Due to astronomical prices of real estate assets, large majority of people need long-term financial assistance and the few who have means to buy, wish to avail home loan, one for Income Tax deductions available on repaying the loan and secondly to avail subsidy under CLSS (Credit Linked Subsidy Scheme under Prime Minister’s Awas Yojana).
Since the dawn of new millennium, every bank, specialized Home Finance Company (HFC) and other lenders have given thrust to provide home loans, as home loans are considered fully secured by way of mortgage of the property under finance and the best part is that the value of properties appreciate over the years, thus fortifying the security.
Lenders provide home loans basing on the repayment capacity of the applicants and fund up to 80-85% of cost of the property. For repayment capacity, lenders appraise the applicants basing on regular income, their assets and liabilities, repayment of other loans and give utmost importance on the credit score and customer information report as issued by CIBIL Ltd. or other credit information companies.
Even if higher repayment capacity is established home loan amount will be restricted to loan to value (LTV) ratio of 80-85%. Home loans are available for construction or purchase of house property, either ready to occupy or under construction. For under construction properties, loan amount will be released in instalments as per construction progress to ensure end utilization of the loan amount for the purpose of house acquisition.
Our trained Counselors provide guidance right from the conceptualization of house purchase/construction, educating the clients on all aspects of legal, technical and financial aspects of home loan processing. Since there are lot of fine prints in loan processing, we will educate our clients on selecting the right Bank/HFC and right loan option. We will handhold the client until the loan is sanctioned and disbursed and throughout loan repayment period. As Banks/HFCs are making insurance option almost mandatory, we will negotiate and get the best insurance option at most affordable premium.
Every bank/HFC will have a template to apply for home loan, which consists of personal, financial and property details, which is to be filled-in and submitted along with processing fees.
- Identity Proof (Passport/PAN/Aadhar Card/Driving Licence etc. – any one)
- Residence Proof: (Passport/Aadhar Card/Driving Licence etc. – any one)
- Passport size photos
- a) Salaried class:
- Latest salary slips
- Form 16 of previous years
- ITRs for last 2 years
- Bank statements for past 6 months showing salary credits
- Loan statements, if any with repayment track records
- Assets and Liabilities statements
- Income proof, if applicants have income other than salary
- b) Self employed class:
1) Profile of applicants and their business/profession, website details and licences to run the business/profession
2) Audited Balance Sheet, Profit and Loss Account, Income Tax returns for past 3-5 years of both Individual and Firms
3) Bank statements for the past 2 years of both individual and firm’s
4) Loan statements, if any with repayment track records
5) Assets and Liabilities statements
- Title deed in present owner’s name and previous title deeds
- Sale Agreement (if loan is sought for purchase of property from third party)
- Construction Agreement (if loan is sought for purchase of property from Builder)
- Latest Encumbrance Certificate for last 13 years
- Latest Khata
- Latest Tax paid receipt
- All other link documents and revenue documents of the property for last 13 years
- Layout plans and construction plans approved by competent authorities
- Other statutory approvals issued by various Govt. agencies
The checklist as above may vary slightly from one bank to another.
Financial, Legal and Technical appraisals:
Every Bank/HFC will have their own credit manual for sanctioning and disbursing home loans formed under the guideline of RBI/NHB. Credit norms would be similar, but may vary slightly from one bank to another.
Banks/HFCs will verify the financial documents to understand the financial capacity to repay the loan and to understand the credit worthiness will have credit interview and refer to CIBIL score and report. If CIBIL score is less that 650, leading banks/HFCs may even reject the home loan application.
Since prime security to advance home loan is the mortgage of the property, Banks/HFCs hire the services of Panel Advocates for title verifications and Panel Engineers for Valuation and various approvals required for the property development. Of late due to heavy competition and rampant deviations in development/construction of projects, Banks/HFCs are diluting the set norms of strict legal and technical verifications and sanctioning loans for mediocre properties. As such, later on after loan is disbursed, even if title is found to be defective or even the funded building collapses/demolished by authorities, Banks/HFCs have rights to recover loans through normal EMIs.
Under these circumstances, it is strongly recommended to hire the services of a well versed Property Advocate and a Licensed Architect/Chartered Engineer to thoroughly verify the title to the property and the technical soundness of the property, before deciding to buy any property. We at ‘PropSeva’ provide full range of legal and technical verifications of properties at affordable costs.
After satisfactory financial, legal and technical verifications, loan sanction letter will be issued by Bank/HFC mentioning loan amount sanctioned, interest rate, EMI (Equated Monthly Instalment), repayment tenure and other terms and conditions.
The loan amount will be disbursed only after documentation (acceptance of sanction letter, execution of loan agreement, executing ECS mandate, providing 5 security cheques, etc..) and creation of mortgage, if title vests with applicants.
In case of construction finance, the mortgage will be created upfront before releasing the first disbursement of loan amount. Loan amount will be released in 3 to 4 instalments depending on the construction progress after ensuring margin money and earlier loan instalments are utilized in construction. But in case of purchase of ready to occupy unit, the loan amount will be released against registration of sale deed and soon after obtaining registered sale deed the mortgage is created.
In case of purchase of under construction property, sale agreement and construction agreement (originals) will be collected and loan amount will be released in 3 to 4 instalments as per construction progress. However the final instalment will be released against registration of sale deed and followed by creation of mortgage.
Technical Inspection by panel engineer or Architect plays a vital role in ensuring quality of construction, desired stage of construction and releasing of loan instalment.
Once a part of loan is released, simple interest on the amount released needs to be paid on monthly basis, which is known as Pre-EMI Interest. The borrower can also pay regular EMI as an option. Once the loan amount is fully disbursed, the borrower has to start paying regular EMIs from the subsequent month.
Banks/HFCs will issue annual statements of loan repayment to the borrowers informing the Interest paid during the year and the principal loan amount recovered. The statements are necessary for claiming Income Tax deductions. It may be noted that by making proper computation of income and considering the deductions available for interest payment and loan repaid, both borrowers can maximize such tax incentives. For second house also income tax deductions are available.
If the loan is availed on variable/floating interest rate scheme, either part prepayment or loan pre-closure will not attract any fine or any other extra charges. And if loan is availed on fixed rate, there shall be pre-closer charges between 2 to 3 percent of outstanding loan amount.
Under the guidance of mortgage bankers and senior CAs, we will guide our clients on drawing loan amount sanctioned, selecting proper repayment schedules, prepayments and pre-closures and suggest on maximizing income tax incentives.