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What are the factors to keep in mind before getting a home loan?

Many factors such as your income, age, number of dependants, qualifications, assets and liabilities, income stability / continuity of your employment / business, etc. are considered when assessing your repayment capacity. Points to note: You must be at least 21 years of age for the loan to be sanctioned. The loan must terminate before or when you turn 70 years of age. You must be

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What is my home loan eligibility?

A lender needs ‘proof’ to believe that you can make repayments on your loan. For this, he/she/they will take a thorough look, not just at your income statements, but also your assets and liabilities, your credit history to see how you handle repayments on credit cards and other existing loans, your education and work experience to see how qualified you are to meet your professional and financial goals, and whether you can really afford a large debt burden like a

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What is a CIBIL score?

A CIBIL credit score represents an individual’s financial stability, and helps lenders assess his or her financial credibility. CIBIL is India’s first credit information bureau, a repository of information of your repayment track record on your loans and credit cards.

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Understanding poor CIBIL scores

The reason why you have a poor CIBIL score is because your CIBIL credit report is poor. So, the first thing you do is pull out your credit report and see what is wrong with it. Sometimes there may be disparities in your report like a loan that you may have closed may not have been updated on CIBIL by your previous bank. If you find such a discrepancy, raise a dispute via the Dispute Resolution

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What are the Tax Benefits that one can avail on Home Loans?

The benefits that income tax authorities provide, as a result of servicing a housing loan from specified financial institutions, is documented over several sources. The following provides for some direction:

Tax Benefits

A positive impact on your credit score

A loan that is backed by an asset is called a secured loan. A home loan is a secured form of loan and such loans have the largest positive impact on your credit score when they are repaid on-time.

Credit Score

A loan approval by the bank is a validation of your property

If Bank A agrees to give you a loan on the property of your choice, it means it is satisfied with the evaluation process of your home to be and gives its stamp of approval on the property. A lender approved property is always easier sell, when required.

Property Validation

Understand your Tax Benefits
Deduction from house property - Section 24 of the Income Tax Act

This section deals with deduction available u/s 24(b) - Interest paid on capital borrowed for purchase, construction, repair, renewal or reconstruction of property. That is, you are allowed to deduct an amount equivalent to the total interest payable on the housing loan from your taxable income within the same financial year, the maximum amount eligible for deduction if capital is borrowed on or after 1st April 1999 in the case of self-occupied property to Rs.2,00,000.

The criteria being:

a) Capital is borrowed on or after 1st April 1999 for acquiring or constructing a property.

b) Acquisition or construction should be completed within 5 years (3 years, applicable up to the Assessment year 2016-17) from the end of financial year in which the capital was borrowed.

Please note that

Interest of pre-construction period is deductible in five equal instalments. The first instalment is deductible in the year in which construction of property is completed or in which property is acquired.

If Capital is borrowed for any other purpose, i.e. if capital is borrowed for reconstruction, repair or renewal of house property then the maximum amount of deduction is available Rs.30,000.

Section 24

Deduction from Gross Total Income - Section 80C (2) (xviii) of the Income Tax Act

A deduction is available on repayment of principal during a financial year up to Rs.1,50,000. This aforesaid limit is within the overall limit of Rs.1,50,000 lakh specified in section 80C of the Income Tax Act.

Stamp duty, registration fee or other such expenses paid for transfer of such house property to the assessee is also considered under this amount. This deduction is made from one’s Gross Total Income.

section 80

Income Tax certificate:

Every bank issues an Income Tax Certificate that serves as requisite proof to let you avail of tax benefits that accrue on repayment of a home loan. This will typically contain the total amount of interest and capital repaid during the Year. The Income Tax Certificate is mandatory to claim the tax benefit in respect of self-occupied property.

You will have to file it with your tax returns and submit this to your employer or Chartered Accountant to calculate your tax liability Although there is no denying that taking a home loan is a big financial burden, one cannot ignore the fact that it comes with multiple benefits too. Being aware of the tax benefits of a home loan, can help you maximize your savings on your investment.

Income tax certificate

What Documentation is needed?

We have made a ready reckoner to help you get your documentation in place. In case original documents are not accessible, then the registrar’s office may help with the duplicate copies.

Documents that need to be verified before buying a residential / commercial unit

  • Ownership Documents of the Land Owner/Promoter including title certificate.
  • Development Agreement, if the Developer/Promoter is not the owner and has acquired the development rights.
  • Intimation of Disapproval (IOD)/Development Permission/ Commencement Certificate and the building plan/s approved by the competent authority.
  • Commencement Certificate.
  • Other permissions issued by the competent authority depending on the nature of plot/type of development.
  • If the construction is completed, then the Occupancy Certificate issued by the competent authority.
  • Draft of Agreement for Sale and brochure for specifications, layout and amenities in the flat/complex/layout.

Documents which are required to be executed if the intended purchaser wishes to proceed for purchase of premises

 The Developer/Promoter shall execute an Agreement for Sale as per the provisions of the Real Estate (Regulation & Development) Act, 2016

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What is the procedure for execution of the Agreement for Sale?

 The procedure involved is three-fold:

 Firstly, the payment of adequate stamp duty on the Agreement for Sale. Secondly, Execution of the Agreement for Sale by the Developer/Promoter and the Purchaser/Allottee(s). Thirdly, Registration of Agreement for Sale.

Stamp Duty: Unless there is an agreement, the stamp duty shall be borne and paid by the purchaser as per Section 30 of the Maharashtra Stamp Act, 2013. The stamp duty to be paid on the Agreement for Sale shall be equivalent to 5% on the market value of the unit. The mode of payment of stamp duty is E-Payment through GRAS (Govt. Receipt Accounting System).

Execution: After the payment of stamp duty on the Agreement for Sale, the same shall be duly executed by all the parties, i.e. the Developer/Promoter and the Purchaser/s. All the pages of the document should be signed by all the parties.

Registration: The duly stamped and executed Agreement for Sale should be presented at the office of the concerned Sub-Registrar of Assurances for registration within 4 (four) months from the date of execution of Agreement for Sale.

Registration of the Agreement for Sale is compulsory as per Section 17 of Indian Registration Act, 1908.

The registration fees shall be an amount being 1% of the market value of the unit, subject to maximum of Rs. 30,000.

Procedure

What documents are required across the process of applying, being approved and receiving disbursements of a home loan?

  • Proof of Income: a) For salaried Apllicants, minimum 4 months’ salary slip along with 2 years form-16. b) Self Employed, Professionals 3 years ITR with Profit and Loss, Balance Sheet and all the Annexures(if any)
  • Business profile with details on the nature of business, list of clients, suppliers, staff strength, geographical spread, etc.
  • Age proof: PAN card, Voters ID, Passport, or License
  • Copy of ration card or company ID card
  • Updated bank passbook or a copy of the statement of accounts for the last 6 months for salaried and 1 Year for Self Employed/Professionals.
  • Copy of educational qualifications certificate/s and proof of business existence like Shop Act Registration copy, GST/TAN registration
  • Cheque for processing fees, Certificate in original from employer for any other allowances which are not reflected in salary slip
  • Passport size photographs of applicant and co-applicant
  • You may be asked to submit further legal documents if required by the bank, or its approved lawyers. Retain photocopies of all the documents being submitted by you.
Documents Required for Property

What are the list of documents for disbursement of a loan?

Your loan will be disbursed after you identify and select the property that you are purchasing and submit the requisite legal documents. Each and every single document asked for will be verified and checked for your safety. This may take some time but we want to ensure a clear title by completing all the legal and technical verifications so that you have full rights to your home. The 230 A Clearance of the seller and / or 37I clearance from the appropriate income tax authorities (if applicable) is also needed. On satisfactory completion of the above, registration of the conveyance deed and investment of your own contribution, the loan amount (as warranted by the stage of construction) will be disbursed by Bank. The disbursement will be in favour of the builder/seller.

List of documents for disbursement

Loan Agreements

Disbursement Requests

Post-dated cheques

Personal guarantors’ documents (if any), as called for

Documents List

What are the Pros and Cons of a Floating Rate Home Loan?

The benefits of opting for a floating rate of interest
The one clear benefit that a floating interest on a home loan has been that it is cheaper than a fixed rate by at least 2 to 2.5%. Even if there were to be a case where a floating rate exceeds a fixed rate of interest it will only be for some period of your entire loan tenure as interest rates are cyclical in nature. Needless to say, floating interest rates bring in a lot of savings for the borrower when the interest rates soften in the market. Interest rates would reduce in future automatically if Bank reduces the ROI on loans in future. 

The drawbacks of opting for a floating rate of interest
The drawback of such rates is the impact they have on your monthly outgo as EMI. Given the uneven nature of floating rates, either your EMI may shoot up one fine month throwing your monthly budget out of gear or you may end up repaying substantially higher due to an increase in your loan tenure (EMI remains same). However, if you think that this aspect does not bother you, going in for a floating interest rate does indeed make sense.

Floating_Rate.png

What are the Pros and Cons of a Fixed Rate Home Loan?

Your EMI remains the same irrespective of the conditions prevailing in the market. It is a great option for those who are good at budgeting and do not want their monthly outgo to go haywire because of market conditions. 
Gives the borrower a sense of security and peace of mind. 

Drawbacks of opting for a fixed interest rate:

The major disadvantage of a fixed rate of interest is that it is at least 1-2.5% higher than a floating rate of interest. The other disadvantage of such a loan is that if the interest rates decrease significantly, a borrower who has opted for a fixed rate of interest does not get any advantage. As a borrower, you must also cross check with your bank whether you are allowed to fix your interest rate for the entire loan tenure or only for a few years. If you perceive that the interest rate cycle will be on the rise for the next few years, it’s a good idea to be locked under the regime of a fixed interest rate on your home loan.

Fixed Rate

What is an EMI? How does it work?

 If you are planning to get a home loan, the EMI or the equated monthly instalment will be your main consideration. EMI is the sum of money that you as a borrower will pay your lender to clear your outstanding loan. These payments are made every month on a date that is stipulated by your bank till such time that the loan has been completely repaid. The four things that go into the calculation of an EMI are the loan amount, Principal, Rate of interest and Tenure of loan.

 The most popular method of computation is that of ‘monthly reducing loans’. In the monthly reducing cycle, the principal is reduced with every EMI and the interest is calculated on the balance outstanding. The majority of the retails such as Home loans, auto loans and personal loans are computed on a monthly reducing basis.

Effectively, therefore, in the initial years of the loan, a major component of the EMI is the interest that is payable by you. As the loan tenure reduces, the interest component reduces too, as the principal gets paid. Note that an increase in the tenure of the loan, will lead to an increase in interest rates and therefore, the interest component of your loan. As a borrower, you should try and pay as much of EMI as possible, and shorten the tenure of the loan.

EMI optiion

Tips for a smooth home buying experience:

Plan how much loan you can afford

Filtering out options that are outside your budget is the first step you can take to save your time while searching for a home. It will also help you to manage your finances well after buying a house. Ideally, your entire loan EMIs should be within 50% of your monthly income.

Gather funds for down payment

Banks provide loans for a maximum of 85% of the property value, as in documents. This means, if you are buying an apartment worth Rs.50 lakhs, the maximum loan you may get is Rs.42.5 lakhs. You have to raise the balance 7.5 lakhs from your personal savings or from your family.  So, the next step can be gathering of funds for the down payment.

Know the loan basics

Find out what documents the banks need for sanctioning your loan, the process flow of home loan approval, how many days it will take for the banks to approve your loan, how the banks inspect your property, how they make the legal scrutiny, how they disburse the loan etc. Approval of home loan can be a lengthy process and doing your homework beforehand is necessary.

Get the best rate

Choose a bank that can offer you the best rate. Taking a loan from the bank where you have your salary account offers convenience. However, compare the offers of all leading banks online. At times, builders have tie-ups with banks and offer subsidized rates and other schemes for borrowers. Other schemes like 20:80 and waiver of pre-EMI can be enjoyed in such cases. Banks also come up with seasonal offers which can be also made use of with a little homework.

 

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