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NRI Home Loans Basics and Process

NRI Housing Loans is a product which is best suited for Non Residents who desire a home own in their home town. It is a product which offers NRIs the option to purchase a New or Resale property or to build a house in the plot which they own or to buy a plot and construct a house on it. This product is limited to the NRIs who are salaried only. There are very few banks which take self employed NRIs into consideration for funding to their needs.

The process for obtaining a Housing loan, being an NRI, is very simple. The bank will have a General power of Attorney which should be notarized in the country where the customer is residing and send it across to the bank for submission. The lists of documents are the same as for salaried residents for the loan process. The NRI needs to submit his/her ID, Age, Residential, Income, Tax deduction, banking proofs to the banks along with the credit report all which are duly signed by the applicants. The credit report is same as CIBIL statement here in India. He then needs to assign a blood relative as his GPA holder to process the loan application and to sign on behalf of him on all his loan documents. The GPA holder can be a father, mother, brother, sister; father in law, mother in law. One cannot nominate his friends as his GPA holder for loan processing. The GPA holder also needs to submit his ID, Age and residential Proofs and the property documents with Agreement of Sale and link documents.

The bank will verify the employment status of the NRI through email mailed to the HR of the company. There will be no further verifications of NRI and the bank will verify the GPA holders address and details here in India. The eligibility will be calculated taking his/her gross/net Income into consideration along with age and the product which the customers choose. If any discrepancy is found in the credit statement of the GPA holder, it will affect the process so it is recommended that the customer be aware of one’s credit history before making him/her as GPA.

Banks will verify the legality of the property and evaluate it according to its market value. The funding will be done up to a maximum of 80% of the property cost (Technical Value), Agreement value or the sanctioned amount whichever is less.

The following points should be noted in the home loan process for NRI’s especially

  • GPA holder is mandatory for processing a home loan application for a NRI
  • Maximum age of GPA should not cross 65 Years
  • Maximum age considered for NRI is 58 Years
  • All the repayments are given at a maximum period of 15 years
  • Funding will be released once the documents get registered in the applicant’s name
  • For semi-finished apartments and houses the funding will be released depending on the construction stage of the property
  • Funding will be done for properties with in the geo limits of the bank
  • GPA notary is mandatory in the residing countries which in turn will be validated in INDIA
  • TAX Benefit is not applicable for NRI’s on any type of loans
Posted on 10 September 2011 at 10:46 by Anu - Comments

Fixed VS Floating Interest Rate Home Loan

There are two interest payment options you can choose from when applying for a home loan – fixed rate and floating rate.

A fixed rate is where the rate of interest is fixed throughout the tenure of the loan. Generally, most banks keep the rates fixed for a maximum of 5 years.

A floating rate is where the rate of interest is benchmarked against a specific interest rate (usually the bank’s internal rate), and fluctuates according to the benchmark.

Usually, you can strike a floating rate loan at a lower rate than a fixed rate loan, the difference being around 1% to 2%.

If the interest rate of a floating rate loan rises, banks first increase loan term or the duration of your loan. Otherwise, they can even increase the amount of your EMI.

Which rate to choose?
Keep the following factors in mind while deciding whether to opt for a fixed rate or floating rate:

  • Outlook – When interest rates are high, it makes sense to go in for a floating rate loan, as a fall in rates will benefit you. And if interest rates are low, it is advisable to lock in a lower fixed rate for at least 3-5 years.
  • Stage of life – If you are a senior citizen, or somebody with a fixed source of income, you cannot afford an increase in EMI and should go for a fixed rate loan.

Fixed rate loans are not fixed
In the world of finance, nothing is certain especially where the loan segment is concerned. There is a lot of fine print that has to be read carefully before any decision is made because it can come back to haunt the borrower at a later stage. Investors as well as borrowers in India have experienced this in the last few years and hence this area needs extra attention.

In common parlance, the term ‘fixed rate loan’ can be distinguished from the floating rate loan with respect to the manner in which a borrower will pay interest on the loan. In a floating rate loan, the rate paid is linked to some other rate, usually a benchmark rate, fixed by the lending institution. As the situation in the economy changes resulting in an impact on the benchmark rate, the borrower also experiences a change in the rate that he/she will pay. As opposed to this a fixed rate loan will have a fixed rate of interest to be paid on it.

Many people believe that the rate of interest once fixed remains fixed for the entire duration of the loan. This is what is supposed to happen but some clauses in the loan agreement render this false. This means that the fixed rate will also change; the only difference will be the frequency with which it will change will be different from that of a floating rate.

There are two common points that lead to a change as far as the fixed rate is concerned. The first point is that in many agreements the rate is fixed for only a specific duration of time. This time period can be of 3 years or 5 years and the rate of interest can change after this period is complete. After this period, the lender can once again fix the rate for an additional time duration and this will be done based upon the situation prevailing at that point of time. So in case there has been a sharp rise in the rates due to some reason the fixed rates will be revised upwards and the individual could get trapped because the higher rates will then be applicable for the next fixed time period.

The second point in which this happens is through a clause that says that in case of an emergency situation in the economy or massive disruptions in the debt market, the rate of interest might change. It is not clearly defined as what will constitute such a position is open for interpretation. Thus borrowers will always be on the edge because they will realise that in case there is a sharp rise in the rates the clause could well be invoked and the rates on their fixed rate loan will change. In such a position the entire loan will no longer have the characteristics that the borrowers believed were present initially.

A word of caution
All banks lend floating rate loans at a discount to a benchmark rate called ‘Prime Lending Rate’ (PLR). This benchmark rate and the amount of discount are completely internal to the bank,
Major points to note:

  • The rates have increased from 8% to 12% in around 3 years.
  • Chances are that the discounts can go on increasing, but the PLR will not fall.
  • So if you want to avail of better rates, go in for prepayment and take a new loan. It might be worthwhile in spite of the 2% prepayment fee.
  • Most private banks have increased the interest rates heavily, whereas public banks have been much more moderate.
Posted on 9 September 2011 at 10:33 by Anu - Comments

How To Select Your Home Loan Bank

The experience of a customer with a home loan provider is a very vital component of the day-to-day dealings, as this is a long-term loan where there will be lots of occasions when the two parties will have to interact. The loan provider should have a good service track record as this will help customers in solving any problem or concern regarding their loan. The comfort level of the borrower should also be high. This will lead to a higher level of satisfaction as far as the borrower is concerned.

The option for any prepayment of the loan also has to be considered. Many people have a plan whereby they will not continue with the loan for the entire duration of its term but would prefer to pay off the loan at the first possible opportunity. This can happen whenever they get some money that they can spare for this purpose and hence would like to reduce their burden. Thus, the possibility of prepayment has to be taken into consideration. In many cases, there may be an extra charge when it comes to a prepayment and this also has to be compared across lenders as it is an extra burden to the borrower.

The strength of the lending institution is also important because the borrower would not like to have any problem with the institution itself, especially when some part of the loan is to be disbursed at a later date. This can impact the flow of funds and also there might be some issues as far as the repayment is concerned if the institution is not strong enough. Thus it is always better to go with strong players who are expected to remain in business over a longer period of time.

Another solution to this problem would be pledging your liquid financial assets such as bonds, shares, securities, fixed deposits, insurance policies with existing high surrender values, etc. in lieu of the 15% to 20% margin money that you might be required to pay.

You can also obtain a loan by surrendering your life insurance policy to the life insurance company or to a bank.
A few banks tie up with well-known builders who provide ready-to-move-in flats. Such flats are partly or completely renovated and come with furniture, which would otherwise not be included in the ‘cost of the house’. In such cases, you will get a bigger loan from the bank, depending on your income. Also, this will reduce your spending on these things when you move in.

You could also be eligible to take a loan from your Employees provident Fund account if you have had an employee provident fund a/c for more than 5 years.

You can also make the down payment using your credit card. Although it is never recommended and should be done only if you are falling short by a very little amount because the interest you pay on such a loan is around 35%, which proves to be much higher compared to a personal loan where you would be paying an interest of around 20%.

If you have a good track record at your bank then you can also go for a bank overdraft facility/loan which could be another option to generate money for your down payment.

Posted on 8 September 2011 at 06:46 by Anu - Comments

Before Buying Immovable Property

Buying immovable property in India is fraught with difficulties due to a combination of factors. Residents/ Non-Resident Indians are further handicapped by distance and their inability to visit sites for this purpose. Meticulous planning at the investment stage could avoid hassles and sleepless nights later on. Though the list provided below is not exhaustive, some of the pre-requisites indicated below would immensely assist property seekers.

Scrutinize all original documents. The title to the property may be on a single or joint ownership basis. In the event of any difficulty, a certified copy can always be obtained from the local sub-registrar’s office on payment of a nominal fee.

Refer the documents to a lawyer who may certify that clear title can be passed on to the buyer.

Obtain a ‘No encumbrance certificate’ for the past 30 years to ensure that no mortgage has been outstanding on the property to be purchased. This will also enable the buyer to ensure that the title belongs to the rightful owner who wants to sell it.

Obtain required clearance under the Urban Land (Ceiling and Regulation) Act.

In the event of a sale by a third party viz. Real-estate promoter, check whether he is the absolute owner or holds a registered power of attorney to sell the property. It is better to buy from an established developer with an unblemished record.

Seek the assistance of a reputed consultant to ensure that the price quoted is the correct market value.

Controlling Your Home Loan Emi:
A lot of people are borrowing today to create various assets. A home loan is a very important component of the overall financial security of a person and his family, and due to this a lot of calculations need to be done before a decision is made regarding the purchase. The financial implication of this decision will continue for a long period of time and hence it is not just the present financial condition but also the developing future financial condition that will have to be considered.

One way of looking at this is by considering the amount of the home loan emi (Equated Monthly Installment) that a person has to pay with respect to the earnings that he/she generates. This will give an idea about the extent of the income that will be spent in a particular area. One major mistake that is commonly made is that in many cases the person takes an individual look at a particular loan and then makes the entire calculation.

The real way in which a person will be able to understand the pressure on his/her finances is by taking all the loans that he/she has together and then comparing the total EMI that he/she pays each month versus the income being generated. This will give the borrower a better picture because each of the EMIs has to be paid and there cannot be a default on any of them. Looking at just one item in isolation might not send the necessary warning signal to the borrower when action could have been taken at the start of the process.

Every person should ensure that the percentage of the income paid as EMI does not go above a certain figure, say 35%-40% of the total income. The appropriate figure for a person will depend upon the position that he/she is in and the kind of expenses he/she has to make with respect to his/her other living conditions. This will ensure that even in the future if the rise in income is not as per expectations, there is still some margin available for them whereby they could avoid a default. There can be other calculations like earnings from some other member of the family that would help in paying off the loan but even this might be affected and hence this will not require much of an effort for borrowers who will find that their position is manageable.

A similar position has to be considered when the loan chosen is not a simple equal monthly payment loan. There are loans that might suddenly increase in terms of the amount to be paid after a certain time period or there might be a large repayment coming in at certain time intervals. Adequate preparation and planning has to be undertaken so that the necessary funds are available for the borrower to honour these payments. With a credit database being prepared, borrowers should ensure that they do not spoil their credit scores.

Posted on 7 September 2011 at 05:20 by Anu - Comments

Home Loans after Bankruptcy

Attaining homeownership can be extremely gratifying. If you have a good credit rating, obtaining this goal can be trouble-free. However, if you have a few credit blemishes or filed a recent bankruptcy, you may have to delay homeownership until your credit situation improves. Several lenders specialize in bad credit mortgages, and offer loans to people after bankruptcy. However, before accepting an offer, consider the following points.

When was the Bankruptcy Discharged?
There is no mandatory waiting period for obtaining a mortgage after bankruptcy. Those who are eager to purchase a home may get a loan immediately following their discharge; unfortunately, this may not be the best plan. Mortgage interest rates following a bankruptcy are outrageously high, which may greatly increase your mortgage payment. In fact, mortgage and credit experts may encourage you to wait at least 24 months before applying for a home loan. By doing so, you have the opportunity to receive a comparable low interest rate on your home loan.

Have You Established New Credit Accounts?
To rebuild your credit, it is important to open new credit accounts and re-establish credit. Because of a low credit score following a bankruptcy, some lenders or credit card companies may be hesitant to approve your loan request. Thus, a secured credit card may be your best option. If applying for a secured card, you are required to provide a down payment.

After acquiring a credit card, maintain current payments. Keep balances low, and try to payoff the balance each month.

A good payment history will increase your credit score. Hence you may qualify for unsecured credit cards. Try and get approved for three new credit accounts. As your credit improves, so do your chances for getting a low rate mortgage.

Choosing a Good Mortgage Lender
Depending on your credit rating, you may get approved for either a prime or sub prime loan. Prime mortgage loans are offered to individuals with excellent credit. On the contrary, sub prime loans are intended for those with lower credit scores. Prior to applying for a loan, request an online quote from a mortgage broker. Based on your credit information, a broker will provide multiple quotes from sub prime or prime lenders.

Posted on 6 September 2011 at 13:52 by Anu - Comments

Home Loan

Buying a home may seem complicated; however, if you process it systematically, you may soon be holding the keys to your new home!!! The first step towards your loan is choosing the best housing finance company that can guide you through the entire procedure.

Given below are tips to choose the best home loan lender:

1) Always Choose the Lender After Finalizing the Property:

Shopping for the home loan comes after identifying the property. Some banks offer finance for ready to move in properties, whilst others may lend for a property that is being self constructed or a property under construction. Therefore, finalize your property first and shortlist the financing options thereafter.

2) Ascertain your loan eligibility

Banks follow different criteria to calculate loan eligibility. In case loan eligibility based on your income is an issue, you should talk to different banks to find out which bank can provide you with the maximum amount. There is also an option of clubbing your own and your spouse’s income to increase your loan eligibility.

3) Be Ready to Loose Your Processing Fee:

Banks charge a processing fee to get any loan application on roll. The fee is generally around 0.50% to 1.00% of the total loan amount. Paying the processing fee does not ensure the clearance of the application but it ensures that your application will be seen. Moreover, the processing fee is non refundable. Whether your loan is sanctioned for a higher or lower rate, you will not get the processing fee back. Never trust the verbal promises made by any bank representative. Get everything in writing.

4) Fixed or Floating Rate of Interest:

In the case of a fixed home loan rate, the rate of interest does not remain fixed for the entire tenure but for a specific period of time. The lender has a right to arbitrarily change the rate further. On the other hand, if you are opting for a floating rate loan, be sure to check whether the rates of your chosen lender had floated down over the last couple of years.

5) A Stitch In Time Saves Nine:

Never hasten the shopping process. The cost of your loan largely depends on how you negotiate. Home loan lenders primarily take your income and personal profile into consideration. Apart from the rate of interest, the points you should take into account while choosing the best financer are the processing fee, legal charges, pre-payment charges, valuation fees, and other hidden costs.

Posted on 23 August 2011 at 07:51 by Anu - Comments

Will home loan interest rates come down?

The heat of increasing Home Loan Interest rates has been felt by most borrowers in the recent past. Moreover, the stringent monetary rules by the Reserve Bank of India left many borrowers with an augmented financial burden of as much as 25%.

The increase in interest rates by the RBI was part of its strategy to curb inflation and credit growth in the economy and inflation now stands below 5%. Recently, the authority increased the Cash Reserve Ratio (CRR) with a purpose to control inflation. Its decision of this move as opposed to increasing the benchmark interest rate is clearly indicative of unlokely hikes in interest rates at present.

Industry watchers believe interest rates are at their peak or nearing it. This, however, has confused new home buyers on whether to opt for fixed or floating loan rates.

Increased interest rates have largely affected floating rate borrowers. This is why experts always suggest it best to wait and watch for the interest rates to come down. However, if you are buying a house for your own use, it should not be affected by the interest rate cycle. It is always better to go with floating rates as they ensure that the borrower gets the advantage of interest rates coming down in near future.

Keep your eye on the trend followed by interest rates

Often, banks tend to increase the interest rates when the benchmark interest rates increase. However, such alacrity is not shown by them in decreasing rates- whether the benchmark comes down or not. You will find it futile to ponder over such behavior of banks as they have their own clauses in home loan agreement to support their point. You must be careful of the downward revision of interest rates on your home loan even if there is no change in your EMI.

Therefore, if the interest rates show a downward trend in the near future, it may be wise to discuss it with your relationship manager from the lending bank and verify that the downward revision in your interest cost has been done.

A Shorter Term or a Smaller EMI?

As interest rates are scaled up, borrowers are faced with the option of either lengthening the tenure of the loan or to meet the higher EMI. Likewise, the lowered interest rates would mean that borrowers can either shorten the term or bring down the EMI.

Experts, however, advise short term loans as against smaller EMI to ensure a lower interest payout. If the rates do increase further at a later date, borrowers always have a chance of increasing the tenure.

The Borrower’s Options

when the current retail boom started, interest rates were at its lowest. Home loans surged as a result, in combination with other factors. Most of the borrowers took up the loans when the interest rates were at its lowest, or had started climbing up.

Posted on 22 August 2011 at 11:31 by Anu - Comments

Home Loan

The past few years have witnessed a paradigm shift in the scenario for home loan seekers; nevertheless, consumers have been fortunate as property prices were steady and the interest rates at historic lows.

Undoubtedly, the picture has much changed now. Real estate in India is experiencing a boom, with property prices soaring higher. Moreover, there are no signs that this rise in underlying property prices will slow down anytime soon, consequently making it increasingly challenging for the first-time home buyer to acquire a home.

Although there has been immense progress in the financial status of various income groups, there exist several obstacles along the way to add to the woes of an interested home buyer.

Due to the increase in loan interest rates, it has been noticed that consumers have to part with a major portion of their increased income as down payment and later as EMI. This seems to be widespread among typical consumers in metropolitan cities; hence the dream for owning a home seems to be on the verge of turning into a mirage for a vast section of the middle class in India.

So what are the options left for a prospective home loan consumer?

  • If you are planning to purchase a home for the purpose of your own residence, then don’t make your search a wild goose chase by trying and wasting time in the market.
  • If your dream house seems way above your budget, you could consider a smaller property in the same area.
  • However, if you are planning to buy a house with the intention of selling it for quick profits, then do not be hasty; wait for the overheated property market to cool. Meanwhile, work out your budget and advantages before treating the property as an investment.
  • Five steps for choosing the right loan:

    The current housing loan market requires extensive research before opting for a loan. One should not get carried away by tricky advertisements. Rather than attempting to fathom terms like special interest rates for fixed tenure, hidden terms and conditions etc it may be best to opt for the bank that offers the lowest EMI (equated monthly installments).

    1. Gather data on interest rates
    It may be a wise proposition to get interest rate information from more than one source and compare the offers. A long term loan will mean lower EMIs but probably a higher interest rate and result in paying more for the house.

    2. Enquiry fees
    The processing fees, administration charges and the quantum of loan should be discussed properly. It may be prudent to have a written statement of all fees connected to the loan from the lending bank itself.

    3. Pre-approval letter
    Sometimes banks issue a pre-approval letter agreeing to finance a certain amount. This could result in the seller giving significant weightage to the deal. One may expect a modest price range and negotiate a better deal. This is more important if one is taking a bank loan for a commercial property.

    4. Negotiate loan
    Most lenders will bring down their charges for customers with a dependable reference, so do not hesitate to bargain. A bargain deal will easily fetch a home loan at around 0.25-0.5% lower than official rates.

    5. Avoid greedy lending
    Do not deal with a person who asks you to include fictitious data on your home loan application to get quick approval. Also, do not get pressured into borrowing additional amounts.

    Posted on 12 August 2011 at 06:38 by Anu - Comments

Choosing The Right Home Loan

If you are planning to buy a home, you should be familiar with home loans processes, troubleshooting and how to choose the right home loan for the house that falls within your budget. There are various types of home loans offered by different financial institutions. You need to figure out which type of home loan is best for you.

Types of Home Loans Available:

  • Home Equity Loans
  • Home Extension Loans
  • Home Improvement Loans
  • Home Purchase Loans
  • Land Purchase Loans
  • Mortgage Loans

Many banks and financial companies offer home loans; however, before choosing a home loan option,consider few points as mentioned below.

Property Types: You should know more about the type of property in lieu of which you seek the loan. There are loans offered by banks to Resident Indians and NRIs for ready property, under construction property, self-construction and home improvement.

Loan Tenure: The loans provided by financial institution are offered in tenures or period of years. You should check out the tenure for loans available in the market. There are loan tenures available for up to 25 years.

Repayment Options – You need to choose between fixed and floating rate home loans. Many banks and financial institutions will provide you with the option of switching from a floating rate home loan to a fixed rate home loan once a year at no extra cost. But you need to check out the facts first with the loan providing firm.

No Penalty option - There are also no penalty options offered by some of the finance companies. In this mode, you can opt to pre-pay up to 25% of your loan every year. Pre-payment is permitted after a minimum of 6 months following loan disbursal.

Tax Benefits – You should be aware of the rights of your tax benefits on home loans. Resident Indians are eligible for certain tax benefits on principal and interest components of a housing loan under the Income Tax Act, 1961.

Always check with a financial home loan expert or financie company to understand home loan processes and to avail the best bargain on your home purchase.

Posted on 11 August 2011 at 08:40 by Anu - Comments

Home Loan

The home buying process may seem complicated; however, if you take things one step at a time, and are able to discern the home loan most appropriate to your requirements, you could soon be holding the keys to your new home!

Steps for buying a home
Establish how much you can afford; this depends on your income, credit rating, current monthly expenses, down payment and interest rate. The calculators can help, but it may be wise to visit a lender and confirm the amount. A housing counselor can help you figure out how to manage and pay off your debt, and start saving for that down payment.

Know your rights

Shop for a loan. Save money by doing your homework. Talk to several lenders, compare costs and interest rates, and negotiate to get a better deal. Consider getting pre-approved for a loan.

Learn about home buying programs
Shop for a home. Choose a real estate agent and compile a list featuring your requirements what features do you want. The list may come in handy during the selection process whilst comparing the various homes in the market.

Make an offer. Discuss the process with your real estate agent. If the seller counters your offer, you may need to negotiate until you both agree to the terms of the sale.

Get a home inspection. Make your offer contingent on a home inspection. An inspection will tell you about the condition of the home, and can help you avoid buying a home that needs major repairs.

Shop for homeowners insurance Lenders require that you have homeowners insurance. Be sure to shop around in order to procure the best deal.

Sign papers. You’re finally ready to go to “settlement” or “closing.” Be sure to read everything before you sign!

The House is yours now.

Terms used in Housing Finance

EMI: Equated Monthly Installment till the loan is paid back. It consists of a portion of interest and the principal

Floating Rate of interest: Rate of interest which varies with the market lending rate. This means that there is an element of risk of paying more than budgeted amount in case the lending rates goes up

Monthly Reducing balance: In this system interest reduces monthly with repayment of Principal amount
Annual Reducing Balance: In this system principal is reduced annually at the end of the year so you end up paying interest even for the portion of principal you have actually paid back

Fixed rate of interest
: Rate of interest remains unchanged throughout the period of the loan

Processing charge: It’s a fee payable to the lender on applying for the loan
Prepayment Penalties: When loan is paid back before the agreed term of the loan, then banks/ institutions charge penalty for the prepayment

Commitment Fee: Some institution charge commitment fee in case the loan is not availed within a stipulated period, after it is processed and sanctioned

Miscellaneous Cost: It is quite possible that some lenders may charge documentation or consultant charges.

Posted on 10 August 2011 at 07:23 by Anu - Comments