India Home Search

01. Who can avail of a home loan?
Anyone! Well, anyone who earns a regular income that is! Whether you're in business or working with a company, as long as you're in a position to make repayments, you're eligible. The categories of eligible applicants are -

Salaried Individuals

Self-Employed Individuals

Private Limited Companies

So if you belong to any of the above, consider your loan granted!

02. When can I make an application?
You can apply the minute you've decided to buy or construct a house! That's right, no bureaucratic waiting periods here! In fact, some HFCs (Housing Finance companies) even assist clients in locating suitable properties through their dedicated in-house teams. While you're in the process of identifying and selecting your property, you can get an in-principal approval. This is valid for 3 months during which the interest rates at which the loan can be taken are locked in. Just keep in mind, however, that all this depends on whether the property you've chosen is acceptable to the finance company, to enable them to create a valid mortgage against it.

03. How do I go about getting myself a home loan?
Nothing could be easier! Pick up the prescribed form for loan applications from your HFC office or download it from the company website. Fill in all the details and submit it along with the application fee mentioned. Besides the application fee, you will have to pay a non-refundable processing fee, which will be around 0.3-1% of the loan applied for. Once you accept the terms of the loan offer made to you by the HFC, you will be charged a minimal administrative fee - another 0.5-1% of the loan amount sanctioned. And that's it - you're on your way to buying that dream home for your family!

05. How much time will the loan disbursement take?
Fortunately, not much! After all the relevant documents have been thoroughly checked and all other formalities such as payment of margin money (your contribution) etc., are completed, your loan will be disbursed in one or two weeks, at the most. And just in case you're wondering - your contribution is the total cost of the property minus the amount of the loan!

06. In how many installments can the loan be disbursed?
The loan will be disbursed in full or in suitable installments (normally not exceeding 3) taking into account requirement of funds and progress of construction, as assessed by the Housing Finance company. So if you're in a time and a cash crunch, you'll probably get your loan accordingly!

The age of the individual, at the time of applying for the loan, should not be less than 21 years and not more than the retirement age at the end of the loan tenor. For a self-employed person, this outer age limit can be extended to 65 years.

The individual should be employed for the last 3 years.

A professional (Doctor/ Engineer/ CA etc.) should have an established practice that has been operational over the last 3 years.

09. What is the maximum amount I can borrow?
Generally speaking, you can borrow a maximum of 80-85% of the cost of the property (this includes stamp duty and registration charges). However, do remember that this limit is also linked to your paying capacity. Usually the installment-to-income ratio (IIR) ranges between 25-50% of a person's total income. Yet another factor would be the upper ceiling on the amount that the HFC itself can lend. So depending on how much you earn and how much the HFC is able to lend - the maximum amount would vary from person to person.

11. What kinds of property can be financed through a home loan?
To get finance, the property you choose has to be acceptable to the HFC. The age of the property should not be more than 25 years and the title to the property should be clear and unencumbered. In other words, there should be no hidden snags or doubtful ownership claims for the property loan to get a go-ahead!

12. Can I get a loan for commercial property, like offices etc.?
Yes, you certainly can but in that case, the loan to property-value ratio is much less than in the case of a residential property.

13. Can I get a loan for renovation?
Yes, you can get a home improvement loan for internal and external repairs (waterproofing, roofing, painting, plumbing, electrical work, tiling, flooring etc.) and other structural improvements. The improvements have to be those that will increase the life of your home, contribute towards a better living environment and at the same time, add to the value of your house. To get such a loan, you need to submit an estimate from your architect to the HFC. However, you must remember that the maximum loan amount and the maximum loan tenor allowable is much less in this case than if you were buying or constructing a brand new house.

16. Does the property have to be insured?
Yes, you will have to ensure that the property is duly and properly insured for fire and other appropriate hazards, as required by the HFC during the period of the loan and will have to produce evidence each year and/or whenever required by the HFC. The HFC will be the beneficiary of the insurance policy. This is an added cost that will add to the final cost of purchase of the property - so don't forget to account for it when you're planning your house!.

17. Can I get a loan for properties held on power-of-attorney basis?
No. After the measure taken by the union cabinet to make the registration of immovable property mandatory, the Housing Finance companies would not be able to grant a loan for property held on a power-of-attorney basis.

18. What is meant by the margin in a loan?
The finance companies do not finance the full value of the house. They finance up to 80-85% of the property-value. The remainder has to be invested by the person taking the loan. This is called margin money.

19. What is meant by the term co-applicant?
A home loan is taken either in a single name by an individual or jointly. In such a case, the other person applying for the same loan is known as a co-applicant.

20. Who can be my co-applicant?
If you are an individual - your spouse, your parents, or even your children can be your co-applicants and their incomes can be clubbed with your income to enhance the amount of loan you are eligible for. It makes sense therefore, that the co-owner of a property has to be a co-applicant, but a co-applicant need not be the co-owner of the property. If you are a partnership or a private limited company, any one of the directors or partners can be your co-applicant.

21. What are the various costs that have to be paid to the Housing Finance company to avail of a home loan?
After all, you need to know what you're going in for! Well, the various charges involved in availing a housing loan are -

Interest cost
The interest cost for the finance provided.

Processing, Overhead and Administrative Charges
These are one-time payments made for initiating the process of a housing loan. They are generally taken as a percentage of the loan amount, subject to a maximum and minimum amount.

Pre-Payment Charge
These are the charges that are levied for pre-paying the loan.

Commitment Charge
This charge is levied on the un-drawn amount of the loan. The period for which it is levied commences after a breathing period of a few months from the date of sanction. The charge is levied after this period till the borrower withdraws the funds.

22. What is the interest rate on a home loan?
Interest rates range between 12.5-14.5% and vary depending on the loan amount and the period of repayment.

Daily Reducing
In this case, reducing principal repayments are credited at the end of every day.
Monthly Reducing
Here, whatever you repay on your principal is credited at the end of every month, and interest is calculated on the outstanding principal remaining. Since you end up paying interest on the reduced principal every month as compared to interest on the outstanding principal at the end of every year in the case of annual reducing, this tends to be the most beneficial structure, and is indeed what most people go for!
Annual Reducing
Under this arrangement, interest is calculated on an annual basis on the outstanding at the beginning of the year. The EMI therefore becomes 1/12th the Equated Annual Installment. The difference between daily and monthly rest is very negligible.

24. Can I get the benefit of reduced interest rates in the intervening period or the during the balance tenure of my loan?
Yes you can, but only if you have opted for the floating rate being offered by some of the big HFCs.

The first mortgage (equitable/registered) of the property to be financed by way of deposit of title deeds.

The personal guarantee of one/two individuals acceptable to the HFC.
In the case of loans to allottees of flats/houses built by state housing development authorities or members of co-operative housing societies - interim security such as LIC policies, pledge of marketable shares and such other investments need to be provided.

26. What kind of security do most Housing Finance companies require?
In most cases, the property itself, bought or intended to be bought, becomes the security and is mortgaged to the lending institution till the entire loan is repaid. Some companies require additional security such as life insurance policies, FD receipts, share or savings certificates.

28. What is a Monthly Reducing Loan?
A loan in which the principal on which you pay interest reduces with every monthly payment you make. Like we mentioned earlier, this is the most beneficial type for the borrower!

29. What is an Annual Reducing Loan?
Under this scheme, the principal reduces only at the end of the year. Therefore, you continue to pay interest on a portion of the principal which you've already actually paid back to the lending company. In effect, you end up paying more under the Annual Reducing Loan as compared to a Monthly Reducing Loan.

30. What is Fixed Rate of Interest?
A fixed rate of interest means that the rate of interest on the loan amount remains unchanged for the entire duration of the loan agreement, irrespective of changes in the interest rates in the economy. Therefore, if you opt for a fixed rate of interest you will not be able to benefit if interest rates are falling! On the other hand, if the rates are rising, you end up paying more than you had bargained for! So you see, it's one of those double-edged decisions!

31. What is Floating Rate of Interest?
A floating rate of interest is one that fluctuates according to the market lending rate. Hence, in an environment where interest rates are rising, your budgeted expenditure on the house loan also goes up! conversely, when they fall, you get yourself a cheaper deal!

Allowable deduction of interest paid during the year -
As per the Budget 2000-01, every customer can claim a deduction on interest amount of a maximum of Rs. 1,50,000 or the actual interest paid (whichever is lower) to the Housing Finance Company from his Gross Taxable Income.
Tax exemption on Principal repaid during the year -
Budget 2000-01 provides for tax exemption on a maximum of 20% of a principal amount of Rs. 20,000 or the actual interest paid during the year (whichever is lower) to the Housing Finance Company from the total tax payable by the customer.

33. Can I repay my loan ahead of schedule?
Wow, looks like you're liquid! Yes, you can pay your loan ahead of schedule. However, you must consider that Housing Finance companies charge a fee for early redemption of loans. This fee can vary between 1-2% of the loan amount being prepaid.