How to Avail Home Loan?

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Living in one’s own home is dream come true for every person. This is one of the major decisions in one’s life. For most of the persons, it is very difficult to incur the cost of the house in one shot. Therefore it becomes necessary to avail the facility of home loan in order to manage fund position.  Home Loan Process involves various stages which are as follows:

Choosing a right house:

One has to decide about the type of house where he/she wants to purchase:

  • Purchase of Land and construct a house on it: For purchase of land, there are only a number of Banks/NBFCs who provide loan. After the land purchase, suitable map has to be drawn and get the same sanctioned from appropriate authority. In the second step of this the bank grants loan for construction purpose, stage wise till the house is ready to move in.
  • Purchase of a readymade house: For purchase of readymade house, may it be new or old, the Banks/NBFCs provide loan. But in case of old houses, the house should not be older than 12 to 15 years
  • Purchase of Builder’s Flat: Banks/NBFCs provide home loans for purchase of builders’ flats only in a selective way. Such selection is based on the legal position of the land on which the flats are built as well as goodwill of the builders. Generally Banks/NBFCs approve the big projects and on the basis of such approval, Banks/NBFCs provide loans to the flat purchasers.

Deciding the Budget: After the house to be purchased is chosen, one has to decide about the quantum of finance available, finance to be arranged by way of loan and period for which loan should be taken etc. For this process, one may take the help of experts, Bank personnel or any other person dealing in such type of loans.

Applying for Loan: Loan process starts, with the application to the Bank or the Non Banking Finance Company (NBFC) from where the loan is to be availed. The loan application is to be submitted along with certain mandatory documents which are as follows:

  • Identity Proof
  • Address Proof
  • Age Proof
  • Proof of Educational qualification
  • Employment Detail if salaried, Business Details if Self-employed
  • Last Three Years Income Proof like Copies of Form 16 & Copies of ITRs filled with computation of income if salaried and if Self Employed then Copies of ITRs filled with computation of income, Balance sheets etc.
  • Bank Statement
  • Details of previous loans availed (if any)
  • Detail of property to be purchased if already finalized Full chain is to be submitted
  • Agreement to sell in case of repurchase of land/house/flat etc.

Processing Fee:  There are certain expenses to be incurred by the prospective loanee, which are necessary for the Banks/NBFCs. The land/house/flat to be purchased is subject to legal search report by the Bank’s approved lawyers and valuation by the Bank’s approved valuer. In addition Banks/NBFCs charge processing fee ranging from 0.25% to 0.50%, which varies from Bank to Bank.

Processing at Bank: The Banks/NBFCs process the application of the prospective loanee with due diligence of the documents provided by the prospective loanee, checks the eligibility i.e. repayment capacity of the prospective loanee viz. a viz. quantum of loan to be sanctioned. After proper documentation, the loan is given to the prospective loanee. The quantum of loan available in the hands of loanee varies from 75% to 90% of the value of property. Banks/NBFCs, generally, pay the loan amount to the seller of the property unless the loan amount is used for construction of house.

The whole process of getting a loan, from the Bank/NBFC, takes a normal period of one to two weeks from application to disbursement or as per the requirement of the loanee.

Tax Benefits of Housing Loan: A person availing housing loan can have multiple benefits like:

  • Interest up-to Rs.2.00 Lakhs per annum is allowed to be deducted under Section 24B of The Income Tax Act, 1961 from the total income of a person availing housing loan and if the loan is taken jointly with other person then deduction is allowed on pro-rata basis to all the co-loanees.
  • Under Section 80-C of The Income Tax Act, 1961 repayment of principal up-to Ra.1.50 Lakhs per annum is available in the hands of a person along with the other investments coming under Section 80-C.
  • Under Section 80EE, for the first time property owners of the property of the value not exceeding Rs.40.00 Lakhs and person availing housing loan can get an additional rebate of Rs.1.00 Lakhs per annum by way of interest.

Thus by availing housing loan from Banks/NBFCs, one can become a property owner as well as avail a number of income tax benefits under the existing income tax rules.

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