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Housing Finance Companies (HFCs) offers housing loan options for Resident Indians ranging from buying a house either from the developer or a second owner or for the improvement and renovation of the existing building structure. Following are a few questions regarding home loans which come to ones mind when he/she thinks of buying a home.

Q1: What are the Minimum & Maximum Loan Amounts Which Can Be Sanctioned?
You can avail for loans ranging from Rs.5 lakhs to Rs.50 lakhs depending on your eligibility, income and repayment capacity. Housing Finance Companies  sanction loan amounts is based on eligibility depending upon your repayment capacity (which takes into account your age, qualifications, assets, liabilities, stability of occupation, savings history) and according to your income. The maximum loan that can be sanctioned varies with housing finance companies and the generally, the maximum loan amount is 80 to 85% of the cost of your home. The maximum home loan amount one can borrow depends on many factors, which include the purpose of the loan, whether for purchase of property, or improvement or purchase of land for development. Also the residential status of the applicant, whether resident in India or non-resident will also have a bearing on the maximum quantum of loan that one can borrow. Typically, a Resident Indian can borrow up to 85% of the cost of the property, including cost of land, subject to a maximum of Rs 5,000,000.

Q2: When and how can an application be made for home loans?
An application for home loans can be made any time after you have decided to acquire/construct a property, even if the property has not been selected or the construction has not commenced. An application form along with the necessary documents has to be submitted to the respective finance company after which they would review the application and decide on its status.

Q3: How much time does it take to get an application processed and the loan getting sanctioned?
The processing of a home loan application, if the documents are in order takes around fifteen days and it takes another week for the company to check out the property papers and make the disbursement.

Q4: What are the fees and charges payable and when are they payable?
Processing fees and administrative fees, both payable upfront; are the charges payable to the Housing finance companies for sanctioning of Housing loans. The processing fee (fees at the time of application) could range from 0.8% to 2% of the loan amount applied for, and is generally levied to cover the costs incidental to the application. Once the loan is sanctioned, an administrative fee of 1% of the loan amount sanctioned will have to be paid.

Q5: What is a fixed interest rate?
A Fixed interest rate for Home loans is one where the rate charged by the HFC on the loan amount is constant over the tenure of the loan. A fixed interest rate protects the borrower from a rise in home loan rates. While on the flip side, he may not benefit if the market rates were to fall. Therefore, it is advisable to go in for a fixed rate if you feel that the rate of interests in the market have touched rock bottom and the rates can only move upwards.

Q6: What is a floating interest rate?

A Floating interest rate for home loans is a loan where the interest rate which is payable is linked to the market rate e.g. the bank lending rate. The interest rate payable by you will also rise and fall as per bank lending rates which may fluctuate.

Q7: What is the basis of interest rates calculation?
Home loans interest rate in India is usually calculated either on monthly reducing or yearly reducing balance. In the Monthly reducing system, the principal on which you pay interest reduces every month as you pay your EMI. While in the Annual Reducing system the principal is reduced at the end of the year, thus continuing to pay interest on a certain portion of the principal which you have actually paid back to the lender thus making EMI for the monthly reducing system effectively lesser than the second system of calculating interest.

Q8: What are Collateral Securities taken by the Housing Finance Companies?
Collateral Securities are required for obtaining a Home Loan. Collateral securities are the additional securities taken by the HFCs which may be in the form of guarantee from one or two persons, assignment of life insurance policies, deposit of shares and units or other securities. These additional securities are taken so that if a loan is not paid back, recourse may be taken to such securities instead of depending upon the mortgage of the property which is the last resort.

Q9: How many persons income can be clubbed for taking loan?
In case of home loan, the loan eligibility can be increased/ enhanced by clubbing income of maximum three persons which can be
1. Family Members In Tree/Chain
2. Co Partner In Business
3. Co Partner In Property

Q10: How much time will it take for my loan to be approved?
Loan process takes 4 to 7 working days depending on your of submission of complete documentation.

Q11: What are the repayment period options?
Repayment period options range generally from 5 to 15 years. A 20-year repayment period option is also provided by a few HFC's usually at a higher interest rate.

Q.12: How do I repay my Home loan?
You pay the loan in equated monthly installments (EMI). The loan will be paid through post-dated cheques or through Standing Instructions to debit your Bank account with the EMI amount. Calculate how much you will repay each month.

Q13: What is Pre EMI?
Pre EMI is the amount of loan paid in simple interest as agreed upon with the HFC for a property that's yet under construction. The HFC makes the disbursement in parts as per the stage of construction of your property. Once the property is ready for possession and the possession letter is produced to the HFC, the final disbursement is made. You start paying your EMI from the month following which the full disbursement is made.

Q14: What is meant by an EMI (Equated Monthly Instalment)?
An EMI refers to the fixed sum of money that you will be paying to the housing finance company every month against a loan amount borrowed for a fixed period of time. An EMI has two components, the principal component and the interest component. . The amount of the EMI depends on the quantum of loan, interest rate applicable and the term of the loan. The loan carrying the lower EMI for the same tenure is the cheaper option.

Q15: Can one repay the loan ahead of schedule?

It is possible to repay a loan ahead of schedule & you can prepay the entire loan outstanding anytime after 180 days of availing the same. Prepayment charges as applicable would be levied on the outstanding loan amount. Part repayment is allowed. A form of a penalty termed as a pre-payment penalty is payable to certain institutions which varies from one HFC to another.

Q16: Do I need to open an account with the same Bank for availing and/or servicing the loan?
No, opening an account with the same bank is not mandatory.

Q17: How does one get a tax benefit on the loan?
There is eligibility for certain tax benefits on principal and interest components of a housing loan under the Income Tax Act, 1961. Moreover, you can get added tax benefits under Sec 88 on repayment of principal amount. Moreover, you can get added tax benefits under Sec 80 C on repayment of principal amount up to Rs. 1, 00,000 p.a. that can further reduce your tax liability by about Rs. 30,000 p.a.

Q18: Does the property on which home loan is taken have to be insured?
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 and will be an additional cost that will add to the final cost of purchase of the property.

Q19: Does the agreement for sale have to be registered?
In many states in India, registration of the property is lawfully mandatory the Agreement for Sale between the developer and the home buyer. You are advised, in your own interest to lodge the Agreement for Sale at the office of the Sub-registrar appointed by the State Government under the Indian Registration Act, 1908.

Q20: Can a NRI avail of a housing loan?
Yes, NRIs can avail of a housing loan to buy a property in India. However, the terms and conditions for a NRI loan offered by the banks and HFCs are different than Housing finance granted to Residents of India.

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