Home Loan Eligibility
Home Loan is a Secured Loan. Home Finance is offered against the security of a house / property which is funded by the bank's loan, the property could be a personal property or belonging to a firm. In this type of loan the borrower gives the banker a conditional ownership over the property i.e. if the borrower fails to repay the loan, the banker can retrieve the lent money by selling the property.
A person with stable monthly income is eligible for Home loan
- Salaried person.
- Business Person with stable income & business.
- A partnership or a Pvt. Ltd. company.
- Professionals with stable income & business.
- Recent Photographs
- Two identity Proofs ( Pan card Mandatory )
- Residence Proof - [ options provided ]
- Latest Electricity Bill
- Latest Phone Bill
- Passport [valid]
- Office Proof:
- Shop & Establishment Certificat.
- Latest Electricity Bill
- Latest Landline Phone Bill
- If the premises is RENTED then: Registered rent agreement with the shop / officer owner electricity bill.
- Financials : Last 3 yrs Income Tax Returns
- Bank statements :
- Till date updated Bank Statement for last 1 year from all current & savings account mentioned in the balance sheet
- Also 1 year bank statement from where the loan EMI is going (if any)
- If you are applying as a Partnership Firm or in the capacity of partner then we would need:
- Partnership Deed.
- Firms Pan Card.
- If you are applying as a Private Limited Company or Director in it then we would need companies :
- Form 32
- Annual Reports
- List of Directors
- Share Holding Pattern
- Company Pan Card
- Recent Photographs
- Two identity Proofs ( Pan card Mandatory )
- Company Id card
- Residence proof
- Self owned residence – Latest Electricity Bill / Landline Phone Bill / Credit Card Bill.
- Rented residence – Current rent agreement with latest electricity of the flat, with a permanent residence proof.
- Latest CTC
- Latest Salary slip – for last 3 months
- Till Date salary account statement bank statement for last 6 months
- Form No.16 - Latest.
- Loan Repayment Track Records (if any)
- Processing Fees
- Fees are the prerogative of the banks it is usually collected from the customer by cheque.
- This fee is charged on the sanctioned loan amount.
- Fee normally ranges from 0.5% to 1% + applicable service tax on the fee.
- As of now the service tax is 10.30% to 12.36%
- This charge needs to be checked with the respective bank.
- In Home Loans most of the banks allow part payment at NIL charges.
- There may be a lock in period for part payment.
- This condition needs to be clarified with the respective banks.
- These are the charges paid to the lender on the outstanding loan amount to close the loan prior to expiry of tenure.
- Most of the banks charge foreclosure penalty if not paid from own funds.
- This condition needs to be clarified with the respective banks.
- When there is a delay in paying monthly EMIs of your loan, the banks charges a late payment fee with your EMIs.
- Late payment penalties normally range from 2% to 3% of the EMI.
- Banks charges between Rs. 250-1000 for every bounced cheque / ECS given for the repayment of the loan amount owing to the insufficient funds in your account.
- Equitable Mortgage Charges are applicable on disbursement of home loan as directed by the Maharashtra State Government.
- Current Equitable Mortgage Charges according to Maharashtra Tax Laws (Levy, Amendment & Validation) Act, 2009 are :
- 0.1% of the loan amt for loan till Rs. 5 Lacs &
- 0.2% of the loan amt for loan above Rs.5 Lacs
- The loan availed to purchase a new residential property (builder purchase or resale) is called Home Loan.
- Loan taken by hypothecation of property (residential / commercial) is known as Loan against Property.
- The funds procured by Loan against Property can be used for various purposes.
- Any one qualifying the parameters of income & property can avail Home Loan or Loan Against Property.
The procedure to avail a Home Loan is quite simple –
You need to call us or fill up the form with us, We will call you & take the essential financial & personal details required for the loan like Age, Net salary, Designation, Employer details, Total experience, Current experience, Period of stay in the city, the Current Residence & Details of all obligations being serviced. Also we would need the Property details like Type of Purchase, Location of the property, Built-up area, Rate per square feet, Agreement Value, Occupation certificate & so on. We will then revert you with the quotation of the lenders who would sanction the loan & also suggest the best lender suiting your needs, the final decision for which lender to go with lies with you.
We would then inform you the List of Documents needed to apply for the loan, once the said documents are ready same would be picked up, the form signed & filled up, then the case would be logged in with the bank.
The Thumb rule for calculating eligibility:
Net salary per month is calculated after tax deductions then 40% to 65% of that amount is taken as loan servicing capability [appraised income].
If one has additional income like Incentives, Overtime, LTA, Medical Reimbursements, Car Allowance etc. then it is averaged out to per month’s income & only 25% to 50% of the same is considered for eligibility. If you have any ongoing obligation then it is deducted from the appraised income, this amount is then divided by EMI per lacs for the considered term, and the arrived figure is the eligibility in lacs.
Example shown below
- Net Salary pm after tax deduction = 80,000/-
- Averaged out incentive pm = 20,000/-
- Averaged out LTA pm = 2,000/-
- Current Personal Loan EMI = 5,500/-
- Loan Calculation based on the above information:
- 50% of Net salary = 40,000/-
- 25% of Incentive = 5,000/-
- 25% of LTA = 500/-
- Appraised Income = 45,500/-
- Appraised Income [-] less] ongoing EMI = Final Income to be considered.
- 45,500 [-] 5,500 = 40,000/-
- Suppose the loan is @ 10% for 20 years; then EMI per lac @ 10% for 20 years is Rs.965/-
- The eligibility would be Final Income / EMI per lac for the tenor.
- 40,000 / 965 = 41.45 lacs
- Hence, the eligibility is Rs. 41.45 lacs @ 10% for 20 years. Every banks has its own method for calculating eligibility. It is advisable to check the eligibility with the concerned person.
Yes! The banks also include the co-applicants income to determine the eligibility.
The eligibility is based on the years remaining for retirement & the income.
The banks readily include Spouse & parents income.
Some financers also add the income of brothers & other closed relatives. This has to be categorically clarified with the lender as this is not a norm.
It would also be advisable to clarify if the daughters [married / unmarried] income is clubbed with their parents as this is also an exception.
Most of the Lenders sanction Home Loan for salaried customer in 7 working days; for Business persons the time taken for sanctioning a case can be longer as various calculations are involved & there is also "Personal Discussion" done at the place of customer work.
The Income Tax Act, 1961 states that one can avail tax benefit under 3 sections for home loan
- 1. Section 80 (c)
- 2. Section 24(b)
- 3. Section 2(28A)
1. Section 80(c) - In this section the EMI component paid towards repayment of principal amount of the loan can be deducted from income.
The borrower is eligible for a tax deduction for a maximum amount of Rs. 1L each year under section 80(c) irrespective of the tax bracket.
To avail this deduction the property needs to be self occupied.
2. Section 24(b) - The interest paid towards home loan is treated as an 'expense' under 'Income from house property' and is deductible under Section 24(b) from the total income.
The maximum deduction permitted under this section is Rs.1.5L per annum.
3. Section 2(28A) - Processing fee can be treated as interest and a deduction can be claimed according to Section 2(28A) of the I-Tax Act
"EMI" is Equated Monthly Installment.
The installment paid while servicing the loan is equal for the whole tenure.
The composition of EMI = Principal Amt + Interest.
Rate of interest which is applicable on the whole loan amount (principal amount) throughout its tenor.
Interest which is charged on the reduced outstanding principal amount.
It is also called Variable Rate of Interest: - Here the rate of interest changes according to the banks policy, it is also know as floating Rate of Interest.
The rate of interest applicable at the time of Sanction / Disbursement remains the same for whole tenure.
Can the loan amount be decreased after sanction? Yes!! The bank would disburse only the amount needed if it is lower than the sanction amount. Lower amount will be disbursed if sanctioned amount exceeds the property LTV norms
Can the loan amount be increased after sanction? No! To increase the loan amount one needs to submit latest financial documents. Enhanced Fresh eligibility is then decided based on the increased income. This is called a revalidation.
Pre Approved property is also called APF [Approved for Financing] property. This means that the developer had got the legal aspect of the property approved from various lenders.
To approve a property the builder submits all the legal documents, such as Development Agreement; Government Permission & Clearances, IOD, Title Deeds, Commencement Certificates & Approved Plans, Sale Deed and so on.
As the Legal aspect of the property is now clear the lenders will easily finance the property, only the valuation of the property takes place.
Carpet Area is the area enclosed within the walls, actual area to lay the carpet. This area does not include the thickness of the inner walls. It is the actual useable area of an apartment, office, unit, showroom etc.
Built up Area is carpet area + the thickness of outer walls and + the balcony.
Super Built Up Area is the built up area plus proportionate area of common facilities such as the lobby, lifts, shaft, stairs, etc. The plinth areas along with a share of all common areas are proportionately divided amongst all unit owners, this makes up the Super Built-up area.
Sometimes it may also include the common areas such, swimming pool, garden, clubhouse, etc.
This term is therefore only applicable in the case of multi-dwelling units.
The building plan made by the developer which is approved by the Municipal Corporation or the concerned authority is approved plan.
CC means Commencement Certificate: A commencement certificate is issued by the local authorities to allow the builder to begin construction once all norms have been met. Unless the commencement certificate is granted, the construction is illegal or may never happen. It is subsequent to the approved plan.
OC means Occupation certificate: This certificate issued by the local municipal body to the builder /developer once the said building is complete in all respects and fit for occupation.
Conveyance is the act of transferring ownership rights of the property (plot of land where the building is built) from the developer / builder / development authority to the society.
In a society share certificate is issued to its members (flat owners); it is a legal document that certifies ownership of a specific distinctive number of shares in a society. Share certificate will bear the seal of the society & will be signed by the Chairman, and the Secretary.
It is a duty collected by the state government, it is paid as per the true market value as assessed by the Stamp / registrar Office. Stamp duty is decided by the respective State and hence would vary from state to state
The agreement should be registered with the Sub-Registrar of assurances under the provisions of the Indian Registration Act. Stamp duty is to be paid prior to the Registration.
Chain of Agreement is chain of all the agreement right from first purchase of property from the builder / society till the purchase of current owner.
It varies from bank to bank. Generally minimum 500 sft of built up/ super built up area is required.
Legal report is a process where all the agreements & documents related to the concerned property are given to a lawyer to ascertain the validity, ownership & title of the concerned property. A panel lawyer appointed by the lender does the legal report.
Technical is a process where the valuator assigned by the lender evaluate the cost of the property, checks its permissions, the condition of the building & the property to be mortgaged.
OCR means Own Contribution Receipt. It is the amount paid by the purchaser to his seller and a receipt acquired for the same. It is advisable for the purchaser to pay his own contribution to the builder / seller by cheque and obtain receipts for the same.
NOC means No Objection Certificate. It is asked by the lenders from the builder / society. In this letter the builder / society mentions that they have noted in their books the charge of the lending bank/ FI on the said property.
Society NOC: Almost all banks ask for society NOC in their formats. To obtain this all the dues & transfer charges of the society need to be cleared. It is mandatory to the committee to issue the NOC in the prescribed banks format under Maharashtra Co-operative Society Act, 1960 u/s 79(2) (a)
In Registration receipt: Customer name, Registration amount, Date, Bazaar Mulya, Mobadla.
In the Agreement
Names of the seller & the purchaser
Property details (Area & schedules)
Agreement value & payment schedule
Signatures of the seller & the purchaser
Commencement certificate / Occupation certificate
Dast Goshwara Part I & II
In the Share Certificate: Front Side
First owner’s name
Share certificate issue date
Society Stamp with the sign of the Chairman, Secretary & Member
Share Certificate: Back Side -
Names of the entire previous owners mentioned in the chain agreement & their date of transfer.
MV is Market Value. It is the actual on going cost of the property in the said area at that point of time.
COP - Cost Of Property.
It is the Total of Agreement Value + Stamp Duty + Registration.
It is also called ASR - Agreement, Stamp Duty, and Registration.
LTV - Loan to Value Ratio
LCR - Loan to Cost Ratio.
It is the percentage of Loan amount that can be provided with respect to the Value of the property.
The case is disbursed & the cheque is given when all process is complete i.e. Loan agreement is signed, PDC's, ECS, NOC is given, original documents of the property to be mortgaged submitted & all the pre-disbursal conditions complied with.
An equitable mortgage is the transfer of an interest in property to a lender as a security for a loan of money on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. We give this loan by deposit of title deeds of the property (interest) with the lender.
In this case, mortgage is registered with sub-registrar. Charge is created against the property in Government records
Yes! This is called switching - from fixed to floating & vice versa. Firstly to switch the lender must have attractive fixed / floating rate options. Lenders charge switching charges. This clause is generally written the loan agreement which is signed before disbursement.
Though insuring the property on which the loan is being taken is advisable, some financiers may insist to insure the property against which the loan is being availed.
It is always advisable to insure the property as it gives you & the lender cover against unfortunate events like Fire & earthquake.
The premium charged is mostly for the whole tenor as that of the loan.
The general charges levied by the banks till disbursements are
- 1. Processing Fee
- 2. Stamp Duty for the MOE [Memorandum of Entry]
- 3. Miscellaneous Franking & Notary.
1. Processing Charges: These charges are levied on the sanction amount. They are generally 0.5% to 1% of the loan amount. For salaried customers most banks generally charge a lump some fee. Service tax is also applicable on the processing fee.
2. MOE [Memorandum of Entry] : In the state of Maharashtra according to Maharashtra ACT NO.XVII of 2009 for the deposit of title deeds made by the way of security for the repayment of money, stamp duty need to be paid. If the loan is under Rs. 5 lacs the stamp duty would be 0.1% of the loan amount & 0.2% for loan mount over Rs. 5 lacs.
3. Miscellaneous Franking & Notary: Most of the banks have some of their own Affidavits, POA, and Undertakings which needs to be franked & notarized.
- 1. Late Payment charges
- 2. Cheque bounce Charges
- 3. Part prepayment charges
- 4. Foreclosure charges
- 5. Switching Charges
- 6. Cheque / Instrument swap charges
- 7. Duplicate Statement Charges
- 8. Charges of photocopy of property documents.
Yes absolutely! One can repay part loan amount. Most of the banks do not charge pre-payment penalties.
Every bank have their own policies for repayment.
They may have lock-in periods; Part payment may be allowed in one financial year or one Loan year. Only certain amount may be allowed to be pre-paid without any penalty & so on.
One needs to clarify exist clause with the banks before submitting the loan application to them.
Such awareness will give peace of mind later as this is a long term commitment.
Closing loan prematurely is called foreclosure of the loan. This is very much possible.
One closes the loan If they have funds, they want to transfer the loan to another financier or are selling off the property.
Most of the banks do not charge penalty if the loan is closed by one's own funds or else penalty might be applicable.
This exit clause is always mentioned in the Loan Agreement signed with the bank.
NO ! One can not get Home Loan from banks over here to purchase property overseas.
Absolutely! If one is working abroad he can avail a Home Loan. Banks are comfortable when one is employed in Europe, North America, Australia, Gulf, Singapore & Hong Kong. Lenders have grading for different countries called "Country Risk Ratings" and lend to the customers working in those countries which are assumed to be the safest, economically & politically.
There are also minimum salary criteria for applicants working in these countries.
It varies from bank to bank as per its own policies. Some banks charge the customers processing / Administrative charges once the case is sanctioned. While some charge it at the login stage itself. There is also certain validity of the sanction letter. After that time the bank may or may not revalidate the sanction letter on the charges paid earlier.
Even if one does not avail disbursement banks rarely return to charges taken earlier.
Of course it matters if the repayment is delayed. It adversely affect your credit rating & same is notified to the rating agencies.
A bad repayment history lower one's credit score & jeopardizes chances of availing further loan, also one have to pay bounce charges & late payment fees.
If you have Home Loan which is active & you plan to sell your home, this is possible. Here you can pay the outstanding loan amount & clear the loan or ask the buyer to do Balance Transfer of the Loan. Balance Transfer procedure is explained in detail in the following answer.
Payment of the outstanding amount by the buyers bank to the sellers bank is know as seller's Balance Transfer.
Additional Documentation for Balance Transfer is as follows :-
- List of Documents (LOD) deposited with the existing bank in the banks format.
- Foreclosure letter of the loan to be taken over
After the sanction of Loan, the disbursement process begins The agreement is signed & the cheque is made favoring the existing bank. This cheque is then given to the existing bank which closes the loan account & hands over the property documents to the new lender as per its timelines.