While buying a home or constructing a home, a borrower needs to understand 3 values of the property – Market Value, the value mentioned in the Agreement and value at which the property is registered. For Home loan, Market Value of the property and value mentioned in the Agreement are two yardsticks based on which loan is sanctioned with LTV as deciding factor. The lender considers lower of market value or agreement value to apply the LTV and arrive at the loan amount.
Loan Against Property-old
1. On which value Home Loan is calculated - the market value of the property or agreement value?
2. What is Land-Purchase Home Loan?
While considering constructing a house, it starts with acquiring a piece of land and building on it rather than going for a ready-made home. A Land-Purchase Home Loan comes handy in such a situation. The loan is given for the purpose of purchasing land alone. Lenders usually finance up to 75% of the land cost.
3. What is a Home-Construction Loan?
The borrower has a piece of land, and need to put up the building over it, Home-Construction Loan is the need. A Home-Construction Loan is exclusively taken for constructing a house rather than purchasing a constructed property.
4. What is a Home Purchase Loan?
Purchasing A Home: One can decide on buying a ready-made house or flat in an apartment complex, Home Loan is the product to look for to buy either a new or an old property. Home Loan lenders usually finance up to 80% to 90% of the property value.
5. What is a Home-Expansion Loan?
If one wishes to add another storey to the house or add a few more rooms to the existing building, the loan falls under the category of Home-Expansion Loan.
6. What is a Home-Improvement Loan?
Home-Improvement Loan: Home-Improvement Loan is taken to refurbish the existing old home. If the house is a palatial one and the cost refurbish may run into lakhs, such loans are a real help.
7. What is Balance-Transfer Home Loan?
It refers to the process of transferring your Home Loan from one lender to another. Homebuyers mainly opt for a Home-Loan balance transfer to get attractive and lower rates of interest on their principal amounts. A Home Loan transfer is also known as loan switching.
8. What is a Top-Up Home Loan?
Existing Home Loan borrower can take a Top-Up Loan on the existing Home Loan to meet personal expenses or investment in the business as equity. Having a Home Loan is mandatory to get a Top-Up Loan. Top-Up Loans are ideal for those people who are in need of urgent cash. The rate of interest charged is as like Loan against Property.
9. I want to buy a commercial property; can I get Home Loan?
Loan for buying a commercial property does not qualify to be Home Loan. Certainly, one gets a loan for buying commercial property, and the rate of interest applicable is as of loan against property. As the loan does not qualify as a Home loan, the tax benefits associated with Home Loan are not available. However, if the business entity is borrower, the interest expenses can be tax-deductible under sec 37 of the Income Tax Act.
10. What is Down Payment in Homebuying?
When taking a Home Loan, lenders usually finance 80% to 90% of the total property cost. The difference between the purchase price or cost of the property and what the lender finance is called down payment or Own Contribution. This own contribution is also known as margin. The more the down payment, the less you’ll need to borrow. The margin is asked to safeguard the lender’s interest by ensuring the borrower also has a financial interest in the property other than paying monthly EMIs.
11. What is a Pre-EMI?
Pre EMI is an option that borrowers can choose only if they are taking on a home loan for a property which is under construction. This is an option most borrowers choose because lenders disburse the loan amount partially and borrowers only have to pay the interest component of the loan and not the entire EMI (consisting of both principal and interest payment) until the entire loan amount is completely disbursed. You can start repaying the full EMI amount once the entire loan amount sanctioned is completely disbursed. Typically, you can pay pre-EMIs for a period lasting up to three years, under which construction should be completed.
12. What is a Full EMI?
Full EMI is a term used in reference to the EMI amount paid by borrowers immediately after the lender disburses the principal loan amount. Here, the principal amount may be disbursed partially or completely, but the borrower chooses to pay the entire monthly EMI regardless. If you opt for full EMI repayment, you have to pay the complete EMI and not as per the amounts disbursed.
13. What is the difference between Pre-EMI and Full EMI?
The difference in loan disbursal: If you opt for full EMI, you can seek disbursal of the entire loan amount, whereas if you choose pre-EMI, the loan amount is disbursed partially.
The difference in loan repayment: The EMI amount you pay in the beginning is significantly lower in case of pre-EMIs vs full EMI, where you have to pay the full EMI amount irrespective of the loan amount disbursed.
The difference in interest: Full EMI interest is calculated in accordance with the entire principal amount. Pre EMI interest is calculated in accordance with the disbursed loan amounts. To be noticed, in both forms, the Rate of Interest remains the same.
14. I am an NRI. Can I get an HL?
Yes, NRI can avail HL in India but limited only the individuals having income from salary. GPA forms an important document for NRI HL. While sanctioning loans to NRI/PIO/OCI, the following conditions will be taken into account:
- The loan amount will not be credited to NRE/FCNR account of the borrower and paid directly to the seller of the property.
- The loan will be fully secured by equitable mortgage of the property proposed to be acquired and if necessary, also by a lien on the borrower’s other assets in India.
- The repayment or the EMI of these loans can only be paid through NRE or NRO accounts with remittance from abroad. No other funds can be used for repayment of these loans. The repayment needs to be made in Indian rupees only.
- An NRI/PIO/OCI cannot purchase more than two properties in India.
15. What are repayment tracks, and what is its importance?
Repayment track includes repayment of EMI based loans, term loans and interest on working capital utilization. In case of EMI based loans and TLs; payment should happen on the designated date and working capital interest to be served within 7 days of interest debit. Any bounce in EMI due to insufficient funds or delay in interest service affects creditability of the customer and may lead to rejection of the loan application by the lender.
16. I already have a home loan? Would I get a home improvement loan?
A home improvement loan is offered to facilitate the improvement of a self-owned property to existing or new customers. This loan may be used for repairs, renovations, improvement, and extension of the house. The borrower has to submit a cost estimate of the work intended to be done, preferably certified by a Chartered Engineer to the lender. The money is released at stages according to the percentage completion of the construction work to the contractor to whom it is due.