Housing & Consumer Loans

1. National Housing Bank (NHB): The National Housing Policy, 1988 envisaged the setting up of NHB as the Apex level institution for housing. In pursuance of the above, NHB was set up on July 9, 1988 under the National Housing Bank Act, 1987. NHB is wholly owned by Reserve Bank of India, which contributed the entire paid-up capital. The general superintendence, direction and management of the affairs and business of NHB vest, under the Act, in a Board of Directors. The Head Office of NHB is at New Delhi. Objectives: NHB has been established to achieve, inter alia, the following objectives To promote a sound, healthy, viable and cost effective housing finance system to cater to all segments of the population and to integrate the housing finance system with the overall financial system. To promote a network of dedicated housing finance institutions to adequately serve various regions and different income groups. To augment resources for the sector and channelize them for housing. To make housing credit more affordable. To regulate the activities of housing finance companies based on regulatory and supervisory authority derived under the Act. To encourage augmentation of supply of buildable land and also building materials for housing and to upgrade the housing stock in the country. To encourage public agencies to emerge as facilitators and suppliers of serviced land, for housing. Functions: Regulation: In terms of the National Housing Bank Act, 1987, National Housing Bank is expected, in the public interest, to regulate the housing finance system of the country to its advantage or to prevent the affairs of any housing finance institution being conducted in a manner detrimental to the interest of the depositors or in a manner prejudicial to the interest of the housing finance institutions. o For this, National Housing Bank has been empowered to determine the policy and give directions to the housing finance institutions and their auditors. o The National Housing Bank Act, 1987, National Housing Bank has issued the Housing Finance Companies (NHB) Directions, 2001 as also Guidelines for Asset Liability Management System in Housing Finance Companies. These are periodically updated through issue of circulars and notifications. o National Housing Bank supervises the sector through a system of on-site and off-site surveillance. Financing: NHB supports housing finance sector by:

Housing & Consumer Loans

o Extending refinance to different primary lenders in respect of eligible housing loans extended by them to individual beneficiaries and for project loans extended by them to various implementing agencies. o Lending directly in respect of projects undertaken by public housing agencies for housing construction and development of housing related infrastructure. o Guaranteeing the repayment of principal and payment of interest on bonds issued by Housing Finance Companies. o Acting as Special Purpose Vehicle for securitizing the housing loan receivables. Promotion & Development: The principal mandate of the Bank is to promote housing finance institutions to improve/strengthen the credit delivery network for housing finance in the country. o All housing finance companies registered with NHB u/s 29A of the National Housing Bank Act, 1987 and scheduled commercial/co-operative banks are eligible for refinance support subject to terms and conditions as laid down under the respective refinance schemes. o As a part of its promotional role NHB has also formulated a scheme for guaranteeing the bonds to be issued by the housing finance companies. 2. Housing finance companies (HFC): A HFC is a company which mainly carries on the business of housing finance or has one of its main object clauses in the Memorandum of Association of carrying on the business of providing finance for the housing. For commencing the housing finance business, a HFC is required to have the following in addition to the requirements under the Companies Act, 1956: Certificate of registration from NHB Minimum net owned fund of Rs. 200 lakhs. Net owned funds means o The aggregate of the paid-up equity capital and free reserves as disclosed in the latest balance sheet of the housing finance institution after deducting there from o Accumulated balance of loss; o Deferred revenue expenditure, and o Other intangible assets; and o Further reduced by the amounts representing o Investments of such institution in shares of Its subsidiaries; Companies in the same group; All other housing finance institutions which are companies; and

o The book value of debentures, bonds, outstanding loans and advances (including hire-purchase and lease finance) made to, and deposits with,-

Housing & Consumer Loans

Subsidiaries of such company; and Companies in the same group, to the extent such amount exceeds ten per cent of above; Subsidiaries and companies in the same group shall have the same meanings assigned to them in the Companies Act, 1956.

A HFC requires registration from NHB apart from Registrar of Companies. HFCs incorporated after June 12, 2000 cannot conduct business of housing finance without obtaining a certificate of registration from NHB. The provisions for regulation of the HFCs as provided under the NHB Act, 1987 are: Requirement of Registration and Net Owned Fund Maintenance of percentage of assets in specified securities Creation of Reserve Fund by the HFCs Regulation or prohibition of issue of prospectus or advertisement soliciting deposits Determination of Prudential Norms for HFCs Collection of information as to deposits and to give directions Issue of directions to the auditors of the HFCs relating to financial statements and disclosure requirements Prohibition of acceptance of deposits and alienation of assets Penalty for violation of the provisions of the Act or the directions issued there under. Filing of winding up petition against erring HFCs.

Housing & Consumer Loans

3. Structure:

RBI
National Housing Bank (NHB)
Commercial Banks
Housing Finance Companies

Co-operative Insitutions
Apex Co-operative Housing federations State co-operative banks

HUDCO

HDFC Bank sponsored Insurance companies sponsored Private sector companies

Urban co-operative banks

State co-operative rural & agri. banks

HUDCO: The Housing and Urban Development Corporation Limited (HUDCO) was incorporated on April 25, 1970. It is a government-owned corporation in India. One of the public sector undertakings, it is wholly owned by the Union Government and is under the administrative control of the Ministry of Housing and Urban Poverty Alleviation. It is charged with building affordable housing and carrying out urban development. HDFC: Housing Development Finance Corporation Limited (HDFC Ltd.) was established in 1977 with the primary objective of meeting a social need of encouraging home ownership by providing long-term finance to households. It was founded in 1977 as the first Specialised Mortgage Company in India. HDFC was promoted by the Industrial Credit and Investment Corporation of India. Bank sponsored: e.g. Can Fin Homes Limited (sponsored by Canara Bank, SBI Home Finances, and PNB Housing Finance. Insurance companies sponsored: GIC Housing Finance Ltd (GICHFL) was promoted by General Insurance Corporation of India LIC Housing Finance Limited Private sector companies: E.g. Dewan Housing Finance Ltd.

Housing & Consumer Loans

4. Home Loan Procedure: i. (http://www.iloveindia.com/real-estate/home-loans/home-loan-process.html) Submission of application form: After choosing a particular home loan, the customer submits the application form to the housing finance company (HFC) along with other relevant documents as required by the HFC. They comprise documents to establish income, age, residence, employment, investments, etc. The customer also needs to hand over a cheque for payment of an up front (non -refundable) processing fee of about 0.51% of the loan amount to the HFC. Validation of the information: In the next stage, HFCs validate the information provided by the customer on the application form. They usually conduct checks on the residential address of the customer, the place of employment of the customer, and credentials of the employer. Some HFCs may insist on a personal interview with the customer and perform a reference check on the references provided by the customer on the application form. Issue of sanction letter: After due appraisal of customer profile, a sanction letter is issued which contains details such as loan amount, rate of interest, annual / monthly reducing balance, tenor of the loan, mode of repayment and general terms and conditions of the loan. This is the actually the approval of the money lending procedure by the company. However, the money is sanctioned only after the documents and the property on behalf of which the loan is being granted is thoroughly verified. Submission of documents: Once the sanction letter is passed, the customer is required to leave the entire set of original documents pertaining to the property being purchased with the HFC as security for the loan amount sanctioned. These documents remain in the custody of the HFC till the time the loan is fully repaid. Once the documents are handed over to the HFC, they send all the documents for a thorough legal scrutiny. Validation of property: Prior to disbursement, the HFC also conducts a site visit to the customer's property to ensure that all construction norms have been adhered to properly. Once the HFC is satisfied that the property is legally and technically clear, they disburse the loan amount. The disbursement from the HFC is on the basis of the stage of construction of the property. Payment procedure: Once all the above mentioned process, the borrower is entitled to take the money from the lender party. Until such time that the entire sanctioned amount is not drawn, the customer is supposed to pay a simple interest on the Actual Amount drawn (without any principal repayments). The EMI payments commences only after the entire sanctioned loan amount is drawn. ii. (http://www.rbi.org.in/commonman/English/Scripts/FAQs.aspx?Id=701) Purpose: You can generally seek a first time home loan for buying a house or a flat, renovation, extension and repairs to your existing house. Most banks have a separate policy for those who are going for a second house. Please remember to seek specific clarifications on the above-mentioned issues from your commercial bank.

Housing & Consumer Loans

Home loan eligibility: Your bank will assess your repayment capacity while deciding the home loan eligibility. Repayment capacity is based on your monthly disposable / surplus income, (which in turn is based on factors such as total monthly income / surplus less monthly expenses) and other factors like spouse's income, assets, liabilities, stability of income etc. The main concern of the bank is to make sure that you comfortably repay the loan on time and ensure end use. The higher the monthly disposable income, higher will be the amount you will be eligible for loan. Typically a bank assumes that about 55-60 % of your monthly disposable / surplus income is available for repayment of loan. However, some banks calculate the income available for EMI payments based on an individuals gross income and not on his disposable income. The amount of the loan depends on the tenure of the loan and the rate of interest also as these variables determine your monthly outgo / outflow which in turn depends on your disposable income. Banks generally fix an upper age limit for home loan applicants. EMI: You repay the loan in Equated Monthly Installments (EMIs) comprising both principal and interest. Repayment by way of EMI starts from the month following the month in which you take full disbursement. Documents required for a loan approval: In addition to all legal documents relating to the house being bought, banks will also ask you to submit Identity and Residence Proof, latest salary slip (authenticated by the employer and self attested for employees) and Form 16 (for business persons/ self-employed) and last 6 months bank statements / Balance Sheet, as applicable . You also need to submit the completed application form along with your photograph. Loan applications form would give a checklist of documents to be attached with the application. Please do discuss and seek more information on any waivers in terms and conditions provided by the commercial bank in this regard. For example some banks insist on submission of Life Insurance Policies of the borrower / guarantor equal to the loan amount assigned in favour of the commercial bank. There are usually amount ceilings for this condition which can also be waived by appropriate authority. Please read the fine print of the banks scheme carefully and seek clarifications. Different interest rate options: Banks generally offer either of the following loan options: Floating Rate Home Loans and Fixed Rate Home Loans. For a Fixed Rate Loan, the rate of interest is fixed either for the entire tenure of the loan or a certain part of the tenure of the loan. In case of a pure fixed loan, the EMI due to the bank remains constant. If a bank offers a Loan which is fixed only for a certain period of the tenure of the loan, please try to elicit information from the bank whether the rates may be raised after the period (reset clause). You may try to negotiate a lock-in that should include the rate that you have agreed upon initially and the period the lock-in lasts. Hence, the EMI of a fixed rate loan is known in advance. This is the cash outflow that can be planned for at the outset of the loan. If the inflation and the interest rate in the economy move up over the years, a fixed EMI is attractively stagnant and is easier to

Housing & Consumer Loans

plan for. However, if you have fixed EMI, any reduction in interest rates in the market, will not benefit you. Determinants of floating rate: The EMI of a floating rate loan changes with changes in market interest rates. If market rates increase, your repayment increases. When rates fall, your dues also fall. The floating interest rate is made up of two parts: the index and the spread. The index is a measure of interest rates generally (based on say, government securities prices), and the spread is an extra amount that the banker adds to cover credit risk, profit mark-up etc. The amount of the spread may differ from one lender to another, but it is usually constant over the life of the loan. If the index rate moves up, so does your interest rate in most circumstances and you will have to pay a higher EMI. Conversely, if the interest rate moves down, your EMI amount should be lower. Also, sometimes banks make some adjustments so that your EMI remains constant. In such cases, when a lender increases the floating interest rate, the tenure of the loan is increased (and EMI kept constant). Some lenders also base their floating rates on their Benchmark Prime Lending Rates (BPLR). You should ask what index will be used for setting the floating rate, how it has generally fluctuated in the past, and where it is published/disclosed. However, the past fluctuation of any index is not a guarantee for its future behavior. Flexibility in EMI: Some banks also offer their customers flexible repayment options. Here the EMIs are unequal. In step-up loans, the EMI is low initially and increases as years roll by (balloon repayment). In step-down loans, EMI is high initially and decreases as years roll by. Step-up option is convenient for borrowers who are in the beginning of their careers. Step-down loan option is useful for borrowers who are close to their retirement years and currently make good money. Monthly reducing balances method: Borrowers benefit more from a loan that's calculated on a monthly reducing basis than on an annual basis. In case of monthly resets, interest is calculated on the outstanding principal balance for that month. The principal paid is deducted from the opening principal outstanding balance to arrive at the opening principal for the next month and interest is computed on the new, reduced principal outstanding. In case of annual resets, principal paid is adjusted only at the end of the year. Hence, you continue to pay interest on a portion of the principal that has been paid back to the lender. How does tenure affect cost of loan: The longer the tenure of the loan, the lesser will be your monthly EMI outflow. Shorter tenures mean greater EMI burden, but your loan is repaid faster. If you have a short-term cash flow mismatch, your bank may increase the tenure of the loan, and your EMI burden comes down. But longer tenures mean payment of larger interest towards the loan and make it more expensive. Pre-EMI interest: Sometimes loan is disbursed in installments, depending on the stages of completion of the housing project. Pending final disbursement, you may be

Housing & Consumer Loans

required to pay interest only on the portion of the loan disbursed. This interest called pre-EMI interest. Pre-EMI interest is payable every month from the date of each disbursement up to the date of commencement of EMI. However, many banks offer a special facility whereby customers can choose the installments they wish to pay for under construction properties till the time the property is ready for possession. Anything paid over and above the interest by the customer goes towards Principal repayment. The customer benefits by starting EMI payment earlier and hence repays the loan faster. Please check with your banker whether this facility is available before availing of the loan. What security will you have to provide: The security for a housing loan is typically a first mortgage of the property, normally by way of deposit of title deeds. Banks also sometimes ask for other collateral security as may be necessary. Some banks insist on margin / down payment (borrowers contribution to the creation of an asset) to be maintained / made also. Collateral security assigned to your bank could be life insurance policies, the surrender value of which is set at a certain percentage to the loan amount, guarantees from solvent guarantors, pledge of shares/ securities and investments like KVP/ NSC etc. that are acceptable to your banker. Banks would also require you to ensure that the title to the property is free from any encumbrance. (i.e., there should not be any existing mortgage, loan or litigation, which is likely to affect the title to the property adversely). What precautions do you need to take if you are purchasing a property that is not a newly built one? Ensure that the documents being provided to you are not colour photocopies. Check the internet for other modus operandi to fraud and ensure clear title to the asset. Seek advice only from authentic sources such as your bank. Get the no encumbrance certificate to find the true title holder and if it is mortgaged to any financier. Obtain all tax related papers to ensure that all documents are up to date. EXAMPLE OF EMI CALCULATION (PURE FIXED LOAN) Amount of Loan 10 lakh, Annual Interest Rate - 15%,

Number of Payments 120, Monthly Payment - 16,133.50 Number 0 1 2 3 4 5 6 7 Payment 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 Interest 12,500.00 12,454.58 12,408.59 12,362.03 12,314.89 12,267.16 12,218.83 Principal 3,633.50 3,678.91 3,724.90 3,771.46 3,818.61 3,866.34 3,914.67 Balance 1,000,000.00 996,366.50 992,687.59 988,962.69 985,191.23 981,372.62 977,506.28 973,591.62

Housing & Consumer Loans

8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50

12,169.90 12,120.35 12,070.19 12,019.39 11,967.97 11,915.90 11,863.18 11,809.80 11,755.75 11,701.03 11,645.63 11,589.53 11,532.73 11,475.22 11,416.99 11,358.03 11,298.34 11,237.90 11,176.71 11,114.75 11,052.01 10,988.49 10,924.18 10,859.06 10,793.13 10,726.38 10,658.79 10,590.36 10,521.07 10,450.91 10,379.88 10,307.96 10,235.14 10,161.41 10,086.76 10,011.18 9,934.65 9,857.16 9,778.71 9,699.27 9,618.84 9,537.41 9,454.96

3,963.60 4,013.15 4,063.31 4,114.10 4,165.53 4,217.60 4,270.32 4,323.70 4,377.74 4,432.46 4,487.87 4,543.97 4,600.77 4,658.28 4,716.51 4,775.46 4,835.15 4,895.59 4,956.79 5,018.75 5,081.48 5,145.00 5,209.31 5,274.43 5,340.36 5,407.12 5,474.70 5,543.14 5,612.43 5,682.58 5,753.62 5,825.54 5,898.35 5,972.08 6,046.74 6,122.32 6,198.85 6,276.33 6,354.79 6,434.22 6,514.65 6,596.08 6,678.54

969,628.02 965,614.87 961,551.56 957,437.46 953,271.93 949,054.34 944,784.02 940,460.32 936,082.58 931,650.12 927,162.25 922,618.28 918,017.51 913,359.24 908,642.73 903,867.27 899,032.12 894,136.52 889,179.73 884,160.98 879,079.50 873,934.50 868,725.18 863,450.75 858,110.39 852,703.28 847,228.57 841,685.43 836,073.00 830,390.42 824,636.81 818,811.27 812,912.92 806,940.83 800,894.10 794,771.78 788,572.93 782,296.59 775,941.81 769,507.58 762,992.93 756,396.85 749,718.31

Housing & Consumer Loans

51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93

16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50

9,371.48 9,286.95 9,201.37 9,114.72 9,026.99 8,938.15 8,848.21 8,757.15 8,664.94 8,571.59 8,477.06 8,381.36 8,284.45 8,186.34 8,087.00 7,986.42 7,884.58 7,781.47 7,677.07 7,571.37 7,464.34 7,355.97 7,246.25 7,135.16 7,022.69 6,908.80 6,793.49 6,676.74 6,558.53 6,438.84 6,317.66 6,194.96 6,070.73 5,944.95 5,817.59 5,688.64 5,558.08 5,425.89 5,292.04 5,156.53 5,019.31 4,880.39 4,739.72

6,762.02 6,846.54 6,932.12 7,018.78 7,106.51 7,195.34 7,285.28 7,376.35 7,468.55 7,561.91 7,656.43 7,752.14 7,849.04 7,947.15 8,046.49 8,147.08 8,248.91 8,352.03 8,456.43 8,562.13 8,669.16 8,777.52 8,887.24 8,998.33 9,110.81 9,224.70 9,340.00 9,456.75 9,574.96 9,694.65 9,815.83 9,938.53 10,062.76 10,188.55 10,315.90 10,444.85 10,575.41 10,707.61 10,841.45 10,976.97 11,114.18 11,253.11 11,393.77

742,956.30 736,109.75 729,177.63 722,158.85 715,052.34 707,857.00 700,571.72 693,195.37 685,726.82 678,164.91 670,508.47 662,756.33 654,907.29 646,960.14 638,913.64 630,766.57 622,517.65 614,165.63 605,709.20 597,147.07 588,477.91 579,700.39 570,813.15 561,814.82 552,704.01 543,479.31 534,139.31 524,682.56 515,107.59 505,412.94 495,597.11 485,658.58 475,595.81 465,407.26 455,091.36 444,646.51 434,071.09 423,363.48 412,522.03 401,545.06 390,430.88 379,177.77 367,784.00

Housing & Consumer Loans

94 95 96 97 98 99 100 101 102 103 104 105 106 107 108 109 110 111 112 113 114 115 116 117 118 119 120

16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50 16,133.50

4,597.30 4,453.10 4,307.09 4,159.26 4,009.58 3,858.04 3,704.59 3,549.23 3,391.93 3,232.66 3,071.40 2,908.12 2,742.80 2,575.42 2,405.94 2,234.35 2,060.61 1,884.70 1,706.59 1,526.25 1,343.66 1,158.79 971.61 782.08 590.19 395.90 199.18

11,536.20 11,680.40 11,826.40 11,974.23 12,123.91 12,275.46 12,428.90 12,584.26 12,741.57 12,900.84 13,062.10 13,225.37 13,390.69 13,558.07 13,727.55 13,899.15 14,072.88 14,248.80 14,426.91 14,607.24 14,789.83 14,974.71 15,161.89 15,351.41 15,543.31 15,737.60 15,934.32

356,247.80 344,567.40 332,741.00 320,766.77 308,642.85 296,367.39 283,938.49 271,354.23 258,612.66 245,711.82 232,649.72 219,424.35 206,033.66 192,475.58 178,748.03 164,848.89 150,776.00 136,527.21 122,100.30 107,493.06 92,703.23 77,728.52 62,566.63 47,215.22 31,671.91 15,934.32 0.00

iii.

(http://tips.thinkrupee.com/articles/home-loan-approval--disbursement.php

In todays scenario where cost of everything essential for survival is witnessing a steep upward movement, dreaming of a home or property has also become a difficult task. You are well versed with the fact that buying a property or building a house is a matter of extensive research and managing finances add on to the challenge. However, one thing is certain that once you have decided that you need to have a place of your own there is no stopping as home loans have made it easier for everyone to accomplish their dream of buying a home. While you are busy trying to fetch location for your dream home, it is very important for you to have a crisp idea of the home loan process in India right from approval to disbursal. Following are steps that will take you through the entire process of home loan in India.

Housing & Consumer Loans

Home Loan Process in India - It goes without saying that prior to laying your hand on one particular bank or financial institution it is important for you to go through the rates and benefits of home loans that are being offered by almost all banks and financial institutions. Compare the rates and try to analyze the best being offered to you before you settle for your lender. Like any other loan, the process of home loan too begins with the application form. Filling and Filing of Application Form The very first thing you are supposed to do while looking for a home loan is that of filling and submitting the application form. You may witness a difference in the format of the application form from bank to bank but more than 80 percent information that they want you to share remains the same. The application form basically wants you to give away your professional and personal information, the details of the property (in case you have finalized it), the estimated cost and your assets and liability details. Documentation - Along with the application form you are also required to present a few documents. These documents are i. ii. iii. iv. v. vi. vii. viii. Identity proof Address proof Income proof Proof of educational qualifications Age proof Employment details Bank statements Details about the property in case you have finalized it before hand

Processing Fee While submitting the home loan application form you will also be charged with a processing fee that varies for different banks and financial institutions. However, processing fee usually ranges from 0.25 percent to 0.50 percent of the total loan amount. Negotiation on processing fee with the banks may end up in reduced or minimized rate of processing fee by the bank. This fee is charged by banks for providing you with services like maintenance of post dated cheques, sending of Income Tax certificates each year etc. Evaluation of Application and Personal Discussion Once your application is filed, the bank/institution analyzes your application and then meets up with you for a personal discussion. The evaluation process takes a time of maximum one day or two. It is advised that when you are called for a discussion you should carry all the originals of the documents that you have submitted as they may be called for verification. It is important for you to provide the bank with accurate information especially your financial details as banks sanction loans only when they are satisfied with your credentials. Investigations by Banks All banks validate the information provided by you by conducting checks on the residential or official address. The representatives of the banks will visit your residence or your place of work in order to verify your address and

Housing & Consumer Loans

employer credentials. Your telephone lines of work and home are also verified. Is advisable when the investigation or validation process begins try to be available at your home or your work place in order to provide with the details they are looking for. Sanction of Loan and Credit Appraisal If the bank gets convinced with your credentials and the validation process it gives you a green signal and sanctions the loan amount in your name. If not then your application for loan process gets rejected here. Your credit worthiness is calculated by bank on the basis of your income, age, employer or firm with whom you work or in case if you are self-employed then your nature of work, bank statements and CIBIL report and then plans out the maximum loan amount that they can offer you. You are then issued a sanction letter by the bank which may be a letter that does not have any terms or conditions or it may put forth certain terms and conditions that you ought to fulfill before your loan gets disbursed. Loan Offer Letter The loan offer letter that you will receive thereafter would comprise of the following i. ii. iii. iv. v. vi. Loan amount Tenure of the loan Rate of Interest Nature of rate of interest that is whether fixed or variable rate of interest linked to a reference rate. General and special (if any) terms and conditions of the loan. Mode of repayment

Once you agree to the above mentioned details you will sign in the acceptance copy that would be kept with the bank for their record. It is also advisable to negotiate with the bank on the rate of interest. With the fierce competition and race for meeting periodic targets, banks vie against each other and this may work in your favor. Property and Paper Work The legal side of the contract will now come to action. The property becomes the cynosure of banks eyes. Once you are through with the selection part of your property, banks ask for original documents of your property to be handed over to them. These documents for a part of banks custody and would serve as security for the bank till the time you repay your home loan. The property documents usually consist of the following No Objection Certificates (NOCs) from the legal owners such as cooperative housing societies, the lessor of the land in the case of leasehold land, statutory development authorities etc. The role of NOCs does not come into play where the property is situated on freehold land and the entire land is being transferred along with the structure. The title documents of your seller All the documents provided by you would undergo a scrutiny that would be conducted by the lawyer of the bank. This legal check is done in order to verify the authenticity and validity of the documents presented by you.

Housing & Consumer Loans

Validation and Valuation of Property - Banks visit the site of property before they give a go ahead to the loan you have applied for. An expert representing the bank goes out to the site of property to conduct validation and valuation checks. The process of verification of site is done in order to know the followingWhen the property is under construction i. ii. iii. iv. v. vi. Quality of construction Checks on layout of flats and the area of property to ensure that it is within permissions granted by the governing authority. In order to ensure that the stage of construction is the same as that mentioned in the payment notice given to you by the builder. To ensure that the work-in-progress is satisfactory. To evaluate the property in relation to other deals in the surrounding areas. To ensure that the builder has the requisite certificates to start construction at the site.

When the property is ready for sale or in case of resale i. ii. iii. iv. v. To calculate the age of the building. Checks on quality of construction. Development of the surrounding area. Check on the maintenance of building both internally and externally. To know whether the building will last the loan tenure. You loan eligibility depends on this by a great deal. The loan tenure will be restricted to the maximum age of the property as decided by the bank's engineer and your loan eligibility would bear its impact. To know if there is any existing lien or mortgage on the property. To ensure if the builder has received the requisite certificates for handing over possession of the flat. To evaluate the property in relation to other deals in the surrounding areas.

vi. vii. viii.

Thus, validation and valuation of property forms a vital part of checks and scrutinies that are made by banks as substantial amount is involved when it comes to home loan. There are banks who are willing to do the valuation and validation of property before the sanction is made as this would help you save a good deal of time in the event when loans get rejected due to flaws that are raised in this step. This would also help you save on the fees that you ought to pay to banks in order to obtain the sanction. Registration and Signing of Loan Agreement Once you are done with the above process and your property gets a nod from the bank, the registration, stamping and signing of the loan agreement is done. Here you would also be asked to pay post dated cheques and have to pay stamp duty which is applicable at some banks. Disbursement of Your Home Loan: Once the loan agreements have been executed, the disbursement of loan comes in to play. As the banks sanction only 85 percent to 90 percent of the cost of the house it is important for you to submit the documents revealing that you have given your part of contribution towards your home. When you

Housing & Consumer Loans

go in for a property that is ready for sale or resale then the loan is disbursed in full but when you opt for a property that is under construction part-disbursement of loan may be but then again this varies from bank to bank. (http://www.rbi.org.in/commonman/English/Scripts/FAQs.aspx?Id=701) 5. Reverse Mortgage Loan What is reverse mortgage loan? What is my eligibility and how I will get back the title deeds? The scheme of reverse mortgage has been introduced recently for the benefit of senior citizens owning a house but having inadequate income to meet their needs. Some important features of reverse mortgage are: i) A homeowner who is above 60 years of age is eligible for reverse mortgage loan. It allows him to turn the equity in his home into one lump sum or periodic payments mutually agreed by the borrower and the banker. ii) The property should be clear from encumbrances and should have clear title of the borrower. iii) NO REPAYMENT is required as long as the borrower lives, Borrower should pay all taxes relating to the house and maintain the property as his primary residence. iv) The amount of loan is based on several factors: borrowers age, value of the property, current interest rates and the specific plan chosen. Generally speaking, the higher the age, higher the value of the home, the more money is available. v) The valuation of the residential property is done at periodic intervals and it shall be clearly specified to the borrowers upfront. The banks shall have the option to revise the periodic / lump sum amount at such frequency or intervals based on revaluation of property. vi) Married couples will be eligible as joint borrowers for financial assistance. In such a case, the age criteria for the couple would be at the discretion of the lending institution, subject to at least one of them being above 60 years of age. vii) The loan shall become due and payable only when the last surviving borrower dies or would like to sell the home, or permanently moves out. viii) On death of the home owner, the legal heirs have the choice of keeping or selling the house. If they decide to sell the house, the proceeds of the sale would be used to repay the mortgage, with the remainder going to the heirs. ix) As per the scheme formulated by National Housing Bank (NHB), the maximum period of the loan period is 15 years. The residual life of the property should be at least 20 years. Where the borrower lives longer than 15 years, periodic payments will not be made by lender. However, the borrower can continue to occupy. x) From FY 2008-09, the lump sum amount or periodic payments received on reverse mortgage loan will not attract income tax or capital gains tax. xi) Note- Reverse mortgage is a fixed interest discounted product in reverse. It does not take into account the changes in interest rates as yet.

Housing & Consumer Loans

Projects:
1) Comparative study of housing loan process of private bank, public bank and co-operative bank

Presentations:
1) Structure of housing finance industry in India 2) Reverse mortgage loan