Apply for a Housing Loan and Buy Your Dream Home

With inflating property prices across the country, affording even a small sized flat/apartment may leave you financially drained. With property prices soaring rocket high, it has become almost impossible for even a middle class man to afford a flat. There are a number of banks as well as financial institutions which are known to provide different types of home loans to provide assistance to such people who are financially in need. Not only do they provide assistance to those people who desire to purchase homes but for a variety of other reasons such as for repairing damaged parts of their home, renovation of the house or even to extend the house.

Housing loans are funds which are provided by a bank or a financial institution so as to help a person in the acquisition of property. These types of loans play an extremely important role in helping people either buy a new home or construct one. There are many other cases where these loans can be used such as for extension, improvement or repair.

Some of the housing loan eligibility conditions that a person needs to meet before applying for these loans includes:

The person needs to be an Indian resident or an NRI

The person has to be above the age of 21 years

The person has to be below the age of 65 years when the loan matures

The person should either be salaried or self-employed

The person should be worthy of credit facility

There are a number of online tools which help a person to determine their eligibility. One of the tools is the Housing Loans eligibility calculator. This calculator helps to provide valuable information about one's loan eligibility.

There are many different types of loans and they may vary from person to person; depending firstly on how much he wants and largely on his ability to repay the loan amount. The loan amount that is given is also dependent on the age of the person as well as his/her income. These loans are available to everyone, with the only exception that they are not provided to minors i.e. people who are below the age of 18 years.

They may be taken by professionals, salaried individuals; NRI's or even self-employed individuals. There are mainly three stages involved in transferring the home loan from the lender to the borrower. These three stages include:

Filled applicant forms along with necessary housing loan documents: The borrower will have to submit a duly filled housing loan application form along with all the necessary documents that are required.

Sanction: This refers to allotting the housing loan to the borrower. This is based on the age of the borrower, his/her repayment capacity as well as the value of the property.

Disbursement: This refers to the process whereby the loan is transferred from the lender to the borrower.

[Source: http://www.sooperarticles.com/finance-articles/loans-articles/apply-housing-loan-buy-your-dream-home-1271021.html?]

How to choose the best home loan

CHOOSING a wrong home loan can have massive financial implications. All necessary steps should be taken to choose the best lender for your dream home.

Interest rate

The interest rates on home loans depend on your loan amount, credit score and loan tenure, and rates can range from 9.40% to 12% per annum. As a small difference in home loan rates can lead to a sizeable difference in home loans, opt for a lender offering home loan at lowest rates. Also keep in mind that banks follow the MCLR regime for interest rate. This rate-setting mechanism is much better placed to pass on interest rates reductions to you than the Retail Prime Lending Rate (RPLR) system followed by NBFCs.

Loan to value (LTV) ratio

LTV is the proportion of your property value that lenders will finance through your home loan. The remainder, popularly known as down payment, has to be financed out of your own pocket. As per RBI guidelines, banks can finance up to 90% of the property value for home loans of R30 lakh or less. For loans in the R30–75 lakh range and above R75 lakh, LTV ratio can go up to 80% and 75% respectively.

Credit history

A low credit score may reduce your chances of securing a home loan from a public sector bank or may lead to higher Housing Loan Interest rates. However, housing finance companies take a more relaxed position on your credit score. The flip side is that they may offer you lower LTV ratio and charge higher rates.

Loan processing time

The time taken for approval and disbursal of home loans varies across lenders. Choose a lender on the basis of the urgency of your home loan funds. Opt for one that has faster loan processing system in case you have an immediate loan requirement.

Processing fee

Lenders charge processing fee to cover various expenses incurred while assessing your home loan application. While many lenders charge a fixed processing fee, most charge 0.50–1.50% of the total loan amount. As this is a non-refundable charge irrespective of final sanction of the loan, opt for a lender that charges the lowest. The other major charges that need to be considered include prepayment penalty (only applicable in case of fixed interest loans), late payment fee, CERSAI charge and switching fee. Compare these charges across lenders as these may add up to 4% of your loan amount.

[Source: http://www.financialexpress.com/personal-finance/how-to-choose-the-best-home-loan/441634/]

What Are The Available Investment Options For NRI's?

"Although plenty of individuals have settled abroad, they still maintain a form of investment back in their home country. Through this, an NRI can invest through two different routes, namely the automatic route or the government route where prior permission is required from the government before an investment is made.

But when it comes to selecting the right option for investment, there are plenty of options available, each with different features and restrictions. These options can also be used for short term or long term investment goals. Given below are some options you can consider:

Non-Resident Ordinary Rupee Account (NRO):

This is one of the popular NRI accounts that several individuals have opted for, especially for individuals who are looking to deposit or manage earnings from India. Foreign funds can also be deposited in this account. In both cases, the funds that are deposited in the account will earn interest. The interest, however, is subjected to income tax deductions at the source plus applicable surcharges. However, repatriation is only allowed under certain circumstances, such as the upper limit for sending funds is only 1 million USD in a single financial year. Additionally, you will need a tax paid certificate from a certified CA before you repatriate any funds.

Non-Resident External Rupee Account (NRE):

The NRE account is the second NRI account that is a popular option amongst other NRI's, who want to deposit funds earned abroad and transferred to India. The funds that you invest in this account will be converted into Indian rupees, with the conversion value taken at a rate prevailing at the time of deposit. The funds in this account, which includes the principal amount as well as the interest, are repatriable, without any conditions.

Foreign Currency Non-Resident Bank Deposits (FCNR):

The FCNR account is mostly used for termed deposits, especially if you want to deposit foreign currency. Like any other termed deposit, this account will help provide the ideal protection against fluctuating market conditions and volatile currency values. This account can be opened jointly with an Indian resident. However, the account must be made for a minimum maturity period of one year, and a maximum period of 5 years. The interest earned in this account is tax

Free, while the principal amount is taxed, this is calculated through home loan interest calculation.

National Pension Scheme (NPS):

Through this scheme, the policyholder can invest funds in creating a corpus, while also opening a post annuity retirement. Individuals between the years of 18 to 60 years can invest in this scheme. However, unlike the other accounts, this account can be held only by an individual. Once the policy is opened, a PRAN is provided which is the Permanent Retirement Account Number. However, this scheme is only allotted to individuals who hold an NRI status and a citizenship of India. If at any point, an NRI gives up his citizenship, the account is closed."

[Source: http://www.sooperarticles.com/finance-articles/what-available-investment-options-nris-1536535.html]

Home Loan Offers

How your home loan EMIs are calculated

What is an EMI?

In plain financial terms, an EMI is the amount of money paid by borrowers, each calendar month, to the lender, for clearing their outstanding loan. This also means that a sum of money gets deducted from your particular account irrespective of any sudden untoward financial stringency faced by you. EMI payments are made every month, generally on a fixed date, for the entire tenure of the loan, till the outstanding amount has been completely repaid.

EMI break-up

When it comes to segregating the sum that is payable towards the loan, EMI is actually deduced based on an unequal combination of principal and interest. In the initial years of the loan, a major portion of the EMI comprises the interest payable by the borrower. As the loan matures, and as the principal gradually gets paid, the outstanding loan amount reduces. The interest component thus becomes lower than the principal, and finally minimal. The EMI, though, stays as a constant amount each month, 

except in the following cases:

Instances when the borrower paid a lump sum amount of the outstanding loan, then this amount gets duly adjusted against the remaining balance, thereby reducing the EMI. Now, in this particular case, the borrower gets an option where he/she can maintain the EMI while reducing the loan tenure.

In case the borrower has opted for floating rate of interest, then the EMI varies according to market fluctuations.

The EMI of your home loan is determined by four major factors

Principal amount: The principal amount refers to the actual sum of money that is borrowed by the lender. Beyond question, the principal amount is a major determining factor towards the EMI that is to be paid by you.

Rate of interest: The rate of interest is the rate at which the borrower has taken money from an organization or market. This is the most important factor when it comes to determining your EMI. The higher the rate of interest, the greater is the EMI payable by you. It is always advisable to do a market study of various interest rates offered by lending bodies and then decide upon a particular product.

Loan tenure: The tenure of the loan refers to the duration for which the Housing Loans has been taken. The longer the duration of the loan, the lesser the monthly EMI burden on the borrower.

Method of computation: The method that is adopted to calculate the EMI is a crucial factor when it comes to determining the EMI payable by you. The various methods adopted are:

a. Annual reducing method: In this method of EMI calculation, although the EMI is paid by the borrower at the end of every month, the principal amount and the rate of interest is made at the end of the year. This type of EMI calculation has a huge disadvantage attached to it, as the borrowers continue to pay interest on a portion of the principal that has already been paid back to the lender.

b. Monthly reducing loans: This is a better and easy-to-understand method of EMI calculation and is usually the most common calculation method adopted. In this calculation methodology there is a reduction in principal with EMI being paid every month. The interest is calculated on the outstanding balance.

c. Daily reducing loans: As the name implies, in this method the principal reduces every day, with daily loan repayments. The interest is charged on the outstanding balance. However, daily EMI payment is not a very feasible option; hence this method is not a very popular method.

[Source: http://profit.ndtv.com/news/your-money/article-how-your-home-loan-emis-are-calculated-323311]

7 Tricks to Get the Best Mortgage Rate

A High Credit Score is an Asset

It all starts here, doesn't it? A few late and missed payments later, you suddenly find that your credit score has tanked and you are being denied or being charged prohibitively high interest rates for additional credit - be it a credit card or a mortgage

Compare Multiple Offerings

In case you haven't been living under a rock, you know that there are choices aplenty when it comes to choosing a mortgage - perhaps one too many. This even after the fact that, subprime lending has been relegated to the position of a historic misadventure.

Ensure that Multiple Credit Checks don't happen

Here's another common mistake that many prospective applicants make - they apply for multiple mortgages thinking that they can pick the one that offers them the best deal. The problem with this is that, all of these separate applications lead to separate credit checks.

The Home Equity Conundrum

Home equity or down payment is among the most important considerations when you are planning to get a mortgage. The logic is simple, the more you pay as down payment, lower your mortgage payments will be.

Choose your mortgage tenure wisely

It is only natural that you explore multiple tenure options when you are seeking home loans that works for you. If you seek a longer mortgage term, individual EMI payouts will be lower as compared to a shorter one. But the lower EMI payout comes at a price.

Qualification for Special Programs

God might have created everyone equal, but the manmade financial sector works a bit differently. Some groups of individuals qualify for a reduced rate of interest based on meeting some predetermined qualifying criteria.

Get the Closing Cost Issue Sorted

The moment you finalize or close the purchase of your house, you have to deal with closing costs. These costs are usually equal to 3% of the home's purchase price and comprise multiple factors including processing charges, appraisal costs, and fee for title insurance and charges for underwriting.

Conclusion

You are well within your rights to look for details not just when you are indulging yourself during a festive sale, but also when you are purchasing a new car or a house.

[Source: http://www.huffingtonpost.in/entry/7-tricks-to-get-the-best-_b_12562026]

How to Choose the Best Home Loan Lender

Owning an apartment is probably the biggest financial goal that everybody has. With the easy availability of Home Loans, the dream of buying a home is coming true for many individuals. Almost all banks and NBFCs offer Home Loans and borrowers are actually spoilt for choices when looking for lenders. However, choosing the best Home Loan deal can be a daunting task. Remember, Home Loans lock you for a period of 20-25 years and sometimes even more. A wrong decision on your part can become really costly in the long run.

Before you start searching for a home lender, it’s important to have a fair idea about the types of Home Loans available in the market and what do they have in store for you.

Home Loan - Things to Know

Property Type

Not all banks and NBFCs offer a Home Loan in the event of self-construction on a plot you own. It’s easier to get a Home Loan if you’re planning to buy a ready-to-move-in apartment, or even apartments that are undergoing construction.

Look for private banks and NBFCs, if you want Home Construction Loan.

Property Location

It’s important to consider the location of your property as not all lenders have branches everywhere. If the property you’re investing in is far away from work, try and look for a lender who has branches in both the locations.

Credit History

Before looking for a lender, take a look at your own credit score at the CIBIL website. It’ll be difficult to get your application for Home Loan approved if you have a poor credit score or history.

However, that doesn’t mean that you can’t avail a loan. Many lenders offer Home Loans to individuals with a bad credit score too but these come with a high interest rate and a higher margin requirement.

Loan Tenure

Lenders offer Home Loan for a period of 10-30 years. Keep your expenditure in mind while choosing the tenure.

EMI Affordability

Try and opt for a high EMI to lower the interest payouts. Ideally, it shouldn’t be more than 40-50% of your net salary. Also, keep in mind your long-term financial goals, and other investment options while setting the EMI amount. Use the Home Loan interest calculator and calculate the interest payouts before closing the deal.

Interest Rate

Home Loans are available under three types of interest rates—Fixed, floating, and mixed variant. In the case of a fixed rate, the interest stays the same all throughout the tenure. Floating rates are linked to the MCLR fixed by specific lenders and it keeps varying. Finally, in a mixed variant, the lending rate stays fixed for a specific period and then it becomes floating interest rate.

All these will give a fair idea on how Home Loan functions in our country. The next step will be to choose the right lender.

How to Choose a Home Loan Lender?

First time Home Loan borrowers face a lot of obstacles in choosing the best Home Loan and also choosing the right lender. Here are some tips to help pick the right lender:

Lender’s Reputation

Consider a background check for the lenders you shortlist. Home Loan frauds are not uncommon and so make sure to go for names that you’ve already heard off. Check their website and also read online reviews and testimonials.

Compare

Needless to say, there are multiple financial institutions offering Home Loans in today’s market. So, it’s crucial to do a thorough research and compare all terms and conditions offered by various banks and NBFCs. One of the most important things that you need to compare is the interest rate. Look for lenders offering lowest Home Loan interest rates.

You don’t need to visit lenders for this purpose, simply check their websites for all the details. Randomly selecting a scheme or a lender may lead to loan rejection or get you a sub-optimal loan scheme. However, this is not the only thing that matters.

Use the Home Loan Rates calculator to know how much EMI you’ll need to pay for different lenders. Compare this as well.

Loan Eligibility

Your loan eligibility depends on your net monthly income and of course on your credit score. The lower benchmark for net monthly income varies from one lender to the other and this is something you need to check at their website. If your income level is too low, you can have your working children or spouse as co-applicants to increase your chances of Home Loan approval.

Fees and Charges

All lenders charge a processing fee in order to cover all the expenses incurred while assessing your eligibility and verifying all the paperwork. Ideally, this gets deducted from the principal loan amount and the remaining is transferred to your account.

This fee ranges from 0.5-1% of your loan amount; make sure to keep this in mind. Another important thing that you need to consider is prepayment charges. Many lenders penalize you if you make prepayments—the charge levied when you make a part payment towards the outstanding balance before the due date. Many lenders charge foreclose penalty too, i.e. they charge you if you close the loan and repay the entire amount before the tenure ends. Look for lenders who don’t have such penalties.

[Source: http://www.lifehacker.co.in/jugaad/How-To-Choose-The-Best-Home-Loan-Lender/articleshow/55289541.cms]

Will RBI’s new base rate guidelines help borrowers?

The much-awaited Reserve Bank of India (RBI) guidelines on calculating the benchmark lending rate are finally out. In yet another attempt to make banks pass on policy rate cut benefits to borrowers, the RBI has brought out a new methodology: Marginal Cost of Funds based Lending Rate (MCLR). Marginal funds refer to money raised by banks in the last month or quarter before the lending rate review. The new methodology will come into effect from 1 April 2016 and is expected to curtail banks' ability to hold on to higher base rates despite the RBI slashing rates.

How it works

So far, banks followed diverse methodologies for computing the minimum rate at which they could lend—the base rate. Now, the RBI has asked all banks to follow the marginal cost of funds method to arrive at their benchmark lending rate. MCLR will be calculated after factoring in banks' marginal cost of funds (largely, the interest at which banks borrow money), return on equity (a measure of banks' profitability), negative carry on account of cash reserve ratio (the cost that banks incur on account of keeping reserves with the RBI), operating costs and tenure premium (longer the loan term, higher the interest/premium).

The actual lending rate will be MCLR plus the spread determined by banks after taking into account their business strategy and credit risk of the borrower, among other parameters.

Banks can review MCLR once a quarter till March 2017, after which they will have to publish the MCLR on a monthly basis. Lenders will also have to specify the interest reset dates on their floating rate loans. They can either grant loans with reset dates linked to the date of sanction, or the date of MCLR review. The Home Loan Interest Rates charged to a borrower will be applicable until the next reset date. The gap between two reset dates cannot be longer than a year.

Core benefits

The RBI expects the new formula to make floating lending rates more responsive to its policy rate cuts. Ratings agency ICRA believes that the norms will improve policy transmission for new borrowings. "(MCLR) will impact new borrowers immediately: they will benefit in a declining interest rate scenario and take a dent when interest rates are rising," says ICRA. Even existing borrowers will have the option to switch to MCLR when it is introduced.

[Source: http://economictimes.indiatimes.com/wealth/borrow/will-rbis-new-base-rate-guidelines-help-borrowers/articleshow/50330944.cms]

Loan Basics: A guide to NRI home loans

One of the most sought-after investments for Non-Resident Indians (NRIs) is buying property back home. At a time when the Indian rupee is weakening against the US dollar, taking a home loan in India could be a good option for the NRIs rather than using up all the money earned in the foreign currency. Are NRIs allowed to take a home loan in India? Yes, they have. “NRI Home Loans” are offered both by banks and Non-Banking Financial Companies (NBFCs). Here we take a look at what is required to avail this loan and how it differs from a normal loan taken by a resident Indian.

Paper work

For the documentation process, a copy of your passport, visa and employment related documents such as your three to six month salary slips, appointment letter, and employment contract if any and address proof are mandatory. These documents can be submitted to the overseas bank branch located the closest to you, in the country where you reside. The documents are then sent to the Indian branch for processing. Note that the overseas branch just acts as an intermediary for collecting and sending the documents to India. The verification process happens only in the Indian branch.

Loan tenor and interest rate

Earlier there were differences in the interest rate charged for a NRI home loan and for the ones offered to resident Indians. But now the rates are the same. “The Home Loan Rates and other charges like processing fee for NRI home loans are the same as offered to resident Indian. Also, loans to NRI are of larger average size of ₹40 lakh when compared to an average size of ₹23.5 lakh for a resident Indian home loan.

Tax implications

On a home loan, a resident Indian can avail a tax benefit on repayment of up to ₹1.5 lakh on the principal component and ₹2 lakh on the interest component. Can the NRI who repays the home loan also avail of tax benefits? Most of the NRIs who are currently serving their home loans are not aware of the tax implications on their loan repayment. They just earn their incomes abroad and repay their loan.

[Source: http://www.thehindubusinessline.com/portfolio/beyond-stocks/loan-basics-a-guide-to-nri-home-loans/article7880720.ece]

Selling a house? Watch out for tax implications

It's critical to keep an eye on the calendar when you sell your house. If you don't time it well, you could end up paying a hefty tax. If a property is sold within three years of buying it, any profit from the transaction is treated as a short-term capital gain. This is added to the total income of the owner and taxed according to the slab rate applicable to him. For those earning over Rs 10 lakh a year, this shaves off 30% of the profits from the sale.

Also, if a house is sold within five years of the end of the financial year in which it was purchased, the tax benefits claimed go out of the window. The tax deduction claimed for the principal repayment, stamp duty and registration under Sec 80C are reversed and the amount becomes taxable in the year of sale. Only the deduction of the interest payment under Section 24B is left untouched.

This is why it is advisable to hold a property for at least three years. If you sell after three years, the profit is treated as long-term capital gains and taxed at 20% after indexation. Indexation takes into account the inflation during the holding period and accordingly adjusts the purchase price, thereby slashing the tax burden for the seller. There are other benefits too. The owner can claim various exemptions in case of long-term capital gains, but no such benefit is provided for short-term gains

"Expenses incurred on repairs and renovation can be added to the cost of acquisition of the house while computing long-term capital gains. Also, the interest paid during the pre-construction period of the house can be added to the cost, if not already claimed as a deduction earlier

How to avoid tax

There are several ways to avoid paying tax when you sell a house and Home Loan Processing Fees. There is no tax to be paid if you use the entire gain from the transaction to buy another house within two years or construct one within three years. The two- and three-year period applies even if you bought another house a year before selling the first one. But the property should have been bought in the name of the seller.

If you are not keen to lock-in your gains from sale of the house in another property, there is another way out. You can claim exemption under Section 54 (EC) by investing the long-term capital gains for three years in bonds of the National Highways Authority of India and Rural Electrification Corporation Limited within six months of selling the house. However, one can invest only up to Rs 50 lakh in these bonds in a financial year.

Tax tips for house sellers

1. If the cost of the new residential property is lower than the total sale amount, then the exemption is allowed proportionately. For the remaining amount, you can reinvest the money under Section 54EC within 6 months.

2. The exemption is still allowed even if the builder of the new residential construction fails to hand over the property to the taxpayer within three years of purchase.

[Source: http://economictimes.indiatimes.com/wealth/tax/selling-a-house-watch-out-for-tax-implications/articleshow/52583834.cms]