It is very difficult to construct
house without availing housing loan. There are various banks and Housing
Finance Institutions (HFIs) which provide housing loans. In spite of existence
of these agencies, availing housing loans may not be an easy task. Though banks
and financial institutions do have a positive approach in matters concerning
housing loans, they would be handicapped to entertain any application for
housing loan unless and until the applicant has good and marketable title over
the property and has complied with the requirements of bank for sanction of
housing loan. Therefore, the primary requirement which a borrower of housing
loan has to fulfill is to comply with the procedural requirement of the lending
institution with necessary supporting documents and proving the marketable title of the property.
Types of Housing Finance/Loans
Banks and financial institutions
entertain applications for grant of housing loans for purchase of site, ready
built house or flat, for construction of house, renovation and repair of house
etc.
a] Loan for purchase of land - Though
most of these institutions do not welcome applications for grant of loans for
house sites because of the risk involved in these transactions are more than
those in other types of loans. Still banks and financial institutions do grant
loans for house sites.
b] Loan for House Construction -
Generally, a large number of people get loan from the banks and financial
institutions for construction of a building as per sanction plan.
c] Composite Loan - Under composite loan, banks and financial institutions
grant loans for both buying the site and also for constructing a house thereon
under a single application.
d] Loans for renovation or repairs -
Banks and financial institutions grant loans for renovation or repair of the
existing house upon being satisfied with the property documents and the
repaying capacity of the borrower.
e] Loan for purchase of ready built
house or Flat - Banks are not averse to grant loans for purchase of ready built
house or flat.
f] Take over Loan - In cases where a
borrower has already availed housing loan from one of the financial
institutions or banks, but desires that the loan amount outstanding in that
bank be taken over by another bank for various reasons such as low interest
rate, flexible EMIs, conversion of flexible rate of interest to fixed rate of
interest etc., the latter bank upon being satisfied with the title of the
property and the credibility of the borrower would clear the outstanding loan amount
of the previous bank by sanction of loan on the basis of the property documents
already pledged with the previous bank and upon fulfilling the procedural
requirements of latter bank. Once there is take over of loan, the borrower
would be liable for repayment of the loan amount with interest of the latter
bank.
The following are factors which are
considered by the banks for sanction of housing loan:
Regular Income of the applicant
The first and foremost aspect which
the Banks consider before entertaining the loan application is to know whether
the applicant has the regular monthly income or not. For this purpose, in the
case of salaried persons, employment in a reasonably good organization with
loan repaying capacity would be the criteria adopted to decide as to whether
the borrower could be considered for grant of housing loan or not. In the case
of self employed or businessmen, the duration of their standing in the
profession or business, their financial status etc., would be considered before
entertaining the application for housing loan. To arrive at the quantum of loan
permissible, the Banks will take into consideration the income declared in the
I.T. return for the last three years, bank statements for the last 6-12 months
and other relevant documents. The financial transaction statements issued by
the bank will disclose various relevant information such as outstanding loans
and repayment, if any, details of bounced cheques, if any, regular credits of
income, subsisting encumbrance if any etc.
Credit Rating
In the case of salaried people, loan
will be sanctioned on the basis of the present net salary and only 50% of the
salary amount will be considered by the Bankers for loan repayment purpose. For
instance, if the applicant is getting Rs. 10,000/- PM take home salary, loan
will be sanctioned taking into consideration 50% of the salary only. The Banks
will also look into the total number of dependents of the applicant to
ascertain his repayment capacity. If the dependents are more, the loan amount
sanctioned will be obviously less. In addition to this, the applicant's
antecedents are also thoroughly checked before sanctioning the loan. Similar
criteria will be adopted in the case of self employed and business people. To
make doubly sure of repayment of loan by the borrower, in many cases, the banks
do insist on providing a guarantor for the loan sanctioned.
Age Factor and joint applications
Banks do not generally entertain
applications for repayment of housing loans beyond the age of 65 years. In
other words, housing loans are to be cleared before the borrower attains the
age of 65 years. To entertain applications for sanction of higher housing loans
than normally admissible to an applicant, banks do consider joint applications
and sanction housing loans by considering the income factors of both the
borrowers. Be that as it may, no applications from person with irregular and
uncertain monthly income will be entertained by the banks for sanction of
housing loans.
Property age
The age of the property is the
primary deciding factor for sanction of housing loans in respect of old
buildings. For sanction of housing loan for purchase of old buildings, the
banks consider the conditions of the building, date of construction etc. But no
housing loan is sanctioned if these buildings are of more than 50 years old. In
addition to this, the property which the borrower intends to purchase should be
within the geographical limits approved by the Banks for sanctioning the loan.
If the applicant intends to buy properties situated in the areas which are
black listed by the Banks for various reasons, no loan whatsoever would be
sanctioned, irrespective of borrower's financial status.
When once the banks are satisfied
with the status and the repaying capacity of the borrower, the banks do collect
copies of the property documents for examination and opinion from their expert
body. The bank's advocate shall examine the title of the property right from
its origin, flow and the present status. If the title is not clear, the
application will not be entertained. The Banks will not sanction the loan even
if the opinion is clear but the supporting original documents are missing since
it may conclude that the property is either mortgaged elsewhere or having some
other problem.
Margin Money
Usually, Banks provide the loan to an
extent of 85% of the total estimated amount of the plot or property or flats.
The remaining 15% has to be arranged by the applicant and the loan will be
sanctioned by the bank only after giving satisfactory evidence regarding his
capability of mobilizing that 15% of the balance amount. The actual market
value and the percentage of depreciation of the property will also be taken
into consideration before the sanction of the loan.
Negative List:
As sanctioning of housing loans is
left to the wisdom and sweet will of the banker, some of the multi-national
banks do not entertain the loan applications from artists, police, journalists,
politicians and advocates.
Presently the banks have stringent
instructions on the grant of housing loans from the Reserve Bank of India and
the Finance Ministry. In spite of this, banks do entertain good proposals for
grant of housing loans.
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