ORCHID PARK -TRIVANDRUM

Everyone needs a home of their own and sometimes assistance is needed from financial institutions for a home loan. Some of the documents required include past 6 months of income proof including bank statements, last 2 years proof of filing tax returns, credit history, ID proof, address proof, photographs as well as a guarantor. All these are needed to ensure you are capable of paying your monthly EMIs without defecting.

For NRI home loans, additional loan documents required include visa copies, work permits and attested income-related documents.

People who have taken housing finance need to know that there are certain tax benefits associated with home loans. Principle portion of EMI paid for the year is allowed as deduction under Section 80C up to Rs.1.5 Lakhs. The interest portion of the EMI paid for the year can be claimed as a deduction from total income up to a maximum of Rs. 2 Lakhs under section 24. And for those people who have moved into the home, they are entitled to tax benefits of up-to Rs.2 lakhs on the interest paid. Likewise, stamp duty and registration charges are also deductible.

And if it’s a joint home loan, then both applicants can file separately for tax relief for same loan.

Applying for housing finance with a low credit score can be daunting, but not undoable. CIBIL scores of 620-680, though imperfect can still be approved for home loans, but if your score is less than 620, you need to pay off some debts and improve your score before applying.

You have better chances of getting a home loan from the bank with your savings and deposit accounts as they will be more accommodating. You could also apply for a joint loan with your spouse if he/she has a better CIBIL score.

Using a home loan to fund your home is a better option and financial institutions offer different types of home loans depending upon the customer’s needs. Home loans can be in the form of bridged loans, floating or fixed interest rate loans, stamp duty loans or NRI home loans. They can also be in the form of loans for land purchase, building purchase, construction or loans for remodelling of an existing home.

While the loan documents needed remain the same, the home loan rates, monthly EMIs and tax benefits may vary.

Different financial institutions have different rules when it comes to collateral security against loans. While some banks are more lenient than others, you will need to provide some collateral against the property, which is usually the title deed of a property or the property that you are taking the loan for itself.

The borrower is usually expected to make a down-payment of 20% of the total value, which substantially brings down the EMIs and home loan amount needed. The value of security needed also diminishes accordingly.

While getting housing finance from financial institutions is quite easy, choosing the best option can be challenging. Though fixed interest home loan rates are more secure, the premium can be higher. With floating interest rates which are linked to the market, the interest varies with market conditions during the tenure of the loan.

The bank offering floating rates will have a base rate as well as a floating element too. The base rates are revised periodically at the RBI’s directives or due to other factors, resulting in fluctuations in payable EMIs.

Availing of a bank loan involves processing of loan documents and other formalities which are chargeable. Financial institutions differ in their approach towards implementing housing finance but they all have a mandatory processing fee. This fee could be a specific percentage of the loan amount or a fixed processing fee.

Pre-payment or pre-closure charges can become applicable as a penalty for paying off the loan before the tenure period. Other miscellaneous charges for documentation, stamp duty, credit bureau report issuance or consultation may also apply.

A property with an outstanding home loan against it cannot be sold until the loan has been paid off. The potential buyer cannot avail of a home loan for the said property while it still has a loan entailed to it. The property’s documents will be with the loaner financial institution, hence there is an encumbrance towards its sale without full payment.

However, if the buyer isn’t taking a loan for buying your property, then a deal can be reached with your bankers where the buyer hands over remaining EMIs amount to the bank and it releases the property documents.

An NRI home loan can be availed for residential and commercial properties, but not for buying agricultural land, farmhouse or plantations. The home loan can be for purchasing ready-to-move-in properties, under-construction properties or for buying a used property. Home loans can also be used for buying a plot, for carrying out construction or for renovating or remodelling an existing property.

The loan documents for NRIs differ from those for residential Indians and require some additional evidence. The loan tenure is also much shorter for NRI home loans – about 5-7 years only.