How to Hidden Costs in the Housing Loans

By Madhav Puranik, Chief Manager (Credit), State Bank of India

What are the different purposes for which home loan can be taken?

Home loan is available for following purposes: i) To purchase or construct a new house/flat ii) To purchase an existing (old) house/flat iii) To extend, repair, renovate or alter an existing flat iv) To purchase a plot of land meant for purpose of construction of a dwelling unit.

What are the main steps involved in the process of taking a housing loan?

There are two stages in the housing loan process 1) Sanction of the loan 2) Disbursement of the loan as per the progress of construction of the property.

What are eligibility conditions for the home loan?

Generally, following conditions must be fulfilled: i) minimum age of applicant: 21 years ii) salaried or self-employed with regular income Who can be the co-appli cant for the loan?

Generally, i) All co-owners need to be co-applicants ii) All co-applicants need not be coowners.

When can I apply for the home loans?

You can apply for the Home Loan even before you have selected your property or before the start of construction. You will get in -principle approval for the loan amount which will help you decide your budget and plan the purchase of house/flat.

Can I get more than one housing loan?

Two housing loans can be given to an individual provided he has the capacity to repay. The loans can be for same property (repairs/extension etc) or for different properties.

How much loan can I get?

The loan amount is based on two criteria: Age and Net Monthly Income (NMI). You can get maximum loan upto 85% of the cost of the property including the cost of land, registration charges etc.(A) If the loan for repairs, extension etc. of the house, the loan amount will be 80% of the cost of repairs/extension. (A) The loan amount will be 70% for purchase of land for construction of house. (A) However, the loan amount is also linked to the age of applicants.

If you are between 21 and 45 years of age, you will get maximum loan equal to 48 times total of Net Monthly Income (NMI) which is net monthly income after all deductions including statutory deductions like Provident Fund (PF) and Income Tax from Gross Income and other income from all sources.(B) If your age is above 45 years, you will get maximum loan equal to total 36 times of NMI as above and others income from all sources. The actual loan amount is lesser amount of A & B linked to cost of property and age. What are the fees payable and when are they payable?

The following are the different types of fees payable: A) Finance Companies i) Processing fee: generally 0.8 % of loan amount ii) Administrative charges: 1.00 % of loan amount B) Banks i) Processing fee: normally 0.5 % of loan amount at the time of application.

ii) Search report charges by the Advocate at the time of sanction.

iii) Equitable mortgage charges: for stamp duty payable to the Government at the time of documentation.

For A & B Property Insurance Charges at the time of disbursement What are the components of NMI?

The NMI is income from all sources of an salaried individual It Includes: 1) The NMI from the salary of applicant 2) The NMI from the salary of co-applicant/spouse 3) The income from other sources like a) Rent from the existing/proposed flat b) Agricultural income c) Income from tuitions, tailoring etc.

In case of self employed/professional the NMI is Annual Income after deduction of income tax divided by 12 (as per I-T return) plus other income as at 9.3 above.

Over how many years can I pay the loan?

You can repay the loan over a maximum period of 20 years for both Floating Rate Loans and Fixed Rate Loans. The term will not ordinarily extend beyond your age of retirement (if you are employed) or on reaching 65 years of age whichever is earlier. If the applicant's age is about the retirement age then he may be required to take a suitable (generally single premium) Life Insurance Policy to cover the risk upto the repayment period of loan.

The Bank will help you to determine the repayment period to suit your convenience and financial ability.

What are the advantages of 15 and 20 years terms?

A) 20 years Repayment Period In the initial years of the loan, more interest is paid off than principal, meaning larger tax deductions and greater take home salary.

B) 15 year Repayment Period Here, you pay more principal earlier, meaning lesser tax deduction and lesser take home salary.

How do I pay an EMI?

The EMIs are paid by means of Post Dated Cheques (PDCs) drawn in favour of the Bank.

Generally, after the full disbursement of the loan, 36/48 PDCs of the account, where salary/business income is credited, are required to be given to the lender.

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