Housing Finance companies like HDFC, Birla Home Finance Ltd ,Canfin Homes LIC Housing Finance Private Banks like ICICI, Federal Bank, Axis Bank Nationalized Banks like SBI, Indian Bank, Union Bank of India, Indian Overseas Bank

Some of the basic criteria which banks’ looks at while issuing housing loans to individuals are employment, income, other liabilities, repayment capacity, credit standing. Any person who has completed 18 years age is eligible for applying for Home loan. The upper age limit is generally around 70 years. Persons employed with the government, Public Sector and Private sector companies, self-employed, businessmen, professionals etc are all eligible for availing housing loans. Even professionals in Arts and sports are eligible for loans. Every bank has got its own rules and regulations when it comes to the eligibility criteria for its buyers.

The loan is extended to different needs like constructing a new house, buying a home, repairing/renovating an existing house, buying land for the purpose of constructing a house, repaying of an existing loan with another bank, furnishing a house. The schemes vary from bank to bank .All banks may not offer loans for all these requirements.

The loan amount offered depends on two factors, a) Value of the proposed property b) The repayment capacity of the applicant. Value of the property is determined by the bank’s approved valuer. Repayment capacity is determined taking into consideration the income, other assets and liabilities of the applicant, the cash flow etc. There are several qualitative factors like occupation, education level, background, credit history etc which also go as inputs while arriving at the eligibility.

The maximum tenure offered is between 20-25 years.

From an interest rate point of view there are three types of loans being offered ie.. fixed interest, floating interest and a combination of fixed and floating. In all cases the interest calculation is done on a reducing balance basis. TIPS: All interest rates are negotiable. Banks use discretion to lower upto 0.5% from their rack rates. They generally allow this in case of their HNI’s and also in many cases the relationship. You could get this if you bargain well. Ask two or three banks for home loan offers and use that for negotiating as well as closing deal. Read the fine print. Do not sign any loan agreement without going through all what is written in a size 3 font. You may not be able to change policies but you will at least be aware as to what you are getting into.

Fixed Interest rate - On a fixed interest loan the interest rate remains fixed for the tenure of the loan. The advantage is that the EMI’s and the tenure of the loan are fixed and predictable during the tenure of the loan. TIPS : • Many private banks offer combination Interest Rate loans in the garb of Fixed Interest Rate loans. Check if a fixed interest rate is applicable over the tenure of the loan. • Fixed Interest rate is preferred if the general interest rates in the market are close to their historical lows and the outlook is that interest rates may rise in the future.

Floating interest rate – This means the interest rate on the loan is not fixed but is pegged to a market rate like MIBOR (Mumbai Inter-bank offer rate). Be wary of banks who peg this floating rate to an internal rate like the bank’s own Prime Lending Rate). The interest rate on the home loan is revised every 3 or 6 months depending on the movement of the interest rate it is pegged to. Banks adjust your EMI’s and /or the tenure of your loan when they revise the interest rates periodically. TIPS : • In the case of some of the banks you may have to demand the bank to revise your EMI’s when the market rates come down because in practice the banks help themselves with higher EMI’s when rates go up but the act in involuntary when rates come down. So watch what you pay. • Floating Interest rate is preferred if the general interest rates in the market are close to their historical highs and the outlook is that interest rates may fall in the future.

Combination Interest rate – Though bank’s do not mention of any such scheme, these days Fixed rate loans from many private banks are a combination of fixed and floating. The bank offers a fixed rate loan but reserves the right to revise rates every 3 or 5 years.

Typically the documents can be classified as • Documents relating to the property to be purchased • Documents proving ownership of the property to the current owner. This may include • Possession Certificate, Title deed, all prior deeds regarding the property. In case of multiple properties combined ownership documents on all the properties mentioned. • Encumbrance certificate from the date on the title of the ownership deeds. • Approved plan and sketch. • Location sketch. • Construction schedule. B) Documents relating to the borrower • Filled in Application form • Salary certificate from the employer • Proof of employment with current and previous organizations. • Income Tax returns receipts for last 3 years • Identity Proof • Address proof • PAN Card • Photographs • Bank statement for the last 6 months

Banks may charge various kinds of fees including processing charges, registration charge for the loan agreement etc Normally Banks charge 0.5 % of the loan as processing charge. Rs.10, 000 is the maximum. It can vary from banks to bank. TIPS: • Processing fees is negotiable. So feel free to bargain.

The loan is being approved within 2 days to one month time from the day of applying the loan. The process involves submission of the documents sought by the bank, which is then checked by the bank staff or external agencies deputed by the bank. On clearance of the documents which may require physical verification of information stated in the documents the bank approves the loan based on the applicant’s eligibility. The applicant has to accept the terms of the bank upon which the loan is disbursed. Disbursement may be in stages in the case of construction of house or buying of a yet to be built apartment.

Under the current personal Income Tax Laws those availing home loans can get exemption of Rs.100000 under Sec 80 C on interest repayment on the loan and upto Rs.1,50,000 on principal repayment

Some banks insist on the borrower insuring the home loan to the level of outstanding principal. The logic is that in case of an eventuality the bank can recover the outstanding principal at the earliest. Though the bank is in custody of the title deeds during the tenure of the loan and also the option to sell off the property to recover is always available to the bank, they find it simpler if the loan is insured. It makes sense to the borrower as well since his/her dependents need not worry about this liability in case of an eventuality.

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