(5) also states that in case the assessee transfers the house property on which he has claimed tax deduction under section 80C before the expiry of 5 years from the end of the financial year in which the possession is obtained, then no deduction and tax benefit be allowed under Section 80C.

The aggregate amount of tax deduction already claimed in respect of previous years shall be deemed to be the income of the assessee of such year in which the property was sold and the assessee shall be liable to pay tax on such income.

2. Section 24B for interest payment: Tax benefit on HOME LOAN towards the payment of Interest is also allowed as a deduction under Section 24 of the Income Tax Act.

The maximum tax deduction allowed under Section 24 of a self-occupied property is Rs. 2,00,000/-.

In case, the property for which the HOME LOAN is taken is not self-occupied then no maximum limit has been prescribed in this case and the taxpayer can take a tax deduction of the whole interest amount under Section 24. However, the maximum limit for a year will continue to remain Rs. 2,00,000/- only and the remaining amount shall be carried forward up to 8 financial years.

It is also important to note that unlike section 80C, this tax deduction of interest on HOME LOAN under Section 24 is deductible on a payable basis, i.e. on an accrual basis. Hence, deduction under Section 24 can be claimed every year even if no payment has been made during the year as compared to Section 80C which allows for deduction only on payment basis.

Moreover, if the property is not acquired/constructed within 5 years from the end of the financial year in which the loan was taken, the interest benefit, in this case, would be reduced from Rs. 2,00,000/- to Rs 30,000/- per annum only. (Limit increased from 3 years to 5 years from FY 2016-17 onwards).

Quantum of Deduction allowed for Payment of Interest on Home Loan under Section 24
Type of Property	Self Occupied Property		Not-Self Occupied Property
Completion Status	Completed within 5 years	Not completed within 5 years	Completed within 5 years	Not completed within 5 years
Deduction Allowed	Rs. 2,00,000	Rs. 30,000	No Limit	No Limit

Budget 2017 Update

In the case of non-self occupied property, the interest paid is reduced from the rent paid to arrive at the Income from House Property. In some cases, it may happen that the Interest paid is more than the rent earned which will result in loss from House Property. This loss is allowed to be set-off with Income from any other 5 heads of income.

The Finance Act 2017 announced on 1st Feb 2017 has put a restriction on the maximum amount of loss under the head house property that can be set-off from other heads of Income.

From the financial year 2017-18 onwards, loss of the maximum of Rs. 2,00,000/- per assessment year is allowed to be set-off with Income from other heads.

The amount which is not set-off in that year shall be carried forward up to 8 assessment years. However, any such carry forward losses can only be set off against the same head i.e. Income from house property and not against any other head.

Also, such carry forward losses should be adjusted with loss from house property in the subsequent year itself.

 

Income Tax treatment of Pre-Construction Interest

In many cases, a HOME LOAN is availed for buying a house property even before the property is fully constructed. The borrowers in such cases start paying EMI to their bank.

In such cases, Section 24 very specifically states that tax deduction for payment of interest shall not be allowed before the construction is complete.

In such cases, if a loan is taken for the purpose of Repair/ Renewal/ Reconstruction: No tax deduction allowed for interest paid before completion.

However, if a loan is taken for Purchase/ Construction, the Interest that has been paid before the completion of construction should be aggregated and the whole aggregated amount shall be allowed as a tax deduction in 5 equal installments for 5 successive financial years starting from the year in which the construction is completed.

For eg: Mr. A purchases a House in New Delhi in 2009 and took a HOME LOAN of Rs. 10,00,000 from a bank @ 10% p.a. The Construction was completed in April 2011.

Now, As per Section 24 of the Income Tax Act, the tax deduction for payment of Interest would only be allowed from the financial year 2011-12 onwards.

However, the Interest paid on Loan before the completion of Construction (i.e. Rs. 2,00,000) would be allowed as a tax deduction for the next 5 Financial years @ 40,000 p.a. commencing from Financial Year 2011-12 onwards.

 

3. Section 80EE for first time home buyers (Effective 1^st April 2016)

Additional deduction of Rs. 50,000/- on interest every year is announced in budget 2016. This benefit will be given over and above the benefits of section 24 and section 80C.

Below conditions should be satisfied to claim under this section.

• The value of the property purchased is less than Rs. 50,00,000/- and the value of the HOME LOAN taken is less than Rs. 35,00,000/-.
• The loan should be sanctioned between 1st April 2016 and 31st March 2017.
• The benefit of this deduction would be available till the time the repayment of the loan continues.
• This Deduction would be available from the financial year 2016-17 onwards.

In case you buy multiple properties then only one residential property can be claimed as self-occupied.

Even If you occupy (or may be your parents) more than one property for your residential purpose, only one house is treated as self-occupied property.

Which one to choose as self-occupied is left to your discretion. The other(s) are treated as “Deemed to be let out” (DLOP) properties.

You also need to know that you may also have to pay a wealth tax on the second house as only one residential property is exempted from it. However, if you give your second house on rent for more than 300 days in a year, it will not be subject to wealth tax.

A HOME LOAN taken from a friend or any 3^rd party for any of the above purposes is eligible for deduction under section 24 but not under section 80C.

Expenses incurred towards the repair and maintenance charges are not allowed as a deduction on income from house property. However, a standard deduction @ 30% of the gross value (generally the rent received) is allowed to compensate for the repair and maintenance expenses of a house property.

This is allowed irrespective of the actual expense. Also, deduction towards municipal taxes paid during the financial year is allowed irrespective of the year to which it pertains. The above does not apply to a self-occupied property.

Following conditions should be satisfied for the property to be called a self-occupied property :

• If you own a house property and stay in it.
• If such property cannot be occupied by you, because owing to your employment, business or profession carried on at any other place (other than the place where your self occupied property is there), you have to reside at another place in a building not owned by you.
• The property should not be let out at any time during the year, partially or fully.