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Personal Finance - Home Loans / Housing Loans

Housing is a priority sector (banks are required to lend a prescribed percentage of their total advances to this sector) declared by RBI. In view of stiff competition among banks and financial institutions for personal advances and because housing loans are secure and safe advances with comparatively higher loan amount than other categories of personal advances, all banks and financial institutions show their keenness for home or housing loans. An individual looking for finance for acquiring a home / flat/ apartment should compare the offers carefully before finalizing the bank / financial institution for availing the finance. Some important aspect to be compared are:

Features Home Loans / Housing Loans available from banks/financial institutions:

Purchase or Construction of a House/ Flat

Purchase of a plot of land for construction of House Extension, repair or renovation or alteration of an existing House/ Flat

Minimum Age18 / 21 years (differs from bank to bank)
Maximum Age65 / 70 years (differs from bank to bank)(The loan should be repaid by this date).
IncomeA regular source of income for servicing the loan.
The amount of loan is determined by:
Home/Housing Loans being priority sector and fully secured advances attract lower rate of interest than other personal advances.

The interest rate applicable on Housing loans is linked to the Prime Lending Rate (PLR) /Advance Rate of the financing bank.

Banks offer the option of choosing fixed and floating rates of interest on housing loans. Under fixed rate option the interest rate remains same during currency of the loan and under floating rate option the interest rate will up or down with the financing bank's Prime Lending Rate (PLR) /Advance Rate. Banks also offer the option of combing fixed and floating rate options by allowing you to opt for fixed rate for a few years and floating rate thereafter.

Some banks charge interest on daily reducing balance basis and some banks charge interest on monthly reducing balance basis. The charging of interest on daily reducing balance basis results in less interest load on the borrower.

The amounts of processing fee / Application handling charges differ from bank to bank. Some banks charge a flat amount and some charge a percentage of the loan amount.
Some banks also retain a portion of the processing charges/fee in case of rejection of the loan application by the bank.
The loan is sanction as Term Loan. The repayment is allowed by way of monthly installments for a maximum period of 20 - 25 years or upto the age of 65/70 years Generally, banks allow repayment period of 25 years to borrowers aged below 45 years and a repayment period of upto 15 years to borrowers aged above 45 years.
Application for the loan is required to be made on standard application form of the financing bank / financial institution.
The application has to accompany the following documents: Illustrative list of additional documents required, depending upon the type of housing project:

A. Purchase of a ready built house or land for construction of a house

  1. Copy of Sale letter/agreement
  2. Copy of Approved Plan and Approval from the Local Authority.
  3. Copy of Sale Deed/ Title Deed of the property
  4. Non-encumbrance report from an advocate on the bank's panel.
B. Construction of a house or Addition / Alteration / Renovation of an Existing House:
  1. Documents listed at 2 to 4 under 'A' above and
  2. Estimate for construction/ addition/ alteration/ renovation from Architect.
C. Acquiring a house / flat from Development Authority
  1. Allotment letter of house /flat allotted to the borrower from the Development Authority.
  2. Demand letter from the development Authority for making payment for the allotted house / flat.
D. Acquiring a flat/house from a Co-operative Housing Society / Private Builder
  1. Copy of Share Certificate issued by the Co-operative Housing Society.
  2. Copy of the Sale Deed/Title Deed of the land allotted to or belonging to the Co-operative Housing Society/ Private Builder.
  3. Non-encumbrance certificate for the land/property of the Co-operative Housing Society/ Private Builder from an Advocate on bank's panel.
  4. Letter regarding estimated cost of the flat/house with schedule of demand for from Co-operative Housing Society/ Private Builder.
  5. Copy of approved plan/map of the flat/ house.
  6. Certificate from the architect/Co-operative Housing Society/ Private Builder regarding current stage of construction.
  7. No Objection Certificate from Co-operative Housing Society/ Private Builder for noting of the bank's lien on the flat/ house to be allotted.
E. Purchase of housing property on Power of Attorney basis:
After sanction of the loan by the banks undernoted documents are required to be executed/ furnished by borrowers to banks:
In case of purchase of housing property, borrower has to deposit the margin money with the bank and a draft/ pay order/ banker's cheque for the cost of the housing property (less advance paid, if any) is issued in the name of the seller.

In case of construction of a house, the loan amount is released in suitable installments at various stages of construction based on progress report from an architect and inspection by bank official(s).

In case of purchase of property, the repayment usually starts from next month.

In case of construction of house/ flat, the repayment starts from the month following the month of completion of construction or 18/24 months from the date of sanction of loan, whichever is earlier.

All banks usually charge penalty for pre-payment of loan. However, the amount of penalty differs from bank to bank.

Banks also charge differing amounts of penalty on late payment of installments / other indiscipline in the loan account. The penalty clause should be looked into carefully to avoid any future problems.

Disclaimer : This site does not make any claim that the information provided on its pages is correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.

Updated : Feb 05, 2019
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