Important Facts About Housing Loans ..

by Mr. Kishor Pate, Amit Enterprises Housing Ltd.

In a very real way, the home loan is the driving force behind the Indian residential real estate market. 

Without a home loan, a large portion of the Indian population would be forced to live in rental houses. Because of this facility, one can be a proud home owner without having to have enormous amounts of ready cash. Since they play an extremely vital role in sustaining the real estate market, it is not only home buyers who depend on home loans, but developers as well.

To clear up a common misconception – home loans are not available only for the purchase of a house. One can avail of such financing to buy land and to construct on it, and also to renovate an existing property. 

Of course, there are lending norms attached to the granting of a home loan. 

Agreement value

A bank will usually lend between 75-80% of the agreement value, and the borrower has to provide the rest from personal resources. 

Most banks also require that the borrower take out an insurance policy to protect the home loan. This is to ensure that they will get their money back if the borrower dies or is for some other reason incapable of servicing his or her loan. 

After all, such an agreement between borrower and lender is over extended periods of time. A home loan is generally repaid over several years, unless the borrower finds the financial means to prepay it in part of in totality.

While all this may sound complicated to first-time borrowers, getting home finance is actually not very difficult. 

As long as the borrower is eligible for it, such a loan is usually made available. After all, banks depend a lot on the interest generated by home loans, and are willing to extend home loans in most cases. 

Challenge for the borrower

The challenge for the borrower lies in getting the best possible repayment terms of such a loan. These may vary bank to bank, and it is wise to shop around for the most suitable home loan before settling on a final option. 

There is a lot of information on home loans and current lending norms of various banks floating around. 

However, those who are unfamiliar with banking processes are advised to consult an expert. Figures on the Internet may often be outdated or misleading, and there are various legal aspects to consider. Opting for home finance without a proper understanding of all related aspects could therefore be a cause for regret later on.

Kishor Pate,
Amit Enterprises Housing

To clarify - while the RBI stipulates a ceiling of 75%, some banks are willing to include the stamp duty and registration charges within the purview of the loan, which technically makes the loaned amount 80% of the agreement value.

The lending rate attached to the home loan also changes from time to time, depending on how the economy is faring and how much liquidity exists on the market.

Credit history of borrower..

A borrower will qualify for home finance if he or she meets certain baseline requirements. The parameters on which a potential borrower’s eligibility for a home loan is determined include employment status, duration of current employment, personal income and credit status. 

The credit history of an intending borrower is particularly important to banks, who need to verify whether there is any record of default with another financial institution. 

The existence of other loans, the type and age of property and overall transparency of the proposed purchase are also taken into account.

Agreement between borrower and lender..

Most banks also require that the borrower take out an insurance policy to protect the home loan. This is to ensure that they will get their money back if the borrower dies or is for some other reason incapable of servicing his or her loan. 

After all, such an agreement between borrower and lender is over extended periods of time. A home loan is generally repaid over several years, unless the borrower finds the financial means to prepay it in part of in totality.

While all this may sound complicated to first-time borrowers, getting home finance is actually not very difficult. 

As long as the borrower is eligible for it, such a loan is usually made available. After all, banks depend a lot on the interest generated by home loans, and are willing to extend home loans in most cases. 

Challenge for the borrower

The challenge for the borrower lies in getting the best possible repayment terms of such a loan. These may vary bank to bank, and it is wise to shop around for the most suitable home loan before settling on a final option. 

There is a lot of information on home loans and current lending norms of various banks floating around. 

However, those who are unfamiliar with banking processes are advised to consult an expert. Figures on the Internet may often be outdated or misleading, and there are various legal aspects to consider. Opting for home finance without a proper understanding of all related aspects could therefore be a cause for regret later on.

About the author

Mr. Kishor Pate is CMD at Amit Enterprises Housing Ltd.

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Mr. Jay Kalghatgi
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