You want to shift from
your current cramped lifestyle to a spacious pad that at least gives you
the choice to start yoga, have courtyard toilets, grow a terrace garden even.
Get your own
pad and you can drill holes in your walls (to hang up paintings, of course),
design and paint it the way you like, pop some eardrums with loud music, not
clean it if you don’t want to, and there’s no landlord breathing down your
neck.
Moreover,
getting a house on rent these days requires so much hunting! No
non-vegetarians, no bachelors, no visitors, no noise and no coming late. And let’s be honest, paying that rent is a big downer at
the beginning of each month as well.
If you’ve been
eyeing a house you want to purchase, you’re probably also scratching your head
about when to go for it.
Maybe there’s
a year-end bonus on its way, which you want to plump down for a property down payment.
Or got
married recently? Then your date of purchase for a new home just moved up
a few months.
Or maybe
you’ve just moved to a new city, so the need for your own home is
immediate.
Whenever you decide to buy a house, here are
some cool home buying tips that can get you a spanking new home for
free. (Just messing around, of course! Who gives you houses for free?):
Step 1: Fix an affordable budget:
The first step for a smooth home buying is fixing an
affordable budget. Make a plan after reviewing your income, savings that can be
used for down payment, how much home loan you are eligible for and how much EMI you
can afford. While making the plan, don’t stretch it thinking that you can
afford it, or by keeping in mind some possible salary hikes. You are likely to
face some other expenses like spending on interiors, furniture, electrical
fittings, miscellaneous purchases etc, which many buyers fail to count
initially and drain out all their savings. You may even fall into unwanted
debts which may take time to recover from.
It is a good idea to visit your bank or check online to know
your loan eligibility
before starting your property hunt. Many people assume that they are eligible
for some amount they have in mind by checking with their friends or some sales
executives of banks. And at a later stage, when they submit an application, may
be after paying the advance only they come to know that they are not eligible
for the expected amount and there follows a mad rush and stress. Having an idea
about the possible loan amount
for you will help you to make your plans smoothly and zero down a project
accordingly
Step 3: Smart hunting:
You may come across lots of builder advertisements in news
papers, magazines etc. Making a visit or calling up every advertiser will only
take your time out and make you feel exhausted. Zero down your preferred
locations first. It can be near your office, or near to your children’s school.
Then check out the property prices around there. If it is beyond what you can
afford, think about the next option, or the next nearest location.
Once you short list the preferred and affordable locations,
start your search. If you are the smartest, you will search online first.
Because sitting at your own comforts you can check as many in the shortest
time, and also read customers reviews and property price trends. Ask your
friends who live around the place. And real estate agents can be the last
option only.
Step 4: Look beyond the brochure:
Don’t get carried away by colourful brochures and 3D
walkthroughs. Always keep in mind that those are not the real and the real may
be far different from these. Visit the place, watch the ongoing construction
work and if possible have a look at some of the builder’s previous projects. It
helps a lot in going ahead with confidence and to keep away the disappointment
and fights with the builder at a later stage. Also check the builder’s
reputation and rating online.
Step 5: Check the legals and hidden charges:
Many buyers in recent times have been caught in an
unpleasant situation where the flat they booked got embroiled in a legal battle
between the builder and the farmers who sold the land to the builder. If you
are looking to close a real estate deal relying on the word of mouth of the
builder, it may come back to haunt you. Get a complete insight about the
project and verify every document with the help of a lawyer, before singing on
any agreement with the developer or finalizing any financial commitments. If
the builder is not keen to share the documents or is delaying in showing any
such legal documents, raise the red flag. A good way to check the background of
the property is to see if financial institutions and NBFCs are backing the
project.
Similarly there are several additional costs like floor rise
charges, infrastructure development fee, charges for parking area, club
membership charges, pre maintenance charges etc which come at a later stage.
Know about all these beforehand to avoid surprises at a later stage.
Now, let’s
say you are raring to buy that house and want it as of yesterday. Take a
knee. What kind of home do you really want?
We’ve all
dreamed of the kind of house Aamir Khan owns in Panchgani, or fantasised about
Shahrukh Khan’s lavish house in Mumbai.
If not those
extravagant pads, maybe you’ve at least wanted one by the beach or near the
hills? Apenthouse on the 80th floor or a cosy cottage on the
outskirts of the city? Or a sprawling villa, perhaps, in a township, with
equally sprawling lawns?
Remember,
your dog (or your pet dinosaur) needs to have his day too! So, space (oodles of
it, really) is what you’re looking for.
So, here’s
the next question that hits you in the face.
There was a
time when a piece of land in Goa cost just 500 Rupees. Yes, you read that
right. Yes, Goa.
But that was a long time ago. If you plan to buy land, you need to plan for
forever. And a day ahead. Some of the tips are given below:
Understanding Undivided Share of Land (UDS): When
you are buying an apartment, you are technically buying two things. The first
is the constructed part of the building where the owners will actually reside
while the second is a proportionate share of the land where the property is
built. This share of land allotted to the flat buyer is known as undivided land
share or UDS. Many buyers are unaware of such an important aspect of land deal
while purchasing property.
Significance of UDS: The building is
essentially a dead asset in real estate, as the value of constructed area
depreciates. The older the construction, the lower is its market value of the
property. On the other hand the prices of land keep escalating over time and
may offer substantial return on investment for the landowner. This appreciation
in the overall value of any property is due to the increase in the land rate
and not the constructed area. Essentially it is the undivided land share in
accordance with the built up area of the apartment that determines the future
monetary value of the property. In case the land owner has no undivided land
share, he or she may not be able to sell the property leave alone enjoy a good
return on investment.
Legal Implications of UDS: The legal implication
of undivided land share makes it an intrinsic part of any real estate deal.
Suppose the building where you reside is to be demolished for reconstruction
ten years down the line or comes under government acquisition project and made
available for demolition, the compensation administered to the flat owner
depends on the percentage of the undivided land share in the property. The sum
of all the undivided shares for each apartment owner must proportionate to the
area of the land in which the apartments are constructed. In case of
co-operative housing societies, the UDS must be legally be in the name of the
society as the flat owners are the share holders of the society.
UDS Calculation: UDS calculation is
determined by a simple formula by multiplying the total land area with the size
of the individual apartment and dividing the result by sum of areas of all
apartments combined in the project.
Illustration for UDS Calculation: For
example let us suppose 5 equally sized apartments of 1000 sq ft are built on
one ground of land which measures 3500 sq ft. The UDS would be calculated as
multiplying the total land area with the size of the individual apartment
(3500*1000) in this case and dividing the result by sum of areas of all
apartments combined in the project which is 1000*5= 5000.
Hence UDS = 1000*3500/5000 = 700 square feet.
UDS and Ownership of Parking Space: Some
real estate builders and developers have been guilty in the past of selling
open or stilt car parking area to the individual house owners. As per the legal
laws biding for each real estate deal and UDS, any purchasers cannot claim
partition of their UDS of land. An open car parking therefore can only be sold
as part of common area and cannot be legally included as part of the floor area
of individuals.
Checking Validity of UDS while Purchase Property: While
paying advance for any property, make sure the builder or the seller shares
with you the agreement copy. The agreement copy between the builder and the
seller holds all important details of the property in question including the
details of the undivided share of land. There is usually a dedicated section in
the builder agreement catering to the UDS share which is mostly mentioned in
either percentage terms for example 0.75% or in exact square feet terms. Make
sure your builder agreement clearly mentions the undivided share of land and
this same figure is mentioned in the title deed also when the registration gets
over, to safeguard your purchase and to avoid any legal complication in the
future.
We kid. Make
sure you have enough money to start building before your land becomes an
overgrown cricket field. Or a ripe candidate for farm land.
Land is
easier to grab on the outskirts of the city, but the downside to that is the
distance to everything you love doing in your city. Within the city, for the
same price, you’d probably get just enough to build one room.
Phew! It’s
much simpler to get a ready-made house, don’t you think?
It all
depends on the length you’re ready to go to build
your dream home just the way you
want. Those who promised to get their lover the moon are buying up land on the moon way in advance
(Hush! Don’t tell anyone!) so that they can settle there when the
time comes.
The below tips help you to buy a piece of land:
Buying a
piece of land and building their first home is the biggest dream harboured by
many Indians. So, when Prabhat told his mother that he was buying a plot of
land, she was proud of him, something she did not show when he invested in the
flat.
Buying a plot
of land has become a very tricky affair, especially when considering the
blatant corruption surrounding the deals including creating fake documents, demand
for half payment in cash and also issues of disputed land sales. So, if you are
ready to buy a piece of land to build your first home, it is advisable to be
very cautious and thorough.
Also, the
steps and procedures are quite different from purchasing a flat and hence
require a careful analysis before setting out on the path.
Buying
Land
Plots are
scarce in big cities, though you can still get a good piece of land in smaller
towns or even the peripheries of the cities. If you are planning a loan, then a
land loan can be
availed that are offered by banks for the purchase of residential plots. Some
banks have a clause that requires the buyer to start construction within six
months of land purchase. So, it would be advisable to plan your future course
beforehand. You may procure a personal
loan, but that might be a little more expensive.
Watch Out
For…
In India, the
real estate sector often pilfers with the law governing it. Therefore, it is
advisable for land buyers to check for the following factors thoroughly and
even get them examined by a legal expert before making the actual purchase:
The Deed
Title: Check if the deed title is in the name of the seller and he has the full
right to sell it. Insist upon looking at the original and not just a photocopy.
Encumbrance
Certificate: This document can be procured from the sub-registrar’s office
where the deed is registered. It declares that the land is free of any legal
hassle and unpaid dues.
Property Tax
Receipts and Bills: Ask for the originals again and ensure all the payments
have been made as this could lead to legal complications and more expenditure
in the future.
Apart from
these, you must also check that the loans on the land are repaid with a release
certificate issued by the bank and get the property valued for the exact land
measure.
Documentation
To purchase a
piece of land, the following documents are required from the seller’s end:
Original Land
Deed of the current owner, known as the 7/12 document and also the previous
owners with the proper names on the title
An
Encumbrance Certificate from the Sub-registrar’s office for the last 30 years
at least
Original
property tax receipt and other bills relating to the plot
For the
buyer, the documents required include:
The Title
Deed after it has been transferred to the buyer’s name written by a Government
licensed Document writer
Receipt from
payment of stamp duty charges
Now, you can
get your land registered in the sub-registrar’s office or have your name added
in the village office records, as may be the case.
House
Plan Approval
The State
Municipality Act requires that a prior sanction be obtained by a person who
wants to undertake construction activity for building a new house or modifying
an existing one. The process has been made automated in most states and isn’t
time consuming. Your contractor, engineer or architect needs to take care of
this. The architect needs to submit the Building Plan along with a prescribed
fee for getting the building plan approval done.
Factors for
Construction Cost
The
construction cost involved in the project includes:
Architect/
contractor’s fees
Building
material costs
Labour cost
Interior
fittings such as light fixtures, bathroom fittings, tiles, etc.
These will be
the actual costs involved; however, the cost escalators will be the choices you
make such as the construction plan itself, the material be required for building
your house will vary according to your plan, the material quality and so on.
Sometimes, it is better to pay extra at the time of building and save
maintenance and repair expenses later.
Smart Ideas
For Saving
Outstripping
your budget plan is inevitable while constructing your own home and there are
very rare unheard of cases where this hasn’t happened. You can apply the
following tricks to cut corners though:
Keep your
construction plan simple and don’t make too many changes once the construction
work commences.
Get materials
and fittings with long term savings in sight.
Pick the
materials when prices are low even if you require them at a later stage.
Finally, get
what you need and not what you want. Cost cutting is very important from your
end as there will be many unforeseeable expenses that will crop up. Sticking to
the original construction plan as much as possible is the best way to finish
the project early or on time.
On the other land… err… hand, if
you’d rather buy a house here on earth, you need to decide whether you want to
go for a brand new home and feel like a king, or go for a used home and save
yourself time and effort. Decisions, decisions, decisions!
Old houses
bring that sense of nostalgia with them. You remember your grandmother’s kheer,
your childhood with your cousins by the stream, or it makes you wonder about
that locked up chest that no one seems to be able to open.
But, old
houses also come with their leaks and creaks, and you never quite know what
that chest is actually hiding. Spooky, huh?
A new house on the other hand, can
be a more comfortable choice with all the attendant bells and whistles. Don’t
you just love all the beautiful Jaquar or Cera bath-ware that makes life so
much easier? 10 tips for a smooth home buying experience!:
Here are 10 Tips for
you:
Don’t waste time
thinking: Procrastinating is bad for property buying. It is true that the EMI
percentage of your salary decreases as your pay goes up, so the outflows will
be less painful as you go on. But think,
your working shelf life is more now, which means any hike during this time or a
part time job will be an added advantage. And importantly, there is a
considerable difference in property prices even if it’s just 6 months!
Go for the affordable:
Don’t over-stretch your budget. Look for a property for which you can arrange
the down payment, typically 15 per cent of the cost of the property. Figure out
an EMI you can afford. It shouldn’t exceed 40 per cent of your take-home pay.
Settle for the lower of the two property price figures arrived at by the down
payment and EMI approaches. Remember to factor in costs such as stamp duty and
brokerage.
Take advantage as an
early bird: Many builders offer better prices for early birds. It is a good
idea to invest in an upcoming project as of course the builder might be keen to
get some initial buyers at attractive offers.
Check for builder’s
reliability: Having said the above point, while investing in a prelaunch
property, it is important to check the builder’s reliability. There are many
people around you who got struck with their money gone and paying high Pre-EMI
interest for delayed projects.
Stay away from middle
men: They are smart to push sales for their benefit. Even if the property has
some minuses, there can cover it up smartly by exaggerating the pluses. So it
is good to do the research your own. Speak to the owner directly, talk to the
neighbours and hear their opinion about the project and the location concerns
like availability of water, waste management etc.
Go to the bank first: It
is a good idea to consult a banker first to know your loan eligibility in
advance. It helps in zeroing down a property within your loan eligibility and
thereby helps avoiding the frantic run later when you like a property and money
is a problem. Banks will also have a list of approved projects in different
locations.
Avoid multiple loans:
Many people depend on personal loans to raise money for down payment. But this
will only going to increase your financial burden later when you start repayment.
If you are in short of money for down payment, try out other options like
borrowing from family, selling gold, disposing other properties ( if having )
etc.
Narrow down your search:
Options are vast today. If you are planning to visit a builder expo and collect
as many brochures to compare, I will tell that it’s a pure waste of time.
Narrow down your searches based on proximity to office, office of your partner,
kids’ school, etc. Now you have narrowed your search to few key locations.
Again shortlist options based on price range. Now you are left with a quite few
numbers, which will make your search easy
Don’t run behind offers:
Book today and a car free…book now and get a tablet….Builders may lure with
many options. But go for only sensible options. You already have 2 cars then
getting a car free is not going to be a good offer for you. If they are
offering free parking, grab the opportunity!
Consult a lawyer before
you pay advance: Ensure that the documents are free of any encumbrances and legal
entanglements including permits before you pay advance. Many buyers end up
falling in traps without checking property documents with the help of an
expert.
If you do
decide to build your own home, you end up infusing a part of your personality
into it. Like a walk in closet, a massive bathroom with potted plants or
up-scaled junk to give your home that unique feel. You just need to find a
whacky enough builder who loves your equally whacky ideas.
And that’s
your next step, away from that boring cave, towards your exciting new home.
The search
for finding the perfect builder starts where arguments begin and end – the
Internet of course.
Just as you
use the Internet to narrow down between a S4 and an i6 for the season, it’s
important to compare builders and check reviews on them. You don’t want to get
duped in any way, do you?
While you do
this, it’s important to remember what Abraham Lincoln said – Don’t believe
everything on the Internet.
Check the
builder’s quality by physically visiting previous projects, if possible. We
don’t want the big bad wolf to blow your house down in any way. After all, you
would have invested quite a sum.
Depending on
the locality, the size of your house, and the builder you pick, you will have
to save up a quite a big amount to cover your expenses. And it’s not just the
basic cost of the property. Remember to add the stamp
duty and registration charges, which can be a quite obnoxious amount.
Most people buy a
property at a certain stage of their lives. Apart from all hassles of searching
for a property, applying for a Home Loan etc., there are other few things (like
Stamp Duty and Registration charges) that are unclear to most of the buyers. It
is important for the readers to know that while transferring ownership of
property, a buyer needs to pay taxes in the form of Stamp Duty and Registration
charges to their respective state government. These charges, however, vary from
state to state. Some states collect different stamp duty from their rural and
urban areas, whereas few other states provide discounts to female buyers of the
property. Let us understand how the whole process of stamp duty and
registration of property works.
Stamp Duty: Stamp Duty is a tax levied for the
transaction performed by way of a document like Sale Deed, Conveyance Deed etc.
Technically, a Stamp Duty is paid for any Document or Instrument by which any
right or liability is, or intends to be, created, transferred, limited,
extended, extinguished or recorded. The stamp duty relating to immovable properties
has to be paid on documents like Conveyance Deed, Sale Deed, Gift Deed,
Partition Deed, Power of attorney etc.
The payment of proper
Stamp duty on the above mentioned documents confers legality on them. Such
instruments get evidentiary value and can be admitted as an evidence in Court
of law. The instruments that are not properly stamped are not admitted as
evidence. Without the payment of this stamp duty, your solicitor will not be
able to officially register your new house in your name, even when the house is
transferred within the family.
How a Stamp Duty is
calculated? In India, different states
have their own criteria for calculating Stamp Duty. And most of the times, it
depends on the document type that needs to be stamped. For example: In Maharashtra,
documents are divided into three broad categories for the purpose of Stamp Duty
Calculation:
Category (i) Documents
wherein the Stamp Duty is “Fixed”
For Ex: Adoption deed,
Affidavit, Divorce, Cancellation deed, Entry of Memorandum of Marriage, Indemnity
Bond, Letter of license, Notarial Act, Power of attorney, etc.
Category (ii) Wherein
Stamp Duty “Varies and depends upon the value mentioned in the document”
For Ex: Agreement
relating to deposit of title deeds, pawn, pledge or hypothecation, Clearance
List, Lease , Article of association, Mortgage deed, Security Bond, etc.
Category (iii) Wherein
Stamp duty “varies and depends on the consideration mentioned in the document
or True Market Value, whichever is higher”.
For Ex: Conveyance,
Agreement for sale, Gift, Exchange, Partnership Deed, Partition, Development
Agreement, Transfer, Trust, etc.
Note: The True Market
Value is determined as per the provision of the state defined act prevailing in
that particular state.
Appropriate time for
paying the Stamp Duty:
Generally all the
instruments should be stamped before or at the time of execution i.e. stamp
duty is to be paid either before execution of the document or on the day of
execution of the document.
Methods for paying Stamp
Duty:
1. Purchase of Physical
Stamp Paper
2. Franking
3. Purchasing E Stamp
(through online payment – SCHIL-www.shcilestamp.com)
Details on the way stamp
duty should be paid:
1. Purchasing
Non-Judicial physical Stamp papers: This
is a conventional method of paying stamp duty wherein you purchase non-judicial
stamp papers from any authorized vendor in your area. Once you purchase the
stamp paper in the name of one or more of the parties involved in the
transaction, after that you can write/ type the details of your agreement/ transaction
on that paper. Earlier, stamp papers were easily available but after the “Telgi
scam”, it has become slightly difficult to get a stamp paper especially for
bigger denominations. However, there are other two convenient methods of paying
stamp duty i.e. E-stamping and Franking.
2. E Stamping: E-Stamping is a computer based application
and a secured way of paying Non-Judicial stamp duty to the Government. Stock
Holding Corporation of India Limited (SHCIL), a public ltd. company, is the
official vendor of e-stamps and the only Central Record Keeping Agency (CRA)
for all e-stamps used in the country. Payment of Stamp duty for e-Stamping can
be made Online (www.shcilestamp.com ) through NEFT/RTGS or depositing Cash/DD/
Cheque at SHCIL branch office. Once you pay required amount of stamp duty, you
will get the e-stamp certificate with a unique certificate number (UIN), stamp
duty type, issue date and 6 character alphanumeric string mentioned on it. The
benefit of e-stamping is that it is convenient and its authenticity can be
verified online using its UID number. However, the drawback is duplicate copy
of e-Stamp is not issued.
3. Franking: It is a process wherein an authorized Bank/
franking agency puts a stamp on your document indicating that the stamp duty
has been paid. Before executing the transaction (of buying a property) i.e.
before signing on the document, one can approach an authorized Bank/ franking
agency and deposit the required stamp duty at their counter. Once the stamp
duty is paid, the authorized officer can Frank with special adhesive Stamp by
Franking Machine that is intended for stamping such documents.
All the states in India
have their own norms for the minimum amount for Franking. For Ex: Franking
charges in Bangalore are minimum 0.1% of the agreement value i.e. If you are
buying a house, and at the time of registering “Agreement of Sale”, you need to
pay minimum 0.1% of the actual sale consideration of the property. If you are
buying a property for Rs. 50 lacs, then at the time of “Agreement to Sale”, you
need to pay 0.1% of Rs. 50 lacs (Rs.5,000) as a Franking charge. This fee is
however, adjusted with the stamp duty at the time of execution of Sale Deed.
Now, at the time of execution of sale deed, you can pay 5.5% as stamp duty instead
of 5.6% (which is a prevailing stamp duty rate in Bangalore) to adjust the
charges already paid during Franking.
Registration of
Documents: Once the stamp duty is paid,
the document has to be registered under the Indian Registration Act with the sub-registrar,
of the jurisdiction where the property is situated. The basic purpose of
registration is to record execution of document i.e. it records the ownership
of the property in case of Sale Deed/ any Title Deed execution and until the
title deeds in your name are registered or recorded, you are not officially the
legal owner of the house.
Registration Fee: The registration fee is paid over and above
the stamp duty and vary in different states. The registration fee in Karnataka
is fixed at 1% of the value of transaction.
Property
Registration Procedure
Following are the
requirements/ documents required at the time of registration:
•For registration of a
property, both the seller and purchaser need to be present along with their
identification documents like Pass Port, Driving License and Pan Card etc.
•The original document
printed on one side along with two photocopies of the original; have to be
submitted to the registering officer.
•The registration
procedure also requires the presence of two witnesses and the payment of the
appropriate registration fees.
•Stamp Duty needs to be
paid through Collector of Stamps/SDM or a proof of stamp duty needs to be
submitted if the stamp duty is already paid
•Payment details for the
payment made to the seller needs to be shown
•Khata certificate and
tax paid receipt (if required by your state)
Notice of Intimation: This is specific to the state of Maharashtra
and is applicable for those who avail Home Loan for purchase of property and
mortgage the “Title Deeds” to any Bank/ NBFC. The filing of notice of
intimation came into force from 1st April, 2013. Under the Registration
(Maharashtra Amendment) Act, 2010, which amends the Indian Registration Act,
1908, it is now mandatory to inform the state registration office, of mortgage
details within 30 days of a mortgage being executed (where the “agreement
relating to the Deposit of title deeds” is not executed and registered).
Following is the
procedure:
a) In case of Mortgage
by way of Deposit of title deed done on 1st April 2013 and thereafter, if an
agreement is executed (signed) between the Mortgagor and the Mortgagee, it has
to be compulsory registered. The usual time limit for registration is four
months from the date of execution.
b) If such agreement is
not executed, then the Mortgagor has to file a notice of intimation of such
mortgage. This notice should be filed within 30 days from mortgage.
c) When an agreement is
executed and registered, then no need of filing of notice of intimation.
d) The non-registration
of agreement/non filing of notice of intimation may defeat the legality of the
mortgage and cause injury to the interests of parties. Any person who fails to
file such notice within the prescribed time limit shall be liable for
punishment under section 89C of the Act.
In simple words, the
notice of Intimation is a notice given to the Government, by the buyer of a
property in case he/ she is mortgaging his/ her property with some Bank/ NBFC.
This notice is required to be sent only when an agreement between the Bank and
loan applicant has not been registered. The intimation notice should be sent
within 30 days of purchasing the property.
The main objective of
this amendment is to safeguard the interests of banks and the society. And also
with an objective of preventing fraudulent practices like availing loans from
multiple banks on same property or disposing of the property which is already
mortgaged.
Procedure for filing of
the Notices:
The
Department of Registration & Stamps, has launched an online application
called the “e-Registration Module” for online filing of the said notices. It is
available on the Department’s website www.igrmaharashtra.gov.in, using which,
the notice of intimation can be prepared and submitted online i.e. without
coming to the Office of the Sub-Registrar . The Maharashtra e-Registration and
e-Filing Rules 2013 are prescribed for this purposes under section 69 of the
Act.
You can either take
a home loan, or save up big amounts, or do both.
Here’s where your neighbour hood bank comes into
the picture.
Eligibility checklist for a home loan!
While applying for a
home loan one must bear in mind that there are several other factors besides
the income which are taken into account while deciding the eligible amount for
home loan to an individual. Thus while deciding on a property to buy the
prospective customer must keep in mind the amount that he can obtain from the
banks as a home loan depending upon his income and repayment capacity.
The Basic Calculation of
Eligible Amount
The primary
consideration in calculating the amount an individual is eligible for is the
annual income. The monthly income and the expenses are compared and the
remaining portion is considered as the repayment capacity which is the basis for
EMI computation and then reverse calculations are used to arrive at the final
figure one is eligible for.
For example if a person
earns Rs. 20000 per month and his essential monthly expenses are Rs. 15000 then
his monthly repayment ability is Rs. 5000 at an average interest a rate of 9%
the monthly installment on a loan Rs. 100000 will be Rs. 900 for a tenure of 20
years. Now the Home loan eligibility in lakhs is approximately equal to the
amount available for loan repayment divided by loan installment per lakh for
the selected tenure. In this case this amount would be 5000/900 x 1 Lakh = Rs.
5.5 Lakhs.
Additional Factors
There are several
additional factors which the banks must consider while determining the actual
amount that the applicant is eligible for.
Suppose in the above
example the house purchased gets Rs. 2000 per month as rental which increases
the repayment capacity of the individual. Thus the eligibility will now be Rs.
(5000+2000)/900 x 1 Lakh = Rs. 7.7 Lakhs.
The exact essential
expenses of the borrower are difficult to estimate so a fixed percentage of
income is considered as not available for loan payment. This percentage varies
as per income bracket as the banks believe that those who are in higher
brackets of income can spare a greater percentage towards repayment of the home
loan. Thus the eligibility figure for them also increases accordingly. For high
earning individuals the repayment capacity may even be taken as 60% of their
salary thus increasing their eligibility substantially.
The Tenure Factor
Another factor that
comes into play is the tenure of repayment, which affects the amount one is
eligible for. For longer tenures the EMIs per Lakh of amount borrowed becomes
lesser and thus the individual can pay for higher loans. Thus the eligibility
for a 20 year loan tenure of an individual will be higher than a 10 year tenure
for the same individual.
In certain cases
additional factors such as income from other sources and expected increase in
earnings are also factored into deciding the total amount eligible for. However
if the applicant has other loan repayment liabilities at the time of applying
for a home loan his net eligibility shall reduce as per the amount outstanding
as other loans and the EMIs being paid towards those loans.
The best of
both worlds, just like Hannah Montana, is actually possible if you plan right. Here are 8 ways to become home loan ready.
But that bathtub better be big!
The process of becoming
Home Loan ready starts 6 months prior for those who never bothered to be
financially disciplined. Follow these simple steps as soon as possible to
inculcate financial disciple in your life.
1. Clean up your Credit
Report : The first and the foremost
point that all loan providers, refer to before lending, is your Credit Report.
All the lenders expect you to have a clean credit history with a good credit
score of 650+. Make sure to check your CIR (Credit Information Report) as well
as your Credit Score online ATLEAST 6 months prior to applying for loan. This
will provide you sufficient time to set your score right if there is a problem.
And give you confidence if you have a good Credit Score. You can buy your CIBIL
TransUnion credit report (including credit score) online for Rs.470 only.
Tip: Pay off all your
delinquent accounts, late payments etc. and start making regular payments for
your Credit Cards and loan EMIs at least 6 months before availing home loan.
2. Pay off existing
debt: If you are have availed multiple
loans, then try to pay off these loans before you apply for home loan. As
having several loans might affect your loan eligibility, few Banks however,
along with your home loan, provide a scheme of debt consolidation also. But
this is subject to your monthly income. As any other EMIs that you are paying
right now, gets factored while calculating your loan eligibility. The lesser
EMIs you pay each month, more is your loan eligibility based on your income.
3. Improve your Banking
Habits: Whenever you apply for any loan,
the bank account statement is one of the most important documents that lender
asks. Through your Bank Statement, the lenders verify the banking habits,
lifestyle (easily noticeable if you use your debit card frequently) and your
repayment behaviour. The lender expects you to have a good credit balance every
month (at least equivalent to the EMI that you will repay for your Home Loan).
Please ensure that there is no cheque bouncing especially due to “Insufficient
Funds”. However, other cheque rejection reasons like “Signature Mismatch” are
still acceptable as an exception. But such instances should not exceed twice in
last 6 months to 1 year. The lenders generally ask for last 6 months Bank
Statement, if you are salaried, and last 1 year statement, if you are
self-employed.
4. Keep your documents
in place: When you apply for Home Loan,
following documents need to be submitted to the lender:
Salaried
Customers
|
Self Employed Professionals
|
Self Employed Businessman
|
Application form with photograph
|
Application form with photograph
|
Application form with photograph
|
Identity and Residence Proof
|
Identity and Residence Proof
|
Identity and Residence Proof
|
Latest Salary-slip
|
Education Qualifications
Certificate and Proof of business existence
|
Education Qualifications
Certificate and Proof of business existence
|
Form 16
|
Last 3 years Income Tax returns
(self and business)
|
Last 3 years Income Tax returns
(self and business)
|
Last 6 months bank statements
|
Last 3 years Profit /Loss and
Balance Sheet
|
Last 3 years Profit /Loss and
Balance Sheet
|
Business profile
|
||
-
|
Last 6 months to 1 year bank
statements
|
Last 6 months to 1 year bank
statements
|
On the basis of above
documents, the lender can offer in-principal approval for your loan
application. That is, the loan is sanctioned
subject to positive property verification.
In addition to the above
documents, you need to submit the copy of all property papers that you desire
to purchase. It is always recommended to verify the complete chain of property
documents available with the seller for at least last 13 years, before entering
into “Agreement to Buy”. The Banks, generally, do not process the loan
application without the “Agreement to Buy/ Sell”. If you are not confident on
the property chain, it is always advisable to consult a property lawyer well in
advance. The lawyers, analyse the chain of the property and help you in making
the decision to buy or reject the property. They also help in execution of the
sales/ purchase transaction.
5. Office and
Residential Stability: The lenders,
along with verifying your income, banking and property papers, they also verify
your job and residential stability at current address. This is done to avoid
the risk of a fraud or any desertions later during repayment of loan. Hopping
the job frequently might get you into trouble while you apply for loan.
Generally, a stability of at least 6 months is desired both at residence as
well as work place.
6. Apply for
Pre-Approved Loan: If you intend to buy
a property within a couple of months, then you can apply for pre-approved home
loan with the Bank. As mentioned above, most of the Banks, these days, sanction
a loan amount that can be extended to you, even before you have zeroed in the
right property for you. As an extension to this service, many lenders like
ICICI Bank and HDFC Ltd. help their customers to find their dream home. For
instance, HDFC has started an online portal www.hdfcred.com wherein all the
projects approved by HDFC have been listed. The borrowers can get their loan
pre-approved and can then start looking for a home. This also enables you to be
more precise with your budget for buying the property.
7. Understand the Loan
Process of lenders: Whenever you apply
for a loan, be prepared for lot of queries, phone calls and different visitors
walking in on behalf of the Bank/ lender. The loan providers follow a process
wherein they outsource most of the verification process to third party vendors.
After verifying their identity cards, you can address to their queries. Your
loan application is processed and approved/ declined by the Credit department
of your lender that generally takes 4 to 8 working days to make a decision on
your loan application. Once the loan is approved, then your sales officer
guides you on further process of completing rest of the formalities.
8. Do an online
research: As you get prepared for
availing a Home Loan, do not forget to do an online research on the best rates
and schemes offered by different lenders. There are different Home Loan
products available in the market as per your requirements. For example: some
lenders offer a product “Home Loan OverDraft” that is best for those who wish
to make pre-payment of their loan. Although, RBI has mandated all the lenders
to waive off the pre-payment penalty charges. But still, having a Home Loan OD
(OverDraft) saves you from the hassles of approaching the lender for
pre-payment, standing in a queue, filling up form and rest of the formalities.
It is a unique product that gives you freedom to transfer surplus funds to your
HL (Home Loan) account online to save on the interest repayment. At the same
time, it also allows you to withdraw some funds from your HL OD account.
Similarly, there are
different Home Loan products offered by different lenders at various rates. The
key to grabbing the best deal is to do your homework in advance and become Home
Loan ready.
To loan or not to loan, that is the
question. Here are the given tips to take a loan or not:
Taking a home loan? Ask these 5 questions!
Here
are 5 incredibly smart questions to ask your banker before taking a home loan.
1: Will you be
considering statutory expenses? One
smart question you can ask your banker before finalizing the home loan deal is
about the inclusion of any statutory expenses. Generally banks do not cover
statutory expenses like stamp duty or registration charges, any VAT or service
tax to be paid as well as any other miscellaneous or legal charges. Generally
all home loans are approved by considering only the cost of the property. Banks
and NBFCs may however consider funding of statutory expenses in certain cases
either under a onetime scheme or under special cases where market value of the
property may support offering such a facility. Irrespective of whether you are
taking a home loan under any special scheme or not, it is always a good idea to
ask your banker about the loan inclusion for statutory expenses.
2: Would you consider my
insurance policies as additional collateral?
Don’t get disheartened if your bank says that you are not eligible for
the applied amount. Even though they won’t tell you all possible ways to
enhance your loan eligibility, a little knowledge about the possibilities and a
smart suggestion after knowing their logic can help you. For example, banks
consider your insurance policies as additional collateral to enhance your loan
value. Or if you have an FD in the same bank, it will be helpful to enhance
your eligibility. The banker may not tell you all these loopholes, but be smart
to ask them, ‘can you consider additional amount by keeping my insurance
policy?’
3: How will the changing
interest rates affect my home loan? You
get a competitive interest rate as compared to the next bank, and you are happy
with it. But have you thought of asking your bank how the changing interest
rates will be affecting your home loan?
The fixed versus
floating interest rate dilemma has been traditionally one of the most difficult
decisions for home loan borrowers. Over the years with fixed home loans
becoming way high compared to floating rate of interests, most home loans have
been offered with floating interest rate. The interest rates offered by the
banks depend on the RBI repo rate which is announced periodically. A decrease
in repo rate usually results in lowering of interest rates. Before finalizing
the home loan, it is essential to check with the banker about how the changing
interest rates would affect the home loan.
Sometimes banks and
NBFCs offer a reduced interest rate only for new home loans and not for
existing home loans. Similarly in some fixed rate schemes, if the rates go up
above 2% to 3% for deal rate, your rates may change.Ask and clarify all these
with the bank.
4: Do you allow home
loan refinance? : Sometimes home loans may get difficult to repay due to
variety of reasons including a financial crisis. You may sometimes want to
transfer your loan to another bank in the middle due to lesser rates offered by
the other or due to a bad relation with the existing bank. And many realize it
at the time of transfer only that pre closure charges are applicable for
refinance or balance transfer, which makes no sense in transferring.
So be smart, ask your
bank beforehand how it will be if you request for a balance transfer. In a
market scenario where interest rates are falling refinancing can mean a
substantial reduction in many cases.
5: Do you offer mortgage
as an overdraft facility? : The changing
face of the home loan market has made banks and NBFCs introduce various new
features. Overdraft on home loans is one such which allows the borrower to park
surplus funds in the loan account. You are free to withdraw the deposit and use
the funds in case you find an attractive investment opportunity while the
interest rate is levied on the remaining balance. Instead of prepaying the home
loan, you can look at using the mortgage as an overdraft. The facility is
offered only a by a selected few banks under various flagship schemes.
Many people still buy
home loan without checking and comparing the various aspects of it. Only the
rate of interest is taken as the one factor before finalizing a home loan
agreement. There are however many other factors that you must keep in mind and
discuss proactively with the banker before choosing the home loan deal.
Seriously
speaking, a home loan is a great way to leapfrog into the homebuyers’ market.
It not only gives you a leg up in terms of financing your dream, but you also
get tax benefits on that home loan. Who doesn’t love tax benefits?
3 Loans that
Can Give You Great Tax Benefits: Some loans come with tax benefits. Which means
that you can build an asset and at the same time earn some perks.
Home
loans : Owning a home is a coveted dream. However,
the ever-rising real estate prices make it difficult for many to buy a home, or
even a piece of land, with just his/her savings. Home loans are meant for
bridging this gap. Home loans come with a lot of fringe benefits in the form of
tax breaks.
How do you benefit? Anyone availing a home loan benefits in two
ways. The amount paid towards the principal repayment qualifies for deduction
from income under Section 80C of Income Tax Act. Another benefit comes in the
form of deduction for the amount paid as interest on the home loan. The maximum
amount you can claim as interest deduction from your income for a self occupied
property is Rs 2 lakhs.
If you buy
more than one property, only one house can be counted as a self-occupied
property, and the others are deemed to be let out (even if they are not let
out). In case the loan is jointly availed between you and your spouse, the
deduction of Rs 2 lakhs can be claimed by both of you. In case of properties
that are deemed to be let out or are actually let out, the entire amount (no
ceiling of 2lakhs here) paid as interest is admissible as deduction under
Section 24B of IT Act, while the rent received gets added to your income. In
spite of that, it turns out to be a good bargain.
Tax payable
|
Tax payable when availing two home
loans
|
||
Total income
|
8,00,000
|
8,00,000
|
8,00,000
|
Rent income
|
Nil
|
Nil
|
80,000
|
Deduction under Section 80 C
|
50,000
|
50,000
|
50,000
|
Principal amt deductible under
Section 80 C
|
Nil
|
15,000
|
15,000
|
Deduction under Sec 24B (Interest)
|
Nil
|
1,05,000
|
2,10,000
|
Total income on which tax is
payable
|
7,50,000
|
6,30,000
|
6,05,000
|
Tax paid
|
75,000
|
51,000
|
46,000
|
Education
loans : Education loans pave the way to your
future. Education loans could be availed
for studying in India or abroad. But to get tax benefits from an education
loan, the loan should be availed from any scheduled bank or notified financial
institution. Education loans can also be
availed for self, spouse or children.
The legal guardian of any student can also avail this loan. Hence
parents or spouses can also claim deduction for payment of interest.
How do you benefit? Section 80E of Income Tax Act offers tax
benefit for those availing educational loans for higher education. However, as
against home loan, only interest paid towards the repayment of loan earns
deduction and not the principal. Also, there is no upper limit fixed for
interest repayment. Tax benefit can be
availed for a maximum of 8 years or on the loan repayment term, whichever is
applicable. For example, if the entire loan is repaid in 6 years, then the tax
benefit is also limited to that term.
Car
loans : Not many know that car loans come with tax
advantages and miss out on this benefit. However, all car loans do not come
with tax benefit. A car loan is a good tool for the self-employed to claim some
tax deduction. If used right, offsets the interest paid over a depreciating
asset.
How do you benefit? Deductions
from payable tax through a car loan can be availed only if you are a business
man and declare the profit or capital gains earned from your business. Another
condition attached to this is that the vehicle has to be purchased in the name
of your business. In that case, you get exemption on the interest as well as
depreciation of the vehicle.
Under these conditions,
you can include the interest paid for your car loan for tax exemption.
Besides this,
businessmen can avail deductions on personal loans too under certain
conditions, like the loan being taken as a business loan or for capital
investment in business.
Loans taken
wisely and within our limits would save us from a never ending debt spiral,
which many fear. While loans affect your monthly as well as annual finances for
other expenditures, the beneficial side of it in the form of tax saving,
reduces their overall impact considerably.
Let’s just
say that if you managed to get a certain Mr. Trump to bankroll your home
loan someway, he wouldn’t miss the money much. But it’s take you just as long
to convince him as it would to save up that loan amount!
Let’s say Mr. Trump’s not interested. The home loan it is.
Let’s say Mr. Trump’s not interested. The home loan it is.
As long as you’ve decided to shoot for a home
loan from your local bank, here are 5 home loan truths you should know.
All fixed rates are not
always fixed: So now that you have taken a home loan with a fixed rate of
interest you may think that you would be paying a fixed EMI each month for your
entire tenure of your loan; Right? But the fact is that almost all fixed rate
home loans have a clause that allows the bank or NBFC to re-fix the interest
rate after certain period of time. The interval period ranges from two to three
years depending on the bank or the non banking financial company. Such a clause
makes the fixed interest rate more a semi-fixed interest rate home loan.
So the next time you are
requesting for a home loan, make sure to check that your fixed rate is fixed
for the entire tenure and not for a limited period of time.
Pre EMIs can cost you
dearly: In case you are buying a property which is under construction, you
would have to pay the bank a pre EMI till the time the builder finishes
construction of your property. In case the builder takes two years to finish
construction of your property, you would be paying pre EMIs which is interest
on partial payment released by the bank to the builder. This money does not reduce
your principal loan amount and is in addition to your home loan EMIs which
start once your property is completed. Suppose your builder delays the project
for a few years, you would be paying pre EMIs as interest towards the payment
you received from the bank without reducing a single rupee from your home loan
obligation.
Banks offer loans for 30
years: If you are thinking of increasing your budget for the property purchase
on the basis of increasing your loan tenure, stop right away. Most home loans are
offered for 30 years tenure, but when you approach a bank for the first time,
they might offer you only a 20 year tenure unless you specifically request for
a longer tenure! Though it is wise to close out a loan early, (10 years is
actually ideal with prepayments, 20 is the average tenure) for those who who
cannot help it, up to 30 years is an option. It does not matter if you retire
after 25 years, if you are likely to earn a good pension, you can still avail a
loan for 30 years. Sigining up with a co-applicant also can help this cause.
Banks Seek Interim
Security- In case you are planning to purchase a property, you may have to
offer another property as collateral security for a limited period of time till
the bank gets the new title deed in your name. Never heard of this one before
right? This clause is applicable for some banks, especially the nationalized
banks. Banks offer home loans only when their risk is secured by a security or
collateral worth the total cost of the home loan. In case you are buying a
property, and seeking loan for an outright purchase, it may take 10-20 days to
get the new title deed in your name after registration. To offset any risk during that short tenure,
you would need to offer another property as an interim security to the bank
till you get the new title deed. Do check on this upfront with your bank to
avoid surprises later!
Banks fix the
property price as per their index: You may think that you could get a home loan
up to 80% of the market value of the property and reach a figure in your mind.
The fact is that banks have their own in-house evaluation process where they
work out the market cost of the property based on their own yardsticks and
calculations. Banks may evaluate your property far lower than what you think at
times. Also, in case of an outright purchase, if they have assessed a good
value for the property, but you are showing a lesser value in your title deed,
you will get only 80% of the value you have showed.
Nowadays, we
are spoilt for choices. Be it ice-creams, gadgets or bridegrooms. Choosing a home loan is just as easy as
picking out an ice-cream (or bridegroom) as long as you know what you want.
There’s added sprinkles, dry fruits, hot chocolate, chocolate chips, gems,
jelly thingies, and… phew!
We’ll have to
warn you here that the home loan experience may not be as straightforward as it
so deceptively appears. Here are 6
options you may not think of while taking a home loan.
Ignorance is bliss, but
not for loan buyers. Many home buyers are unaware of the several options
available when it comes to a home loan. Call it “research fatigue” or the
lets-get-this-out-of-the-way syndrome, majority of home loan borrowers look
only for interest rates. Here are six options you are likely to ignore when
finalizing a home loan deal.
Bridge loan: If you are
looking to purchase a new property after selling off an existing one, bridge
loans are for you. A bridge home loan provides funds for down payment to buy
the new property until your current house doesn’t get sold. This is a better
option than an expensive personal loan, and comes with a tenure of one to three
years. You can dispose off your property within that period and pay it back.
If you are unable to
sell off your property within the stipulated time period, you can get your
bridge loan converted to a mortgage loan albeit with a slightly higher rate of
interest.
Note: Approach the bank
for a bridge loan only after you have shortlisted a buyer for your property as
bridge loans in most cases are facilitated only after you enter into a formal
agreement for sale with a prospective buyer.
Flexi Loan: Flexi loans,
as the name suggests are smart payment options, where your loan account is
linked to a current account which functions like an overdraft account. You can
withdraw amount from a home loan account as per the sanctioned limit. And
whenever you have excess money, it can be diligently parked in the account and
the principal outstanding of the loan is adjusted for the balance kept in the
account by taking a weighted average.
The biggest advantage of
a flexi home loan is that you withdraw money only as per your requirement and
save on interest outgo for the loan.
Note:It is important to
note that the interest rate for flexi loan is usually higher than that of a
traditional home loan. Opt for it if you are likely to get surplus money which
can be parked in the loan account regularly. Borrowers who have taken loans
against under-construction property can also benefit from it.
Teaser loan: With the
uncertainty over interest rate fluctuations of loans during the past few years,
banks have introduced teaser loans to offer some respite. Teaser loans are
fixed loans for a pre-determined period of two to three years. After that it
changes to floating rate loan as per the prevailing base rate at that time.
If banks offer teaser
loans with fixed rates at a good rate or lower than the current rate, it is a
good idea to consider it in a rising interest rate economic scenario.
Note: Teaser loans are
also good if you feel that interest rates are likely to rise soon. But if
teaser loans are offered at rates higher than floating rates, or if the economy
is likely to improve soon, it may lock you up with a higher rate.
Second mortgage: Let’s
assume you already have a home loan running and are now seeking additional
funds to raise money for other expenses related to your home purchase like
interior designing or be it for another cause like purchase of a plot. You
cannot afford a personal loan because of its high interest rate and your bank is
not offering a Top Up loan at this stage. There is a case to consider a second
mortgage loan.
Under a second mortgage
loan or pari passu mortgage, you can mortgage the same property with two
different banks to borrow money depending on the value of your property. The
lending banks will have claim upon the property, depending upon the proportion
of money borrowed.
Note: Second mortgage
loans are offered with a mutual agreement between both lenders. The second
lender may offer you a loan at a higher interest rate than the first.
Tranche EMI Home Loan:
Many loan takers fail to calculate the huge amount they are losing as
Pre-EMI.Home loans taken against under construction properties often call for a
good sum to be paid as Pre-EMI, as the loan disbursement is linked to the level
of construction, and the actual EMI starts only after the full disbursement.
And until the actual EMI doesn’t commence, borrowers end up paying interest for
the disbursed amount. The situation worsens if the project gets delayed.
Opt for a Tranche based
EMI payment option here. Under this, you can start making EMI payments soon as
the first installment of the loan is disbursed. Here you are repaying for the
undisbursed amount, but the total output remains the same, and it saves you
from Pre-EMI.
Note: If you think that
you are paying additional amount under Tranche EMI option, you are wrong. The
only difference is thatunlike regular EMIs that start only after full
disbursement, here you are starting it early.
Proportionate release:
Imagine that you have shortlisted a flat that costs 70 lakhs, but your loan
eligibility is only 50 lakhs. You may get the loan amount only after paying off
the down payment, ie, Rs.20 lakhs, but you are finding it difficult to raise
that amount now.
You can talk to your
bank about a proportionate release option. Under this option you can make the
down payment in installments and the loan amount will also gets disbursed
proportionally to meet the builder’s payment due dates. This allows you to have
more flexibility to manage your finances.
Note: Not all properties
are available for proportionate release option. Usually banks offer this for
projects of reputed builders only.
Options are
many, but your banker may not offer all of them when you seek a loan. By being
a smart buyer you can get your home loan tailor-made for you and thereby save a
lot!
The hottest
product in the market, of course, is the Subvention Scheme, otherwise known as
the 20:80 loan scheme. Read all about
subvention loans to know whether you like its chocolate-y nutty flavor.
What’s a Subvention
Scheme?
Under a subvention
scheme, you can buy an under construction property from the builders by paying
15% to 25% of the total cost of the property, or even lesser. The remaining
cost of the property is paid by the bank directly to the concerned builder and
the pre-EMI interest is paid by the builder to the bank, as per the agreement.
Here in our case, Suraj
is buying the apartment for Rs.75 lakhs. He makes a down payment of Rs. 10
Lakhs to the builder. And he goes for a bank loan for Rs.65 lakhs. Assuming the
project is scheduled to be completed within 48 months (4 years), he will owe
the builder around Rs.135416 per month.
As the bank disburses
each installment, they charge pre-EMI interest on it. So, in Suraj’s case, he
will pay around Rs.88000 for the first year as Pre-EMI and for the second year,
it will double. Suraj’s home loan EMIs begin after he gets possession of the
apartment.
If they take a
subvention scheme, this pre-EMI amount will be paid by the builder to the bank,
and the bank will disburse the remaining amount directly to the builder.
The
way it works Usually banks offer
subvention scheme only for the builders that are listed as Category A with
them. Those builders who have their project finance with the same bank and
those with a clean financial record will be considered for this scheme.
There will be a three-way
agreement between the developer, the buyer and the bank. Often there will be a
specific period till which the builder agrees to pay the amount.
Banks pay the amount to
the builder upfront or as installments under a deferred payment scheme.
Which banks offer
Subvention schemes?
Subvention schemes are
available with most leading private and public sector banks and NBFCs. But it
is completely up to the discretion of the credit manager to offer this scheme
with a builder. The scheme is also limited to a few developers. So, if you
would like to opt for the scheme, you may need to check with the bank as well
as the builder about the tie ups or possibilities.
Why say ‘Yes’ to
Subvention loans?
Taking a home loan with
a subvention option comes with a number of advantages for both the buyer and
the builder. Some of the major benefits are:
Subvention loan schemes
allow customers to own homes with a minimum upfront payment and it thereby
reduces their financial burden.
The buyer needs to pay
no interest till a fixed period or till the time the possession of the
property.
Due to the interest
burden, the builder is likely to complete the project well in time, making it a
win -win situation.
Why say ‘No’ to
Subvention loans?
This scheme is however
not completely free from risks.
The buyer remains as a
‘borrower’ in the bank’s record. If the builder delays the interest payment, it
is the buyer’s credit profile that gets negatively impacted.
Builders usually agree
to payment of interest for a specific period only. As soon as the subvention
period ends, the borrower has to pay the remaining interest, plus dues, if any.
And if the construction is delayed further, they become helpless.
Builders are likely to
increase the price of the property if it is known that the buyer is planning to
go for a Subvention scheme. This is to make up their loss of interest payment.
Most subvention schemes
come with a lock-in period which makes it difficult for you to dispose the
property in case of any emergency.
A Subvention
scheme was the rope that pulled Nikita and Suraj out of their quagmire, and it
could help you too. Now they can go for as many Salman Khan movies as they
like, without the worry of budgeting and spending less.
Now, all
those added toppings will be just as easy to pick out according to your needs
and what the bank offers.
Choosing the right bank is like shopping for a pair of blue jeans. You
need the right shade, the right fit, and of course, you don’t wanna pay
exorbitant amounts, do you?
Though financial insight
proves to be helpful, it is not required so often. Consumers search for the
most reputable home loan providers and often end up getting trapped in the
wordy circles of the best salesperson. It, thus, becomes important to do your
homework and take every factor into consideration before opting for a
particular lender.
Importance
of Taking a Home Loan from a Reliable Lender
: Stringent terms and
conditions and absurd policies are a trademark of a financier that every
potential borrower must avoid. It is only a reliable lender who would offer the
needed flexibility when it comes to the terms and conditions of the loan. Apart
from that, only a reliable bank would provide superior customer service and be
willing to go down that extra mile for keeping its customers satisfied. Thus,
it is wise to check the reputation of the lender if one doesn’t hold any
relation with the bank.
Factors
to Consider : Considering
every possible, decision-affecting factor, planning out everything and
following it systematically is the key to a smooth, hassle-free journey to
owning your dream abode. There are numerous factors that help make a better
decision when selecting a home loan provider.
Processing and Disbursal
Speed – Dealing with a lender that rules out the possibility of any delays and
is quick in processing the home loan application always proves beneficial in
the long run. Normally, it takes 10-15 working days for banks to process an
application, if everything is in order. Once approved, the lenders take
additional 3-5 days for disbursing the amount of sanctioned loan.
Loan Qualification – The
internal lending criteria varies from one bank to another and it is on the
basis of these criteria that a particular amount of home loan is approved for
the borrower. The criteria might cover the borrower’s age, job profile
(preferably salaried, because of easily understandable salary slips and ITRs),
employment stability, credit history and others. There are several calculators
and eligibility charts, for instance the one offered by ICICI bank, which help
the borrowers in apprehending their eligibility well in advance.
Repayment Terms – There
are certain terms and conditions pertaining to the repayment of home loan
imposed by banks on customers. Potential borrowers must clarify the terms
related to settlement/foreclosing the outstanding amount, transferring the
balance to another lender’s account, prepaying a part or full amount of home
loan, and other things, before finalizing a lender.
How much should you pay?
The cost of taking a
home loan would certainly vary from one bank to another. It depends upon the
decision making abilities of the borrowers whether securing a home loan would
prove to be an economical affair or a cost laden one. However, there are
certain things that one must weigh carefully at the cost front.
Fixed Vs. Floating Rates
– The rates vary from time to time; and as in the case of a well-planned
investment portfolio, one must analyse the liability portfolio and plan on
getting the maximum out of it. As a rule of thumb, if the loan period ranges
between 2-5 years, going with fixed interest is considered an ideal move.
Otherwise, floating rates are considered ideal for long tenure loans.
Hidden
Charges – Hidden charges are something that tend to prick the pocket of
borrowers the most. Thus, while narrowing down the options, it is advisable to
compare the processing fees, down payment, valuation fees, prepayment costs and
other charges levied by different lenders.
Bank
|
Processing Fees/Charges
|
ICICI Bank
|
0.50% – 1% of the amount of loan
or Rs.1500 (Rs.2000 for Delhi, Mumbai and Bangalore), whichever is higher,
plus service tax and surcharge, as applicable.
|
HDFC Bank
|
0.50% of the loan amount plus
service tax and cess, as applicable.
|
State Bank of India
|
|
Punjab National Bank
|
|
Axis Bank
|
Up to 1% of the loan amount,
subject to minimum of Rs.10000
|
As on April 7, 2014
Making
the Choice : Different
lenders use different yardsticks for measuring the eligibility of the
borrowers. Why shouldn’t borrowers consider doing research and compare several
competitive features of home loans offered by different lenders? It is better
to have the policies, facts, terms and conditions clarified well in advance
before locking in a seemingly ideal home loan with any lender.
Researching
the best lending partner for your home loan needs is one of the most crucial
steps in your home purchase experience and is usually worth the time you spend
on it. Now, put the jeans on and take a walk on the home loan lane.
The idea of
applying for a home loan might be giving you a minor migraine right now, but
it’ll be all gone in a few moments.
Getting a
home loan is not as tough as you might have thought, as long as you have all
your affairs (*wink*) and your documents in order.
First, know
how your eligibility for a home loan will be calculated. Check eligibility checklist that can help you determine
that.
While applying for a
home loan one must bear in mind that there are several other factors besides
the income which are taken into account while deciding the eligible amount for
home loan to an individual. Thus while deciding on a property to buy the prospective
customer must keep in mind the amount that he can obtain from the banks as a
home loan depending upon his income and repayment capacity.
The
Basic Calculation of Eligible Amount
The primary
consideration in calculating the amount an individual is eligible for is the
annual income. The monthly income and the expenses are compared and the
remaining portion is considered as the repayment capacity which is the basis
for EMI computation and then reverse calculations are used to arrive at the
final figure one is eligible for.
For example if a person
earns Rs. 20000 per month and his essential monthly expenses are Rs. 15000 then
his monthly repayment ability is Rs. 5000 at an average interest a rate of 9%
the monthly installment on a loan Rs. 100000 will be Rs. 900 for a tenure of 20
years. Now the Home loan eligibility in lakhs is approximately equal to the
amount available for loan repayment divided by loan installment per lakh for
the selected tenure. In this case this amount would be 5000/900 x 1 Lakh = Rs.
5.5 Lakhs.
Additional
Factors
There are several
additional factors which the banks must consider while determining the actual
amount that the applicant is eligible for.
Suppose in the above
example the house purchased gets Rs. 2000 per month as rental which increases
the repayment capacity of the individual. Thus the eligibility will now be Rs.
(5000+2000)/900 x 1 Lakh = Rs. 7.7 Lakhs.
The exact essential
expenses of the borrower are difficult to estimate so a fixed percentage of
income is considered as not available for loan payment. This percentage varies
as per income bracket as the banks believe that those who are in higher
brackets of income can spare a greater percentage towards repayment of the home
loan. Thus the eligibility figure for them also increases accordingly. For high
earning individuals the repayment capacity may even be taken as 60% of their
salary thus increasing their eligibility substantially.
The
Tenure Factor
Another factor that
comes into play is the tenure of repayment, which affects the amount one is
eligible for. For longer tenures the EMIs per Lakh of amount borrowed becomes
lesser and thus the individual can pay for higher loans. Thus the eligibility
for a 20 year loan tenure of an individual will be higher than a 10 year tenure
for the same individual.
In certain
cases additional factors such as income from other sources and expected
increase in earnings are also factored into deciding the total amount eligible
for. However if the applicant has other loan repayment liabilities at the time
of applying for a home loan his net eligibility shall reduce as per the amount
outstanding as other loans and the EMIs being paid towards those loans.
Next, know what
customer profiles bank woo or shun. Find out where you stand as a loan
seeker. Here’s a simple way to do
that.
When it comes to loans,
it sometimes feels like banks are playing the Godfather. There are some that
easily become a part of the family, while others get rejected.
Here
are top 3 customer profiles that banks prefer, or don’t prefer.
The
Hit List
1. Doctors: A privileged lot, to say the least! Banks
believe that the doctors are disciplined professionals and would not falter.
They are seen as good real estate buyers, car buyers and
big-ticket-loan-takers; home loans for
tax benefits and car loans for their premium cars.
Most banks offer special
rates for doctors. For example, while personal loans for others start at 16%,
banks offer loans at 13.75% onwards for doctors. Banks also have special
schemes on various loans for them. Many of these professionals are HNIs of
their bank. Banks love to cross-sell other products to them, like a premium
credit card, because of their high credit scores. And, of course, they get
referrals too.
2. IT Professionals: The IT professionals have virtually
rewritten the rules of loan disbursal. Their changing lifestyle and spending
patterns have made them good loan takers; whether they are home loans, car
loans, personal loans or even credit card loans.
They too avail multiple
home loans for tax saving purposes.
And having settled down
in metros, their loan size is high. As they want to get things done easily,
most of their real estate buys are from the bank approved projects. This way,
banks are free of the legal verification and get things done easily as well.
Once the loan is quickly
disbursed, the colleagues are referred and the banks have a chain of customers.
Most of them might even have their salary accounts in the same bank, and the
bank is more than happy to give them special rates.
3. Government employees: A banker’s banker! If you are a government
employee, your loan application would be processed in a jiffy, as it is a ‘safe
and secure’ profile for the banks. The credit manager is free from checking
company credentials, worrying about job loss, changing jobs and recession.
Government servants are quite disciplined about repaying loans too.
Their loan tickets may
not be as attractive as the other two categories, but government employees are
all-time favourites of the banks. Most of these employees rely a lot on the
banks; be it the purchase of a new house, car, or availing education loans for
their children, personal loans, top-up loans and more.
The
Miss List
1. Businessmen: Banks are always wary of bizmen. Especially
if you are a young entrepreneur with a startup, the reception could be cold. If
you are a ‘serial’ entrepreneur, they have doubts about your stability. And in
case you’re an entrepreneur in the virtual world, it’s a big ‘no’ from the
banks. The reason? Banks don’t see stability in cloud data and yet another
e-commerce venture.
But if you have a
well-known enterprise or a family-owned business, they are happy to give a
lending hand. But, there would be no compromise on interest rates. For home
loans, some banks charges 1-2% more for businessmen, and the rates are around
22% for personal loans. And of course, the paperwork would be humongous.
2. Advocates: Advocates are known to be a sharp lot and
everybody knows that it’s hard to argue with a lawyer. It seems like a daunting
prospect to end up on the other side of the table, when and if anything goes
wrong.
They work from client to
client and they generally may not be associated with any firm. Banks could have
blacklisted advocates, we couldn’t be sure.
3. Film professionals: We all know that the film world is just as
fickle as it is glamorous. There are those who get their 15 minutes of fame and
disappear for good.
We don’t mean just
actors here, but all those who belong to the filmdom- whether you are an ad man,
a model, a photographer, a sound engineer, a theatre artist, a musician or any
play any other part. Movies come and
movies go. There are so many movies that we’ve never heard of before (except
while playing dumb-charades) and there are just as many actors/models that we
never saw again. Not everyone is able to make it big. What if the vanishing act
happens for real, you know?
We weren’t
referring to actual shooting with the Hit and Miss lists. As far as we know,
the banks and the Mafia don’t have that much in common. But nobody wants to be
in the bad books of either, do you agree?
You know that aunty, who
won’t stop talking about getting you married? Or the old man down the street
who frowns at you every time you pass his house? How about that young lad who
always has his headphones on and doesn’t seem to notice anything going on
around him? Or the whiny guy at your work-place? Maybe the girl who always
seems to have the latest car, gadgets and fashion?
We all know such
characters around us. And their attitude towards loans differs just as much as
their outlook on life does.
Find out which category
you belong to.
The
Conservatives : Their
principle is: “If you can’t afford it, don’t buy it.” They never opt for a
loan. They consider taking a loan as the second worst thing in their life. Of
course, the first worst thing for anyone is your pizza arriving stone cold.
They are very good at
managing their income and expenses. Even though their principle will keep them
out of financial trouble, they never take risks. Their financial graph is
always a straight line with a rare dip or rise.
They normally buy their
first home in their late 40’s. Ironically, that’s the age when people start
worrying about a lot of other financial outflows. It all gets clubbed together
and that’s the reason why the old man on your street is so grumpy.
The
Smart ‘uns
These people look at
loans as boons. They know how to utilize the loans effectively. They get
business loans to start a new one or enrich their existing business. They make use
of home loans to buy their dream home at a young age, get tax benefits out of
it and sell it when the real estate booms. They keep multiple credit cards to
avail the right offers.
They know precisely how
much to borrow from banks and when exactly to repay it. They always do their
math and are good at getting the best interest rates. They treat money well and
vice-versa, which is why the fashionista girl doesn’t seem to run out of money.
The
Jugglers
They get loans for
everything — education, bike, car, house, business, vacation without
considering exactly how they’d manage all of them. They probably get a loan for
their wedding as well, visiting bank websites way more than matrimonial ones.
Eventually all the loans
pile up and become too much to handle and the Jugglers spontaneously combust!
We’re kidding. But the debt they fall into just as easily takes everything away
from them. The young lad is surely on his way to becoming a Juggler, what with
the newer generations wanting everything in their hands right away.
The
Worriers
These are the people who
get loans, start feeling very antsy about their debts, and want to close all
their loans as quickly as possible. And they worry about every aspect of their
loans.
“Do I convert from a
floating to fixed interest rate now? How would I repay my debts if I lose my
job? What if the property I bought depreciates in value?”
When they hurry the
repayment, they end up having less or no cash in hand, having forgotten to
worry about saving. There’s nothing left to invest in something new or upgrade
their existing business. So they end up applying for another loan and the cycle
begins all over again.
You might have heard the
whiner in your office wondering aloud about his loans as well.
The
Analyzers
They are the Rahul Dravids
of finance management. They spend too much time analyzing the loan cover to
cover before acting on it, just like Dravid takes his time at the crease
reading the pitch before working his magic.
They might waste a lot
of time, but end up saving money as well.
They always keep an eye
on the interest rates offered by all banks and keep comparing them to find the
best one. They usually have all the data at their finger-tips. They probably
know more than the bank employees about offers. In-depth analysis is their
zing!
Your annoying aunty
might know about loans just as much as she knows about every detail of your
life.
So which
category did you find yourself under? We really hope you aren’t stressing out
about any of your loans.
Say buh-bye
to that migraine and hello to your brand new home.
But, treat
that home loan like you’d treat your lady out at dinner. You don’t want to say
goodbye to your home before you get to know it. , do you? Here are 5 unexpected reasons for home loan rejection that can help you
avoid the blushes (some are downright silly!)
Aplying for a home loan
may seem to be a good idea if you are looking forward to buy the home of your
dreams. You have all the qualities that make you a favourable home loan
applicant such as good credit history and strong professional background, still
to your utter surprise, your application gets rejected. Don’t get flummoxed. It
is good to avoid the following unexpected pitfalls that may lead to the
rejection of your home loan application:
Being
a new job entrant You may feel
on top of the world when you bag a new job offering at high pay package. If you
are in the process of applying for a home loan, lenders not only look for
stability but also the fact that the applicant would be able to pay back the
loan. Home finance companies generally prefer an applicant who is employed with
a particular concern for a minimum period of one year. This is more crucial for private company
employees as well as freshers. This also
holds true for frequent job changes. There is nothing wrong with switching jobs
but it should not happen in a quick succession.
Not
available on landline You have
provided the right information and completed the formalities even then your
home loan gets rejected. The reason is that at the time of filling the form you
had entered your landline number. The investigation team would have probably
called up in the morning when you were away at work and since you did not pick
up the phone they wrote off the report as ‘not responding’. This may become one
of the grounds for your home loan to be rejected. So, make sure that apart from
the landline number you also give your mobile number so that when the
investigation team calls you are there to answer their queries.
Unpaid
telephone bill You would be
surprised to know that an unpaid telephone bill can really hamper your chances
of buying your dream home. An unpaid bill or even late payments can adversely
affect your credit ratings which would not go down well with the lenders,
providing them with a reason to reject your application. So, in case you are planning to go in for a
home loan make sure that all you bills have been paid.
Buying
property with minor rights If you are
planning to buy property where a minor has rights in the property then you will
have to face some problems. Though the person who is selling you the property
may not provide you the information but the fact is that if you apply for a
loan on a property where a minor has rights in the property then your
application is bound to be rejected. The hard fact is that no bank gives loans
for buying property with minor rights. So, when buying, make sure about minor
rights in the property.
Hurdles
faced by entrepreneurs Banks can be
a bit sceptical when giving loans to young and first time entrepreneurs. Banks
want their money back and that too on time. Here established businesses fare
much better as they have already created a reputation for themselves and banks
can easily place their trust in them. The story is different for people who
have just started out. With very less capital and a future not very stable from
the banks point of view getting loans can be a tough affair. So, try to give
the lender some testimony of your credibility so that they can place trust in
you enabling you to get your loan.
Always
get an NOC If you fail to get an
NOC or No Objection Certificate on an already closed loan, your home loan
application may be rejected. Banks are very particular about this fact and
would ask you to produce an NOC on a loan that you previously took and has been
closed. In case you never asked for the NOC your application would be rejected
despite the fact that all other papers are in order.
Signature
mismatch Be very particular about
your signatures. Applying for a home loan is no child’s play. Here you would
have to fill out lengthy forms which would require a lot of signatures. You
should sign in the same manner and also attach the documents which carry your
identical signature. The signature on the form and copies of documents should
also match with your signature registered with your banks. So, make sure that
you sign in the same manner or else you would have to again go through the
entire process.
If you adopt the
above-mentioned golden safeguards, your application is likely to be accepted
paving the way for you to buy your dream house.
P.S: Sometimes, a
particular kind of income, debt profile and geographic area is not found to be
appropriate for lending as per the internal policy guidelines of a bank. Also,
we are living in the age of e-governance where data is stored in the electronic
database; this includes your accepted as well as rejected loan applications.
So, when you
apply for a loan, make sure not to choose a bank which in the past has rejected
your application. Your past records will be checked and there is a possibility
that your application may be rejected again. However, if you still want to go
ahead with the same bank, then try to explain to them the changes that have
occurred over the years in your income, profile etc. If the lender is convinced, your application might
see the light of the day. You can provide additional security which may include
a guarantor, insurance policies, fixed deposits, collateral securities etc. to
secure the loan.
Finally, the
nuts and bolts of a home loan is that it’s a legal agreement at the end of the
day. Now, your bank has the greenbacks to hire top drawer legal counsel and
tighten the screws all they want on the home loan agreement so that their bases
are covered.
But, what do
you do before signing on the dotted line?
Simple, you
use oodles of common sense. And put
on your reading glasses to know more about handling tricky clauses in a home
loan agreement.
The home loan agreement
is usually a 50 page document that most borrowers do not have the patience to
study in detail. However all such agreements have a few tricky clauses that
protect the lending institution and may compromise the interest of the borrower!
Thus one needs to be aware of these clauses and the means to deal with them.
Some of such tricky clauses are listed below with a few suggestions to deal
with them.
Assignment to third
parties: Most of the HFC mention in the home loan agreement that they can
without the permission of the borrower assign their rights to any third party
for the purpose of collection and recovery of outstanding dues. The typical
statement in the clause will read somewhat like “the bank may assign any of its
rights or obligations herein without any approval or consent of the borrower.”
However this an unfair clause that the borrower must discuss with the banker at
the time of signing and get the required amendment made.
Notification Clause: In
the majority of the agreement formats there is a clause that the borrower shall
notify the lending institution of any changes in his personal status such as
employment or marriage well in advance. The clause “well in advance” is quite
ambiguous and can be used by the bank to its advantage while declaring a
default. Thus the borrower must insist on getting this amended to a more
tangible figure that is acceptable to both the parties at the time of signing
the agreement.
Cross Default: this is
another gray area where the borrower is deemed to have defaulted in the home
loan repayment in case he defaults in servicing any other loan elsewhere. Since
the two payments are independent they should not be cross considered for the
purpose of default definition. The clause can be eliminated by bargaining hard
with the HFC at the time of taking the loan.
Amendment Clause: The
HFCs often include this clause to retain rights of amending the terms and
conditions of the agreement unilaterally without the permission of the borrower
who is the second party to the agreement. A typical amendment clause line to
watch out for is “he bank shall at its sole discretion alter the terms of this
agreement by written intimation sent to the borrower by courier. Any amendment
proposed by the borrower shall be valid only if made by a written agreement
signed by both the parties.” This clause is completely unacceptable by any
legal standards and hence must be out rightly rejected while signing the
agreement. The implications of the amendment clause are completely against the
interest of the borrower who is an equal party in the home loan agreement.
Great care
should be taken at the time of signing the agreement to scrutinize the document
for such ambiguous and tricky clauses that may compromise the interest of the
borrower later. In case the borrower finds any of these clauses unacceptable he
may reject the agreement or renegotiate for an appropriate one with the HFC.
And, oh! One
more thing. Adding a co-applicant to your home loan agreement can be a great
idea - it can give you additional tax benefits and increase your
eligibility if your co-applicant is a working spouse. And banks love the idea
as well! Know the terms for
adding co-applicants for a home loan.
You can apply for a home
loan either as a single applicant or along with another borrower as a
co-applicant. A co-applicant for a home loan indicates a person who applies
along with the main borrower of the loan.
There are a few terms which banks specify when co-applicants are added to the
loan application.
Here
are such points to ponder when a co-applicant is in the picture:
Enhancing eligibility:
Adding a co-applicant can be advantageous if you wish to enhance the
eligibility of your home loan. In the case of a joint loan, the income of both
the co-applicants will be considered while determining the eligibility of the
loan. The income will be considered for loan eligibility only if it is a
regular income. However, not all relationships are acceptable by the bank.
Friends or relatives who are not blood relatives are generally excluded. Banks
specify that co-applicants can either be a spouse, parent or any other
specified relative. It is important to check with the bank on the possible
combinations of relationships, which are eligible in this context.
Co-owners and co-applicants:
Banks require that all co-owners of a property should necessarily be
co-applicants of the loan. However, the converse is not true. That is,
co-applicants in a home loan need not necessarily be co-owners of the property.
The owner of the property should always be the main applicant of the loan.
Spouses: Husband and
wife can be co-applicants of the loan even though they are not co-owners of the
property. The maximum tenure of the loan is determined based on the retirement
age of the older partner. The incomes of both the spouses will be considered
for determining the eligibility of the loan.
Siblings: Two brothers
can be co-applicants in the home loan if they stay together on the same
property. Both the brothers should also continue to stay together in the new
property as well. Some banks also insist that the two brothers should be the
co-owners of the property. However, a brother and sister cannot be
co-applicants for the loan. Similarly, two sisters cannot be co-applicants for
the loan.
Parent and Minor child:
A parent cannot co-apply along with his/her minor child for a home loan.
Co-applying with son or daughter is possible, subject to the conditions given
below.
Son and Father: The
rules pertaining to a son and father being co-applicants are quite clear. If
there is only one son, then either the son or the father can be the main owner.
However, both should be the joint owners of the property. Both the incomes of
the son and the father can be considered. The tenure is generally restricted to
the retirement age of the father in this case. In case the father has more than
one son, the terms are very clear that the father cannot be the main owner of
the property. This is because all the sons are legal heirs of the property
after the father’s demise. However, the father can be the co-applicant along
with the consideration of his income for increased eligibility of the home
loan.
Daughter and Father: An
unmarried daughter can apply for a home loan jointly with her father. However,
the condition is that the father’s income should not be considered while
determining the eligibility amount of the loan. Further, the property should be
in the name of the daughter only. The intention of this law is to avoid
disputes at a later date when the daughter is married.
Documentation terms:
Co-applicants are two applicants for the same loan. Therefore, this does not
mean that documentation is needed only for 1 applicant. The documentation will
be required for all the co-applicants of the loan. This includes Know Your Customer
details such as address proof, identity proof and photographs. Proof of
co-ownership in the property should be submitted. In addition to this, income
proof of all co-applicants whose income is considered should be provided.
Taxation terms:
Co-applicants in a home loan can claim taxation benefits on principal and
interest repayment to the extent of their share in the property. However, if
the total interest or principal paid is more than the permissible limits, then
each co-applicant can claim the maximum benefit. For example if total interest
paid in a year is Rs. 5 lakhs and total principal paid is Rs. 5 lakhs and there
are two co-applicants, then each of them can claim Rs. 1.5 lakh each on
interest repayment (Rs. 2 lakhs for self-occupied property) and Rs. 1 lakh each
on principal repayment.
Terms for
property under dispute: If the property under a joint loan is under dispute,
each of the co-applicants is joint and several. This means in case of a
default, the bank can proceed with the recovery process against all the
co-applicants.
As long as
you treat your loan like a lady, as we told you, you should be safe from its
wrath.
As
with everything else, there are some dos and don’ts you should keep in mind,
forever and always.
Prepay
the home loan now or invest that amount? It’s a question been asked by many.
Repayment of home loan
depends on many factors and there’s no set of one fit rules for all. So ask few
questions yourself before we go deep into it.
How old is my home loan?
How much tax I am saving
with your home loan?
What’s the rate of
interest I am getting?
Am I finding it
difficult to manage my EMI?
What’s the return I may
get if I invest the surplus cash in a good instrument?
Note down your answers
and then go on reading:
Few Don’ts if in case you
have decided to repay:
Don’t prepay without
calculating the benefits: Prepaying the home loan may not always be beneficial.
It is recommended that you calculate the returns that can be made from the same
amount if invested and compare it with the interest amount of the home loan.
For example, if Hemant
had taken a loan of 18 lakhs in June 2010 for a period of 20 years and the
interest rate offered for him is 10.5%. His EMI is Rs.17,971/-.
He is repaying
Rs.43,13,040/- at the end of the tenure if he is not pre-closing the loan,
which means Rs.25,13,040/- is paid in excess.
If he is invested the
surplus amount each year in a good savings instrument that offers 12% and
above, he would get handsome returns to counterfeit the loss.
Don’t overlook the tax
benefits of the loan: Home loans offer great tax benefits with rebates on
principal and the interest component.
Considering the above scenario, Hemant is
paying Rs. 174254/- this FY and Rs.41397/- to the principal. The tax rebate for principal payment (under
Section 80C) is 1.5 lakhs and for interest payment is 2 lakhs (under section
24).
If his income is 12
lakhs per annum, his payable tax is Rs.3 lakhs, which could easily waived off
with his home loan and few other tax savers. But if his income is 6 lakhs per
annum, his payable tax is only Rs.120000/- which means he can pre-pay part of
his home loan, and still he enjoys tax benefit.
Don’t look at prepaying
of the entire loan: Many home loan seekers look to prepay the full loan amount.
Instead of prepaying the full loan you can look at partial prepayment till the
amount that interest being paid for the loan is less than what the funds would
fetch if invested in other financial instruments with assured returns.
Few Dos
if you decided to prepay
In case you are thinking
of prepaying your home loan, it is a good idea to set a checklist and click on
the below three mentioned parameters to make sure home loan prepayment works in
your advantage.
Keep the EMI steady: The
first step in making sure that home loan prepayment works as an advantage for
you is to keep the EMI unchanged. If you
are prepaying the loan, there are two options to choose from: either you can
reduce the EMIs or reduce the tenure of the loan, keeping EMI the same. So if
you are comfortable with your current EMI, keep it steady and reduce the
tenure.
Suppose you have an
excess fund of Rs. 1 Lakh that you are willing to prepay for the home loan. In
case you opt for a reduction in EMI, you can reduce the monthly EMI by Rs.
1000. On the other hand opting for a same EMI option, you can pay off the
entire loan in 18 years reducing the overall interest paid on the loan, which
is a good decision.
The earlier you repay
the better: The earlier you prepay the
loan, the better it is for saving interest, as home loans are designed in such
a way that the initial EMIs go mostly to the interest component.
As long as
you follow them, you should be fine.
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