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HOUSING LOANS


Who can apply for Loan?

Any Indian Resident, Non-resident Indian or Person of Indian Origin can apply for a home loan if they are 21 years of age at the origin of the loan and 65 years or below at loan maturity. Housing Finance Companies (HFCs) usually give home loans for properties located in India to people who are employed or self-employed, with a regular source of income.


How does the lender calculate eligibility?

Usually, most HFCs give home loan up to a maximum of 85% of the cost of the house. Balance 15%, sometimes called ‘seed money’, has to be provided by the loan applicant upfront. The amount, for which the applicant is eligible, is determined by the age, income, no. of dependents, monthly outgoing and repayment capacity. This varies from case to case.


How to repay the loan?

Most HFCs follow repayment in Equated Monthly Installments (EMIs) comprising principal and interest. Repayment by EMIs commences from the month following the month in which full disbursement is done. Till then, the individual need to pay the interest on the amount disbursed (pre –EMI).


What is pre-EMI interest?

Before final disbursement, the individual have to pay interest on the portion of the loan disbursed. This is called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of EMI commencement.


What is a fixed rate loan?

A rate of interest that is constant throughout the duration of the loan is known as a fixed rate loan.


What is a floating rate loan?

A floating rate is when the interest rate on the loan changes according to the rates in the market during the period of the loan.

It is better to opt for a fixed or a floating interest rate?

If interest rates are falling, a floating rate loan is a better option. But when interest rates are rising, opt for a fixed rate loan, because the individual will know in advance what EMIs will be.

How is the interest calculated on loan?

The interest on home loans in India is usually calculated on monthly reducing balance. In some cases, daily reducing basis is also adopted.
Monthly reducing :
In this system, the principal, for which you pay interest, reduces every month as you pay your EMI.
Daily Reducing:
In this system, the principal, for which you pay interest, reduces from the day you pay your EMI. EMI in the daily reducing system is less than the monthly reducing system.

What is the period to repay the loan?

Usually in a period of between 5 to 15 years, but definitely before retire. A few HFCs also offer a 20-year repayment period, usually at a higher interest rate.

Who can be co-applicants for the housing loan?

Usually a spouse can be a co-applicant. Other immediate family members are also acceptable to some companies, depending on merits. If both partners are working, it is better to have spouse as a co-applicant since this will entitle to a much larger loan.

Can repay the loan before the set date of repayment?

Yes, but some HFCs require a pre-payment fee to be paid based on the fund source. Check with HFC.

Does the Agreement for Sale have to be registered?

No, In Karnataka the stamp duty applicable for the execution of sale agreement of immovable properties is 0.1% of the value of the property or the consideration amount of the property and the maximum amount of stamp duty is Rs20,000/-. The sale agreement holder, who has stamped/franked/e-stamping for 0.1% of the property value, can denote the same at the time of registration.

Does the property have to be insured?

The property should be insured against fire and other hazards and the HFC will have to be the beneficiary of the policy.

When do the individual have to make his share of the contribution to the purchase price of the property?

The individual will have to make their payments towards the property price up-front before the HFC disburses any installment of the loan.

In how many installments can the loan be disbursed?

The loan can be either disbursed in full for outright-purchase / ready properties or in a few installments for under construction properties. The disbursement will be made taking into account the requirement of funds and the progress of construction.

Tax benefits on the loan?

Both principal as well as interest of home loans attract tax benefits. With effect from 1st April under section 80C of the Income Tax Act 1961.
Interest paid on the home loan:
As per Sec 24(b) of the Act, a deduction up to Rs. 150,000 towards the total interest payable on the home loan towards purchase / construction of house property can be claimed while computing the income from house property. (The deduction stands reduced to Rs. 30,000 in case of loans taken prior to March 1, 1999). The interest payable for the pre-acquisition or pre-construction period would be deductible in five equal annual installments commencing from the year in which the house has been acquired or constructed.
Please remember that in case of self occupied property, this deduction is allowed only for one such self – occupied property. The interest towards home loan taken for purchase, construction, repairs, renewal or reconstruction of house property is eligible for deduction under section 24(b).
Principal repayment of the home loan:
As per Section 80C along with section 80CCE of the Act, the principal repayment up to Rs. 100,000 on your home loan will be allowed as a deduction from the gross total income subject to fulfillment of prescribed conditions.

Can individual get a loan for extension / upgradation / renovation of his house?

Yes, these loans are available from some HFCs. However the loan terms may be different from the usual housing loans.

Can Individual sell the property on which he have taken the loan?

Yes. But the loan will have to be repaid before the sale is affected. Some HFCs allow the transfer of loan to the buyer of the property, depending on his eligibility for loan.

Can Individual rent the property on which he has taken the loan?

Yes, this is allowed by HFCs.


NRI BUYER’S GUIDE


Who is a non-resident Indian (NRI)?

A non-resident Indian (NRI) is a citizen of India who holds an Indian passport and has temporarily immigrated to another country for six months or more for work, residence or any other purpose.


Who is a person of Indian Origin?

According to the Foreign Exchange Management Act of 1999 (FEMA) a PIO is a person who is either a citizen of any country other than Pakistan and Bangladesh who has:

  • Held an Indian Passport at any time or
  • Himself or either his parents or any of his grandparents were citizens of India or
  • Is a souse of an Indian citizen or
  • Is a spouse of a person who held an Indian Passport at any time or
  • Is a spouse of a person who either was a citizen of India or his parents or grandparents were a citizen of India


Do non-resident Indian citizens require permission of Reserve Bank to acquire residential/commercial property in India?

No


Do foreign citizens of Indian origin require permission of Reserve Bank to purchase immovable property in India for their residential use?

Reserve Bank has granted general permission to foreign citizens of Indian origin, whether resident in India or abroad, to purchase immovable property in India for their bona fide residential purpose. They are, therefore, not required to obtain permission of Reserve Bank.


In what manner the purchase consideration for the residential immovable property should be paid by foreign citizens of Indian origin under the general permission?

The purchase consideration should be met either out of inward remittances in foreign exchange through normal banking channels or out of funds from NRE/FCNR accounts maintained with banks in India.


What are the formalities required to be completed by foreign citizens of Indian origin for purchasing residential immovable property in India under the general permission?

They are required to file a declaration in form IPI 7 with the Central Office of Reserve Bank at Mumbai within a period of 90 days from the date of purchase of immovable property or final payment of purchase consideration along with a certified copy of the document evidencing the transaction and bank certificate regarding the consideration paid.


Can such property be sold without the permission of Reserve Bank?

Yes. Reserve Bank has granted general permission for sale of such property. However, where the property is purchased by another foreign citizen of Indian origin, funds towards the purchase consideration should either be remitted to India or paid out of balances in NRE/FCNR accounts.


Can sale proceeds of such property if and when sold be remitted out of India?

In respect of residential properties purchased on or after 26th May 1993, Reserve Bank considers applications for repatriation of sale proceeds up to the consideration amount remitted in foreign exchange for the acquisition of the property for two such properties. The balance amount of sale proceeds if any or sale proceeds in respect of properties purchased prior to 26th May 1993, will have to be credited to the ordinary non-resident rupee account of the owner of the property.


Are any conditions required to be fulfilled if repatriation of sale proceeds is desired?

Applications for repatriation of sale proceeds are considered provided the sale takes place after three years from the date of final purchase deed or from the date of payment of final installment of consideration amount, whichever is later.


What is the procedure for seeking such repatriation?

Applications for necessary permission for remittance of sale proceeds should be made in form IPI 8 to the Central Office of Reserve Bank at Mumbai within 90 days of the sale of the property.


Can foreign citizens of Indian origin acquire or dispose of residential property by way of gift?

Yes. Reserve Bank has granted general permission to foreign citizens of Indian origin to acquire or dispose of properties up to two houses by way of gift from or to a relative who may be an Indian citizen or a person of Indian origin whether resident in India or not, subject to compliance with applicable tax laws.


Can immovable property held in India, be transferred by way of gift to relatives/registered charitable trusts/organizations in India?

Yes. General permission has been granted by Reserve Bank to non-resident persons (foreign citizens) of Indian origin to transfer by way of gift immovable property held by them in India to relatives and charitable trusts/organizations subject to the condition that the provisions of any other law, including Foreign Contribution (Regulation) Act, 1976, as applicable, are duly complied with.


Can foreign citizens of Indian origin acquire commercial properties in India?

Yes. Under the general permission granted by Reserve Bank properties other than agricultural land/farm house/plantation property can be acquired by foreign citizens of Indian origin provided the purchase consideration is met either out of inward remittances in foreign exchange through normal banking channels or out of funds from the purchasers’ NRE/FCNR accounts maintained with banks in India and a declaration is submitted to the Central Office of Reserve Bank in form IPI 7 within a period of 90 days from the date of purchase of the property/final payment of purchase consideration.


Can they dispose of such properties?

Yes


Can the properties (residential/commercial) be given on rent if not required for immediate use?

Yes. Reserve Bank has granted general permission for letting out any immovable property in India. The rental income or proceeds of any investment of such income are eligible for repatriation.


Can NRIs obtain loans for acquisition of a house/flat for residential purpose from authorized dealers/financial institutions providing housing finance?

Reserve Bank has granted general permission to certain financial institutions providing housing finance e.g. HDFC, LIC Housing Finance Ltd., etc., and authorized dealers to grant housing loans to non-resident Indian nationals for acquisition of a house/flat for self-occupation subject to certain conditions. The purpose of the loan, margin money and the quantum of loan will be at par with those applicable to housing loans to residents. Repayment of loan should be made within a period not exceeding 15 years out of inward remittances or out of funds held in the investors’ NRE/FCNR/NRO accounts.