Buyers Guide » Home Loans
Owning a home is a dream come true for everyone and one of the important steps towards achieving that dream is a home loan.
Let’s understand how to go about a home loan through some of the most frequently asked questions:
Am I eligible for home loan?
- Are you an employee in a reputed firm or Government organization or professional having regular flow of income?
- Have a clean financial record? And good savings habits?
- Is your income sufficient enough to repay the Home loan in equated monthly installments (EMI) s?
If your answer is YES to all the three questions, getting home loan may not be a problem for you. The fact that you have chosen a reputed construction company in Hyderabad, makes your task much easier.
Simple steps of a home loan
Home Loan can be termed as a marriage between a bank and individual at least for over a decade. So naturally, getting home loan involves many steps. They are...
- Short listing of Banks
- Submission of Application
- Personal Discussion with banker
- Field Investigation
- Credit appraisal and loan sanction
- Issuing of Offer Letter
- Submission of property documents - legal verification
- Technical evaluation
- Signing of agreements and submitting post-dated cheques
Submission of application
Submission of the application is the second step. Typically, basic information about your Profession, Saving habits, assets, liabilities, details of the employer, dependent family members, property, estimated cost, and your means of financing the same should be declared. You have to submit many documents along with the application as a proof for your claim.
The documents required are as follows:
Proof of income: This will be the primary proof. All the banks insist on last three years Income Tax Return forms- Form 16, Bank account statement for the last six months, Salary slips or certificates, age proof, address proof and identification proof.
Age and address proof: You need to submit any one from the list stated here. Copy of your SSC certificate/Driving license/Passport/ration card/PAN card/Electoral Identity Card, PAN Card, Electoral Identity card, Driving license card are suffice for the address proof.
Identity proof: PAN Card, Driving License or Passport will be required as proof of identity
Employers Details: If you are not working in Government or reputed private company, you need to provide details of your employment. You need to provide brief information about the nature of your employer, business activity, financial status, turnover, profit, major customers, number of employees etc.
The forms, statements submitted by you are the basis for the banker to decide whether you are eligible for home loan or not. Each document would be carefully scrutinized for eligibility.
If you are a Businessmen or a Professional, banker looks out your bank account statement to know the level of business activity. It speaks volumes about your financial health. If you have insufficient or low funds in your bank account most of the times, you may be in trouble. It is always advisable to keep sufficient amount in your bank account. It always helps in a having a good track record.
Be aware that the cheque bounces will prove to be major negative factor in your efforts for securing the loan. One or two instances may be pardoned. Each and every bank will have specific norms as to how many such bounces are acceptable in a period of one year.
Account statement will also reflect your payments to the banker, financial institution. In this case, you will need to provide full details to the Present lender. Never hesitate to submit full details of your existing investments. A Clean Bank Statement with regular savings and investment record will certainly be appreciated by the banker.
Processing fee :
Processing an application is a complicated process and job, which requires expert services. That is the reason, why banks collect processing fee upfront. You need to pay fee while submitting the application itself. Processing fee Varies from bank to bank. It is normally around 0.25% to 0.50% of the total loan amount. For example, if you take 10 lakhs loan, you will have to pay around Rs 2,500 to Rs 5,000 as processing fee. Some banks may charge fixed amount which is ranging from Rs. 5,000 to 10,000. On special occasions, banks usually waive the processing fee.
Some banks may not charge processing fee upfront. But look out; you may need to pay legal charges or administrative fees.
As far as possible, choose best residential properties from reputed builders in Hyderabad. Their properties will normally be approved by the bankers. Bankers offer loans on easier terms and offer discount in processing fee. You may get loans with cheaper rates also.
This process can be compared with written test. If your answer sheet that is application form is found to be satisfactory in all aspects, you may be called for oral interview in the form of personal discussion. Typically banks take anything from 10 days to 30 days to evaluate your application. The aim of the personal discussion is to gather more details about you, which may not be mentioned in the application. So you are required to keep all the relevant documents along with you, while going for personal discussion.
Banks never go blindly. The bank verifies all the information submitted by you including your residential address, place of employment, employer credentials, residential and work telephone numbers. Normally, this verification process will be outsourced to the specialized agencies.
Credit appraisal and loan sanction
This stage will set for deal or no deal. If the banker is satisfied with your application and credentials, rest assured, you will be getting a home loan to buy residential property in Hyderabad. The banker then issues a Home Loan Sanction Letter. Sanction letter may either be an unconditional one, or may have certain terms and conditions, which you have to fulfill before the loan amount is disbursed.
Home Loan Offer Letter
Home Loan Sanction or Home Loan Offer Letter contains the following details. Loan amount rate of Interest, type (Whether fixed or floating), if the rate is floating then the reference rate, periodicity of the rate revising, tenure, mode of repayment etc.
If you agree with the details mentioned in the home loan offer letter, you will have to sign a duplicate letter of the same for the bank’s records. Never sign on dotted line without verifying the details like the rate of interest, loan amount on the offer letter is the same that was discussed and mutually agreed upon.
Bank checks thoroughly all the documents submitted by you. This is to validate their authenticity. Even the Agreement of Sale you will be entering into with your seller will also be scrutinized thoroughly. For this scrutiny, every bank will have a panel of legal experts. Scrutiny job will be entrusted to one of the members in the panel. Some banks may have in-house legal experts. Even if you pass the financial acid test, unless you cross this hurdle, loan may not be disbursed. If the document found is clear in all aspects, the lawyer will give a go ahead. Sometimes legal expert may call for additional documents.
Submission of property documents
You are required to hand over the entire set of original documents pertaining to your property to the bank. Again, if you have chosen a reputed builder’s property, and the property is approved, this may not be necessary, as the banker would already be in possession of the above said documents. Otherwise, you have to submit all the original documents pertaining to the proposed property. Which normally includes documents, link documents related to the land, sanctioned plan, building plan, architect-structural designers certificate, no objection certificate from the concerned authorities etc.
Banks will send an expert to visit the premises you intend to purchase. Normally this job is done by Civil Engineer or an Architect. Some banks may send senior employees to evaluate the property. The main aim of this evaluation process is to ascertain the quality of construction. If the property is under construction, to determine the stage of construction & to verify the same as that mentioned in the payment notice issued to you by the builder. Banker also tries to confirm layout of flats and area of property is in compliance with permissions granted by the concerning local body.
Banks carry out an independent valuation to determine whether purchase is in line with the existing market price of the area where property exists. Valuation is the key yardstick in determining the loan amount that can be sanctioned by the bank. The valuation issue rarely arises when property in Hyderabad is purchased from a reputed builder and the residential apartment is a pre approved one.
Signing the home loan agreement
You are required to enter in to a tripartite agreement with the builder & banker.
You also need to submit post-dated cheques for the first 36 months, if you agree for this mode of repayment. This agreement will contain a condition binding on the builder to hand over the documents after the registration.
After the legal scrutiny, technical verification and evaluation, the draft documents after legal clearance from the lawyer need to be registered with the Sub Registrar. Registration fee and relevant charges are to be borne by you.
Bank typically finance up to 75-80% of the property value. That means you have to contribute at least 20-25% of the property value from your own funds. In banking parlance, it is called the Margin. Registration charges and the cost for interior decoration may be considered the part of the property value. Before commencing disbursal, you need to submit documents to prove that you have paid the margin money. Many of you may need to withdraw money from Provident fund. It may take a while to receive money from PF Authorities.
If that is the case, you need to provide sufficient evidence for the same. It is only after submitting this proof that the bank will release part-disbursement of the loan directly to the builder. So, the cheque will be in the name of the builder.
Usually, loans are disbursed on the basis of the stage of construction of the residential apartment. In case of resale or ready to occupy properties, the disbursement is full and final.
In case of partial disbursal, the bank does not start to deduct Equated Monthly Instalments (EMIs) immediately. Since, the EMI is calculated on the total loan amount at a particular rate of interest and for a given tenure. Banks charge simple interest on the partly disbursed loan amount. For instance, if you have a sanctioned loan of Rs 25 lakh but the property is under construction and the bank has disbursed only Rs. 10 lakh, you will be charged a simple interest only on the 10 lakh.
This continues until the final disbursement is done. The simple interest paid is called Pre-EMI interest or Pre-EMI. For Pre-EMI payments, banks may take only around six to 24 post-dated cheques.
What is the difference between Built-Up Area, Super Built-Up Area, and Carpet Area?
Carpet Area: This is the area of the apartment that does not include the area of the walls i.e. the area of the apartment that a carpet can cover.
Built-Up Area: This is the area of the apartment that includes the area covered by the walls.
Super Built-Up Area: This includes the built-up areas such as the lobby, lifts, stairs etc. This term is therefore only applicable for multi-dwelling units, such as flat complexes.
Does a foreign citizen of non-Indian origin require permission from the Reserve Bank of India (RBI) for acquisition of immovable property?
Yes. The RBI may grant permission to a foreign citizen of non-Indian origin/foreign companies if the property is purchased for residential use and the consideration is paid by way of foreign exchange.
Why is it considered necessary to register a property? What is the purpose of registration?
By registering the transaction of an immovable property, it becomes permanent public record. Title or interest can be acquired only if the deed is registered.
I have a flat which I want to sell and buy a new flat bigger in area. What are my tax implications with regard to capital gains?
If you purchase a new flat within two years of the date of sale of the original flat and invest the entire amount of capital gained into the new flat, you will not have to pay any capital gains tax.