All About Housing Loans

001A Given the myriad rules that govern the sale and purchase of real estate, making the right decision can sometimes be tough. Here are some FAQ in an attempt to make things a little easier for the buyer and seller by laying out the basic guidelines. For specific queries
however, it would be best to contact an advocate or chartered accountant.
Housing Loans
• What is the maximum amount of housing loan available?
• What is the amount I can borrow and what are the criteria?
• What is the period in which I will have to repay the loan?
• How is the interest calculated on my loan?
• Is it better to opt for a fixed or a floating interest rate?
• Besides the interest payments, what are the hidden costs?
• How do I apply for a loan?
• Who can be co applicants for the housing loan?
• What security do I have to provide?
• Does the Agreement for Sale have to be registered?
• Does the property have to be insured?
• How much time does it take to get my application processed and my loan sanctioned?
• When do I have to make my share of the contribution to the purchase price of the property?
• What do I have to do when my housing loan is sanctioned?
• In how many installments can the loan be disbursed?
• How do I repay the loan?
• Can I prepay the loan?
• Do I get tax benefits on the loan?
• Can I get a loan for extension/ upgradation/ renovation of my house?
• Can I sell the property, which I have taken the loan for?
• Can I rent the property, which I have taken the loan for?
What is the maximum amount of housing loan available?
You can avail of a maximum of 85 per cent of the cost of the property, including the cost of land, subject to a maximum amount of Rs one crore

What is the amount I can borrow and what are the criteria?
Generally, you can borrow up to 2.5 times your gross annual income. But, your equated monthly installments (EMIs) usually should not exceed 35% of your gross monthly income. The actual amount of loan will vary across the individual companies. Housing Finance Companies (HFCs) primarily look at your capacity to repay the loan installments on time. They assess the repayment capacity of you and co applicants (spouse or parent), if any, based on annual income, assets and liabilities, savings history, financial and occupational stability, age and the number of dependants.

What is the period in which I will have to repay the loan?
The loan will generally have to be repaid in a period of between 5 to 15 years, but definitely before you retire. A few HFCs also offer a 20 year repayment period, usually at a higher interest rate.

How is the interest calculated on my loan?
Most HFCs follow the yearly reducing balance method, which accounts for your principal repayments only at the end of their financial year. Thus, you pay interest on the principal that you have already returned to the HFC. The effective interest rate is thus higher than the quoted interest rate by around 0.7%. Banks and some HFCs, in contrast, follow the daily or monthly reducing balance method, which results in a lower interest burden.

Is it better to opt for a fixed or a floating interest rate?
In the case of falling interest rates, a floating rate loan is a better option but when the interest rates are rising, opt for a fixed rate loan. If you go in for a fixed rate loan, you will know in advance what your EMIs will be. This will help you in your financial budgeting. However, if you opt for a floating rate,you may not be able to budget properly.

There are various laws that govern the transactions of residential, commercial and leisure premises in India. The Forum section is aimed at covering salient features in depth. It will discuss elaborately on topics such as outright sale of residential properties, commercial properties, time share buying etc….

Outright Sale / Purchase of Residential Property
1. How can residential property be acquired in India?
In India residential property can be acquired through Estate Agents
or through advertisements in newspapers through individual sellers as well as builders.

2. What are the factors involved in selecting a residential property?
While selecting a residential flat the purchaser of the flat should check the quality of construction, the security of the building, accessibility of the building as well as maintenance of the building by the society or the committee that is involved in the upkeep of the building. One should also check the fire fighting systems installed in the building as well as the water supply situation. In case of building with lifts, one should always check the lifts and other security systems that are installed in the building.

3. How should a prospective purchaser evaluate the price of the property?
The rates of the property that are quoted by the builder or the individual seller or an estate agent, can be evaluated after scrutinizing documents of the last transaction made in the same vicinity of the property. Incase the property’s value is above the prescribed limit laid down by Central Government for preemptive purchase which in Mumbai is Rs 75 lakhs, in such a case one could always refer to the income tax department 37 (I) lists that confirm rates of property that have been sold. This gives a clear indication on the prospective purchaser of the prevailing rate per sq.ft. of the property.

4. What are the legal procedures in the acquisitions of residential property?
If the property is a direct sale from a builder, in such a case, one should scrutinize the document stating clear title ownership of the builder for the said premises. Incase the property is a second sale. eg : If an individual is making sale of property in such a case one should scrutinize this previous purchase agreement as well as check his ownership title of the said property.

5. How is a purchase agreement made?
A lawyer or a solicitor drafts a purchase agreement. It is always drafted on a stamp paper, clearly indicating the interest of the seller to sell the property to the purchaser along with consideration being paid for the said property.

6. What is a clear marketable title of a property ?
A clear marketable title means that, the property is free from all encumbrances and is absolutely owned by persons or individual who is selling the said property.
7. What are the clearances required to acquire a property ?
The basic clearances required to acquire a property are:
a. A no objection certificate (NOC) from the society where the property is located however if a property is purchased from a builder no such NOC is required.
b. The income tax department 37 (I) clearance is required if the property is above the value prescribed by the appropriate authority constituted under Income Tax Act, which value is Rs 75 lacs in Mumbai city.

8. What are transfer charges ?
A society or a builder has to make transfer of ownership of property and lecies the transfer charges. The charges are normally borne equally between buyer and seller. The quantum of transfer charges varies from society to society. The maximum transfer charges that a society can charges is Rs 25,000/

9. What is stamp duty ?
The stamp duty is a state levy that is payable on the document normally by the purchaser to the state government. The stamp duty is payable on the purchase price of property as indicated in the purchase agreement. The stamp duty payable is Rs 38750 on forst Rs 10 lakhs and 8% on the balance considerative market value of property if property is purchased in Co operative Housing Society otherwise stamp duty is at 10%. The stamp duty is payable at the state government’s office and is applicable to all properties.

10. Are there any other duties/levies payable to State Government?
The document also attracts registration fees payable at 1% of consideration or Rs 20,000/ whichever is lowest. However in case of transaction in a Co operative society registration in optional.

11. How is the area/size of the property calculated?
The area size is always calculated property in terms of sq.ft. Properties are sold in built up area and super built up area and the built up to super built up ratio is between 15% to 25% depending on the seller’s chioce.

12. What are the charges payable to property consultants?
If one desires to use the service of the property consultants or estate agents to purchase residential property the standard fees payable for structuring and facilitating transactions (right upto the registration of property) is 2% on the agreed sale price. But any property valued over 25 lakhs the going rate is for their services is 1% on sale price. On Leave and License usually they ask more, but the standard practice 1/2 a month’s rent.

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