Home Purchase Loans
Owning a home is perhaps the biggest and most important dream of an
average family therefore ownership of a home goes beyond pure financial
considerations. Home loans purchase has witnessed an increase owing to
competition between a number of public and private players. The cut in
the loan interest rate has also fuelled the demand for this product.
Kind of Home Purchase Loans Interest Rates:
Fluctuating Home Purchase Loans Interest rates: Keep changing with
change in the prevailing market rate or the prime lending rate.
Fixed Loans Interest Rate: As the name suggests, do not change during
the entire loan period, irrespective of the prevailing market rate.
generally fixed loan interest rates are higher than the fluctuating
loan rate.
The current scenario in India is that of declining interest rate, so a
fluctuating interest rate makes more sense. The loan is repayable in
the form of equated monthly installments (EMI). The EMI should not
exceed 50 per cent of your monthly household income.
Interest Rate on Home Purchase Loans:
Home Purchase Loans interest rates depend on a number of factors :
The tenure for which the loan is taken
Loan amount
Type of housing loans taken
Type of customer and his repayment capacity
Loan policy of different companies. Interest rates will be different
for private sector and public sector players. Companies lower the
interest rates during festive seasons.
Maximum Home Purchase Loans Given Depends On:
Individual loan policy of different companies. The maximum amount of
loans given is however 85% of the value of the property (inclusive of
cost of land)
Repayment capacity of the customer
Maximum term of home purchase loans
The term of home purchase loans offered is maximum 25 years. This again
depends on the repayment capacity of the individual
Number Of Loans Applicants:
A loan can be taken either on an individual or joint basis. Some
companies necessitate that proposed owners be co-applicants, however,
co-applicants need not be co-owners.
Other Home Purchase Loans Costs:
Besides the interest rate, customers also have to bear the processing
and administrative charges which increase with the cost of the loan. If
two housing finance corporations give you the same amount of loan but
at different interest rates, calculate what works out better for you.
Home Purchase Loans Application Process:
An individual/company/professional can apply for home purchase loans in
different home loans corporations by filling the application form.
These days companies provide online forms for customer convenience.
There is certain information that one must furnish in order to qualify
to approval of home loans.
Documents Required for Approval of Home Purchase Loans:Businessman/ Self employed professional:
Application form with photograph
Educational qualification
Identity and residence proof
Proof of business existence with business profile and last three years
income tax return
Last 3 years income statement and balance sheet.
Last 3 month's personal and business bank statements.
Processing fee check
Salaried customers:
Application form with photograph
Identity and Residence proof
Latest salary slip
Form16
Last 6 months bank's statement
Processing fee cheque.
List of Some of Banks Providing Home Purchase Loans:
HDFC Bank - Purchase of Home
ICICI Bank - ICICI Home Purchasing
Bank of India - Star Home Scheme
Standard Chartered - Home Purchase Loans
IDBI Bank - Home Purchase Assist
State Bank of India - Loan Amount For Purchase of Home
Union Bank of India - Union Home Plus
UCO Bank - UCO Shelter Scheme
Bank of Baroda - House Purchasing Offer
Citibank - Purchasing of House
Development Credit Bank - DCB House Vantage
Vijaya Bank
Canara Bank
Dena Bank
Andhra Bank
Source : www.rateempire.com
Home Loans FAQs
RESOURCES
▪ Home Loan FAQs
▪ Home Insurance FAQs
What are the types of home loans available?
There are a variety of home loans available. They are:
HOME PURCHASE LOAN
This is the common loan for purchasing a home.
HOME IMPROVEMENT LOAN
This loan is given for implementing repair works and renovations to
your home.
HOME CONSTRUCTION LOAN
This loan is available for the construction of a new home.
HOME EXTENSION LOAN
Home extension loans are given for expanding or extending an existing
home. For example, addition of an extra room, etc.
HOME CONVERSION LOAN
Available for those who have financed the present home with a Home Loan
and wish to purchase and move to another home for which some additional
funds are required. Through a Home Conversion Loan, the existing loan
is transferred to the new home, including the additional amount
required, eliminating the need for pre-payment of the previous loan.
LAND PURCHASE LOAN
This type of loan is sanctioned for purchase of land, for both home
construction or investment purposes.
BRIDGE LOAN
The Bridge Loan is designed for people who wish to sell the existing
home and purchase another. The bridge loan helps finance the new home,
until a buyer is found for the old home.
BALANCE TRANSFER LOAN
Balance Transfer loans help you pay off an existing home loan with a
higher interest rate, and avail of a loan with a lower rate of
interest.
REFINANCE LOAN
This loan helps you pay off the debt you have incurred from private
sources such as relatives and friends, for the purchase of your present
home.
STAMP DUTY LOAN
This loan is sanctioned to pay the stamp duty amount that needs to be
paid on the purchase of a property.
LOANS TO NRIs
This loan is tailored for the requirements of NRIs wishing to build or
buy a home in India
What is an EMI?
EMI (Equated Monthly Installment) is the amount payable to the lending
institution every month, till the loan is paid back in full. It
consists of a portion of the interest as well as the principal.
How is an EMI calculated?
EMI Formula: l x r [(1+r)n /(1+r)n-1 ] x 1/12
l = loan amount
r = rate of interest
n = term of the loan
What are the incentives offered by lending institutions?
a) Some of the lending institutions sanction the loan without requiring
you to identify property as a prerequisite for eligibility
b) Free accident insurance
c) Discounts
d) Waiving of pre payment penalty
e) Waiving of processing fee
f) Free property insurance
What are the eligibility conditions for a home loan?
To qualify for a home loan, most of the lending institutions in India
require you to be:
a) An Indian resident or NRI
b) Above 21 years of age at the commencement of the loan
c) Below 65 when the loan matures
d) Either salaried or self employed
What are the interest rates offered for home loans? What are: Daily
Reducing, Monthly Reducing and Yearly Reducing?
Interest rates are different from institution to institution and
generally range from about 9.25% to around 12 %. The interest on home
loans in India is usually calculated either on monthly reducing or
yearly reducing balance. In some cases, daily reducing basis is also
adopted.
Annual reducing:
In this system, the principal, for which you pay interest, reduces at
the end of the year. Thus you continue to pay interest on a certain
portion of the principal which you have actually paid back to the
lender. This means the EMI for the monthly reducing system is
effectively less than the annual reducing system.
Monthly reducing:
In this system, the principal, for which you pay interest, reduces
every month as you pay your EMI.
Daily Reducing:
In this system, the principal, for which you pay interest, reduces from
the day you pay your EMI. EMI in the daily reducing system is less than
the monthly reducing system.
What is the best way to select the cheapest home loan?
Keep the loan period constant and calculate the total amount paid for
the home through the different loan options available.
What is a fixed rate of interest?
Some institutions have a fixed rate of interest, which means the rate
of interest remains unchanged for the entire duration of the loan. This
means you do not benefit, even if rates of interest drop in the market.
What is a floating rate?
This is the rate of interest that fluctuates according to the market
lending rate. This means you stand the risk of paying more than you
budgeted for in case the lending rate goes up.
What are the other costs that usually accompany a home loan?
Home loans are usually accompanied by the following extra costs:
a) Processing Charge: It's a fee payable to the lender on applying for
a loan. It is either a fixed amount not linked to the loan or may also
be a percentage of the loan amount. The loan amount required by you
cannot be less than the processing fee.
b) Pre-payment Penalties: When a loan is paid back before the end of
the agreed duration, a penalty is charged by some banks/companies,
which is usually between 1% and 2% of the amount being pre-paid.
c) Commitment Fees: Some institutions levy a commitment fee in case the
loan is not availed of within a stipulated period of time after it is
processed and sanctioned.
d) Miscellaneous Costs: It is quite possible that some lenders may levy
a documentation or consultant charges.
e) Registration of mortgage deed.
What are the repayment period options?
Repayment period options range generally from 5 to 15 years.
How do HFCs decide on the loan amount?
Usually, most companies give up to a maximum of 85% of the cost of the
house. The 15%, sometimes called 'seed money', will have to be provided
by the loan applicant. The amount, for which the applicant is eligible,
is determined by the age, income, no. of dependents, monthly outgoing
and repayment capacity. This varies from case to case.
Are securities required for home loans?
In most cases, the property to be purchased itself becomes the security
and is mortgaged to the lending institution till the entire loan is
repaid. Some institutions may ask for additional security such as life
insurance policies, FD receipts and share or savings certificates.
Do I require a guarantor to get a home loan?
Some institutions ask for 1 or 2 guarantors, others require no
guarantor at all.
What is the time required for loan application approval?
About 0-15 days.
What is the time required for loan disbursement?
On an average, loans are disbursed within 3-15 days after satisfactory
and complete documentation and completion of all relevant procedures,
including proof that 15% of the cost has been paid upfront to the
seller of the property.
Can I make joint applications for home loans?
Most institutions are willing to consider the joint incomes of the
applicants for deciding the loan amount. Some institutions do not
require the co-applicants to be co-owners of the property to be
purchased.
What are the tax benefits of home loans?
Both principal as well as interest of home loans attract tax benefits.
With effect from 1st April 2005 (i.e. assessment year 2005-07) under
section 80C of the Income Tax Act 1965:
Principal amount of repayment of loan along with other savings such as
PF, PPF, Life Insurance premium etc up to a maximum of Rs 1,00,000/-
will be eligible for deduction from gross income.
Interest paid on loan after completion of construction will be
deductible from income from property
For self occupied - Income will be treated as nil and interest payment
will be treated as minus income which will be adjusted against other
income.
For rental property - It will be adjusted against rental income.
Source : http://www.guide2homeloan.com
Choosing the Right Home Loan
HOME LOAN TIPS
▪ Troubleshooting
▪ Choosing the right home loan
If you are planning to buy home, you need to know about home loans
processes, troubleshooting and how to choose the right home loan for
house that falls within your budget. There are various types of home
loans offered by different financial institutions. You need to figure
out which type of home loan is beneficial for you.
Types of Home Loans Available:
Home Equity Loans
Home Extension Loans
Home Improvement Loans
Home Purchase Loans
Land Purchase Loans
Mortgage Loans
Many banks and financial companies offer home loans. But before
choosing any home loan option, consider few points as mentioned below.
Property Types: You should know more about type of property in lieu of
which you seek loan. There are loans offered by banks to Resident
Indians and NRIs for ready property, under construction property,
self-construction and home improvement.
Loan Tenure: The loans provided by financial institution are offered in
tenures or period of years. You should check out the tenure for loans
available in the market. There are loan tenures available for upto 25
years.
Repayment Options - You need to choose between fixed and floating rate
home loans. Many banks and financial institutions will provide you with
the option of switching from a floating rate home loan to a fixed rate
home loan once a year at no extra cost. But you need to check out the
facts first with the loan providing firm.
No Penalty option - There are also no penalty option offered by few
finance companies. In this mode, you can opt to pre-pay up to 25% of
your loan every year. Pre-payment is permitted after a minimum of 6
months following loan disbursal.
Tax Benefits - You should know the right of your tax benefits on home
loans. Resident Indians are eligible for certain tax benefits on
principal and interest components of a housing loan under the Income
Tax Act, 1961.##
List of Premium Banks Offering Home Loans:
ICICI Bank - ICICI Bank Home Loan
HDFC Bank - Adjustable Rate Home Loan
Bank of India - Star Home Scheme
Standard Chartered - HomeAssist
State Bank of India - SBI Unique Housing Scheme
Bank of Baroda - Housing Offer
Citibank- Building & Renovation of House
Always check with a financial home loan expert or financing company to
understand home loan processes and to avail the best bargain on your
home purchase.
Source : http://www.guide2homeloan.com/
10 home loan terms you must know
Larissa Fernand
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April 11, 2005
aking a home loan?
Here are 10 terms that you must get familiar with.
1) Margin
When you take a loan, the home loan company will not put up the entire
amount. It will only put up around 80% to 90% of the cost of your home.
You will have to put in the balance 20% or 10%.
Even if they go up to 95%, you will still have to put in the balance
5%.
This amount is called the downpayment or the margin.
2) Resale
This is the term used when you are buying a home from someone who
already owns it and is selling it. Hence it is referred to as a resale.
It indicates you are not buying a brand new home straight from the
builder or buying one currently under construction.
3) Credit appraisal
The home loan company will take a look at a number of parameters before
a loan is sanctioned. Your savings, income, age, qualifications, nature
of work and work experience are some of them.
They will also look into how many loans you are currently servicing.
Taking all these issues into account, they will determine whether or
not you are eligible for a loan and what the sanctioned amount should
be.
This process is known as a credit appraisal.
4) Pre-approved property
Many builders get their properties pre-approved by home finance
companies. Generally, if a builder gets pre-approved by a number of
players, it speaks well of the builder.
The home finance company will examine all the legal documentation and
approvals. If everything is in order, the builder will get a stamp of
approval. Also, the home loan player will view the builder's ability
and track record to complete the construction in time.
However, this does not mean the home finance company is going to take
any action or waive any charges if the construction is delayed.
All it means is that the property falls within the legal purview and
the builder has a good track record.
5) Equated Monthly Installments
An EMI is the amount of money you will have to pay every month in order
to repay your loan.
An EMI is an unequal combination of your loan amount (principal) and
the rate of interest.
The EMI remains constant throughout the repayment period. Let's say you
have a five-year loan with an EMI of Rs 4,400. You will have to pay
this amount for the next 60 months to the home loan company.
To arrive at the EMI, the home loan financier will look at
The principal (the actual loan amount).
The repayment period (the number of years you will take to repay the
loan).
The rate of interest.
How the rate of interest is computed (monthly reducing, quarterly
reducing or annual reducing basis).
6) Disbursement
Full disbursement
A full disbursement is when the entire cost is paid at one go; the home
loan company hands over the entire payment to the seller.
The cheque is disbursed (it is never in cash) only when you have
submitted all the documents required and have made the downpayment.
If this is a resale, then the cheque is made out in the seller's name.
If you are purchasing your home from a builder, then it is in the
builder's name.
Partial disbursement
A partial disbursement is made in stages (not at one go as in the case
of full disbursement).
When purchasing an apartment from a builder and it is under
construction, the home loan company will not release all the payment at
one go. The money will be released in stages.
For instance, after the completion of the first floor, 20% of the
payment will be made. After the completion of the last floor, 40% and
so on and so forth. Hence payment is construction linked and disbursed
accordingly.
7) Advance Disbursement Facility
If the house is still under construction, then a partial disbursement
is made. However, in some cases, the home loan company may be willing
to make the entire payment even if the construction is not complete.
This is known as an advance disbursement and will occur only in both
these instances:
i. If the buyer requests the home loan company to do so.
ii. If the home loan company is fairly convinced the builder will
complete the construction on time.
8) Pre-EMI
When you buy a home that is under construction, the home loan company
will not pay the entire amount to the builder.
Payment will be made in stages. As construction is completed, payment
is released. This is known as partial disbursement.
You start paying your EMIs only after the final disbursement. Till then
you pay the home loan company a rate of interest on the amount
partially disbursed. This interest is called pre-EMI.
If your home loan is going to cost you 8%, you will be charged 8%
simple interest on payments made till date. This will go on till the
final payment (disbursement) is made and your EMIs start.
So the longer your builder takes to complete construction, the more you
end up paying.
9) Offer Letter
Once the loan is sanctioned, you will get an offer letter stating a
number of details.
Loan amount
Rate of interest
Fixed/ flexible rate of interest
Tenure of the loan
EMI amount
If offered under a special scheme, details of the scheme
Any other conditions of the loan
This letter does not mean the loan is yours. It only means the home
loan company has agreed to consider you as one of its customers.
It will then look into the various property and legal documents as well
as value the property you are buying. The loan will only be disbursed
once these formalities are complete.
10) PDCs
Post-dated cheques are dated ahead of time and cannot be processed till
the date indicated.
Generally, the home loan company will ask for a year's supply of
cheques or maybe even two or three years. At the end, you will have to
replenish the supply for the following years.
These cheques will be addressed to the home loan company, signed by you
and will state the exact EMI to be paid.
Source : www.rediff.com
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