1.

INTRODUCTION

1.1 INTRODUCTION TO HOME LOANS:

Home is a dream of a person that shows the quantity of efforts, sacrifices
luxuries and above all gathering funds little by little to afford one’s dream.

Home is one of the things that everyone one wants to own. Home is a shelter
to
personwhere he rests and feel comfortable.Many banks providing home loans whether c
ommercial banks or financial institutions to the people who want to have a home. Many
banks are providing home loans at cheapest rate to attract consumers towards them .The
more customer friendly attitude of these banks, currently offer to consumers cheapest
loan over homes. In view of acute housing shortage in the country, and keeping in mind
the social – economic role of commercial banks in the present times, the RBI advised
banks to encourage the flow of credit for housing finance. The interest rates of home
loans are expected to go down even further according to analysts who foresee a cut down
in the rates by the RBI in the wake of the decision taken by US Federal Reserve to cut its
rates by a significant margin. There are number of companies offer cheap home loans at a
low interest rate. You can avail loan against existing house for
renovation or expansion etc. There are manynationalized banks that offer finance for affo
rdable housing. India Housing has puttogether a comprehensive data to provide you with
the cheapest Home Loans available in the market. We have listed all the important
housing finance institutes and some of the top home finance banks providing
lowest interest rates. In the last few years, housing loan scenario in India has changed
drastically. It has taken a front seat and people are looking forward to owning
their own houses. It is no more a dream that required lifetime saving and a difficult
decision to make. Today the new home purchase is much easily available and is much
cheaper than what was available earlier. Banks are now everywhere and the schemes are
implemented even in villages and smaller towns. The housing loans are popular there too.
1.2 SELECTION OF THE PROJECT:-

Housing finance industry is one of the grooming industry in Indian economy. As we

know this industry is adding a lot in the GDP of the country. This project will help me to
gain knowledge regarding housing loan, and making consumer well acquainted about the
affairs regarding taking over of loans and fluctuating rate of interest. This project will
definitely help me to know about the present scenario of housing loan in our country.

It is very interesting to work on this project because while doing this project I can see
that now everyone can easily make their dream home. Countries economy is growing and
per capita income is also increasing . Now people’s standard of living has increased as
compare to past .Housing is one of the necessary need for the people. Housing loan
which is now being provided by many financial Institution and nationalized banks, has
uplift the demand of housing in our country. Therefore increasing demand of housing has
created an anxiety in me to work on this project.
1.3 PROBLEM ENVIRONMENT:-

In present context banks have their own home loan rate. It is well established by R.B.I
but get varied from bank to bank, slightly in decimals. previously, housing schemes were
running high & high due to lowering interest rates which brought an adverse effect on the
mentality of would be buyers .As not going so far, rate were so low that it injected high
profile eagerness got collapsed due to increase rate. Apart from the problem posed by
interest rate, some other problems are also there which effect the home loans procedure.

The problems are as follows:

 Man should be capable of repayment & so he should earning more than 10,000 as
per to pay the EMI.
 Character that is socio economic background of the person should be checked out
and this is being done by internal credit officer that whether he is an alcoholic or
chain smoker if so money is returned back get questionable.
 Person should not be having bad credits.

Above problems posed to be simple when kept individually & when aggregated cultivate
the problem for both customer & the banks/corporation.
1.4 THE PROBLEMS BEING FACED:-

One of the most important reasons for the real estate boom in the country was the
lowering of interest rate on home loan in 2003. The easy availability of funds at low
interest rates brought a house within the reach of the middle class. The average of home
buyers around 40 arrears in 2000- come down below 30, and the demand for residential
units went up manifold. So will the recent upward revision affect the market? To some
extent it will.

From February 1, housing finance company HDFC increased its home loan rate by half a
percentage point to 8.25%. other banks and institutions are to follow suit soon. In fact,
this is the second time in six months that the bank has increased rates. Earlier, it had
increased the rate from2 7.25% to 7.75%. When interest rate increases by 1% point , the
EMI per Rs 1 lakh loan for 20 years goes up by Rs 65. That means the EMI on a Rs 20
lakh loan will rise Rs 1300.CB RICHARD ELLIS CEO Anshuman magazine believes a
0.5 to one percentage point increase in interest rate would not effect the market as buyers
can absorb the cost. “ But if the rates rise further, it would have an adverse effect on
demand,” he adds. DLF universal vice chairman Rajiv Singh believes “The rise interest
rates would effect sentiments”. Cushman and Wakefield points out that it would effect
investors returns from real estate. But will that stop would be buyer eager to acquire their
own house? That’s something only they themselves know for sure.HDFC will offer women
borrowers home loans at 8.65% and others at 8.70% for loans up to Rs 75 lakh. The mortgage lender’s
rates are now competitive with those of large lenders such as State Bank of India and ICICI Bank, which
have set their home loan rates at 8.65% and 8.7%, respectively. BoB now offers the lowest home loan
rate of 8.35% to CIBIL score holders of 760 and above.
3.1 HOME LOAN PROCEDURE IN INDIA:

 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 r e l e v a n t d o c u m e n t s a s r e q u i r e d b y t h e H F C . T h e y c o m p r i s e d o c
u m e n t s t o e s t a b l i s h income, age, residence, employment, investments, etc. The
customer also needs to handover a cheque for payment of an up front (non -
refundable) processing fee of about 0.5-1% of the loan amount to the HFC.
 Validation of the Information: -
I n t h e n e x t s t a g e , H F C s v a l i d a t e t h e i n f o r m a t i o n provided by the
customer on the application form. They usually conduct checks on the
residential address
o f t h e c u s t o m e r , t h e p l a c e o f e m p l o ym e n t o f t h e c u s t o m e r , a n d creden
tials 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 t h e
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 HFI 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.
3.2 COMPETITIVE SITUATION

Home loans this sector is one of the booming sector, playing a vital role in the economic
growth of the country. Many big corporations, nationalized banks and private banks has
entered in this field. Some of the big competitors are:

 ICICI BANK HOME LOAN

 HDFC LTD HOME LOAN

 LIC HFL HOME LOAN

 STANDARD CHARTERED

 SBI HOME LOAN

 ORIENTAL BANK OF COMMERCE

 PUNJAB NATIONAL BANK

 ALLAHABAD BANK

 AXIS BANK HOME LOAN

 ANDHRA BANK HOME LOAN

 INDIABULLS HOME LOAN

 BANK OF BARODA HOME LOAN

3.3 ADVANTAGES OF HOME LOANS:-
The various benefits of home loans arising to the customers are:-

 Attractive interest rates:- The various banks offer attractive interest rates to
boost and help their customers. Many banks provide loans on fixed or floating
rates to facilitate consumers as per their needs.

 Help in owning a home:- The home availed by a person with the help of banks,
because they provide technical and financial assistance to customers for owning
their dream home.

 No requirement of guarantor:- The commercial banks now a day, liberalize

their laws regarding home loans. Some of banks don’t even require the guarantor
to grant loan to their consumers. They also make consumers free by reliving him
to find a guarantor to complete the proceedings of availing loan.

 Door-Step Services:- These door to step services are provided from enquiry stage
to the final disbursement takes place such services are beneficial for customers in
present busy life. Banks like ICICI bank and standard chartered bank provide
door to step services to customers to borrow loan.

 Loan period:- There are many banks which provide maximum loan tenures upto
15-20 years based on the loan amount and the credibility of customers. This
relieves the customers to repay loan amount till a long period.

 For accidental death insurance :-Some banks provide free accidental death
insurance with housing loan which is also beneficial for the customers.
These benefits or advantages of home loans are responsible for making than so popular
among customer that a person who don’t have their home and want to buy, they do it with
home loan. Home loans help such persons in making their dream home.
3.4 DISADVANTAGES OF HOME LOANS:-
The main disadvantages of home loans are high lightened as below:

 Delays in processing :- Many times, there are huge delays in processing of

providing home loans because various formulations to be fulfilled in this process.
Due to these delays customers feel mentally as well as financially weak.

 Fluctuating interest rates :- Some banks give home loans at floating rates,
which fluctuate at Different intervals due to some reasons. These changes
sometimes, may lead to increase in interest rate which will increase the cost of
home loans to the customers

 High Cost:- The public sector banks charge high processing cost for home loan’s
sanctioning. They are forced to pay serious charges at various stages to fulfill the
requirements. Some consumers are not able to pay such charges so such people
could not avail the benefits of home loan schemes.

 Problems in disbursement:- There are many problems in disbursement of home

loan amount. There are some delay in disbursement of loan amount to the
customers due to legal formalities. This causes problems to the customers.

These are limitations or disadvantages of home loans. But sometimes some banks
charges high installments to repay loan amount. Such also causes problem to customers.
These limitations can be removed by providing good and promote services to the
customers.
3.5 COMPARISON OF INTEREST RATES AMONG LEADING
BANKS IN INDIA

SR. BANK INTEREST PROCESSING

NO RATES FEE
1 SBI home loan 0.50%
8.65% Min Rs. 0 - Max Rs. 10,000

2 HDFC Home loan 8.75% 0.50%

Min Rs. 3,000 - Max Rs. 10,000

3 ICICI Bank Home 9.10% 0.50%

Loan Min Rs. 5,000 - Max Rs. 5,000

4 Axis Bank 8.85% 0.50%

Min Rs. 1,000 - Max Rs. 25,000

5 PNB Housing 9.10% 1.00%

Finance Min Rs. 10,000 - Max Rs. 10,000

6 Bank of Baroda 8.65% 0.50%

Min Rs. 7,500 - Max Rs. 20,000

7 LIC Housing 8.70% 0.50%

Finance
1.10 Loans For Housing

Realising the necessity to provide houses and improve housing facilities in the
country, the nationalised banks have been asked to provide funds for housing since 1979.
Initially, they were expected to lend Rs. 150 crores annually, but the target was raised to
Rs. 300 crores for the year 1989-90. For the year 1990-91, individual nationalised banks
housing finance allocation was required to be computed at 1.5% of the incremental
deposits on March 1990, over the corresponding figure of March 1989.

According to the guidelines issued by the Reserve Bank, a bank’s assistance to the
housing sector (including rural areas) may be as follows:

a) 30% of the total housing finance allocation by way of direct assistance to

individuals or a group of borrowers etc., out of which at least half should be given
as direct housing loans in rural and semi-urban areas.
b) 30%of the allocation for landing to HUDCO, Housing Development Boards,
HDFC and other housing agencies for construction of house.
c) The remaining 40% of the assistance may be by way of subscription to the
guaranteed bonds/ debentures of HUDCO, and National Housing Bank.

The terms and conditions etc., for housing finance have been liberalized to encourage the
flow of credit for housing as follows:

a. The loan can be used for purchase of a house or flat, construction of a house or
tenement or for additions or extensions to an existing structure.
b. The loan will be secured by mortgage of the property. Banks also accept security
of adequate value in the form of life insurance policies. Government promissory
notes, shares and debentures or gold ornaments.
c. Terms loans from banks to housing finance companies(other than HUDCO,HDFC
and companies promoted by commercial banks) has been raised to three times
there net own funds in January,1990.
d. The repayment period will be spread over fifteen years.
e. The maximum amount of loan was earlier fixed at Rs 3 Lacks per individuals. But
this ceiling was withdrawn, effective 11th October, 1989
1.11 Types of home loans: -

Housing loans offered by banks are of different types:-

 Home Purchase Loans

 Home Construction Loans
 Home Improvement Loans
 Home Extension Loans
 Home Conversion Loans
 Land Purchase Loans
 Stamp Duty Loans
 Bridge Loans
 Balance Transfer Loans
 Refinance Loans
 Loans to NRIs

Home purchase loans:-

This is the basic home loan for the purchase of a new home. If you want to buy a flat in
some society or some already built house, banks and HFCs sanction you home purchase loans for
this process.

Home construction loans:-

This loan is available for the construction of a new home on a said property. The
documents that are required in such a case are slightly different from the ones you submit for a
normal Housing Loan. If you have purchased this plot within a period of one year before you
started construction of your house, most HFCs will include the land cost as a component, to
value the total cost of the property. In cases where the period from the date of purchase of land to
the date of application has exceeded a year, the land cost will not be included in the total cost of
property while calculating eligibility.
Home improvement loans:-

These loans are given for implementing repair works and renovations in a home that has
already been purchased, for external works like structural repairs, waterproofing or internal work
like tiling and flooring, plumbing, electrical work, painting, etc. One can avail of such a loan
facility of a home improvement loan, after obtaining the requisite approvals from the relevant
building authority. the following are coming under the home improvement loans:

 External repairs
 Tiling and flooring
 Internal and external painting
 Plumbing and electrical work
 Waterproofing and roofing
 Grills and aluminum windows
 Waterproofing on terrace
 Construction of underground/overhead water tank
 Paving of compound wall (with stone/tile/etc.)
 Bore well.

Home extension loans:-

An extension loan is one which helps you to meet the expenses of any alteration to the
existing building like extension/ modification of an existing home; for example addition of an
extra room etc. One can avail of such a loan facility of a home extension loan, after obtaining the
requisite approvals from the relevant municipal corporation.
Home conversion loans:-

This is available for those who have financed the present home with a home loan and
wish to purchase and move to another home for which some extra funds are required. Through a

home conversion loan, the existing loan is transferred to the new home including the
extra amount required, eliminating the need for pre-payment of the previous loan.

Land purchase loans:-

This loan is available for purchase of land for both home construction or investment
purposes.

Stamp duty loans:-

This loan is sanctioned to pay the stamp duty amount that needs to be paid on the
purchase of property.

Bridge loans:-

Bridge Loans are designed for people who wish to sell the existing home and purchase
another. The bridge loan helps finance the new home, until a buyer is found for the old home.
Balance- transfer loans:-

Balance Transfer is the transfer of the balance of an existing home loan that you availed
at a higher rate of interest (ROI) to either the same HFC or another HFC at the current ROI a
lower rate of interest.

Refinance loans:-

Refinance loans are taken in case when a loan for your house from a HFI at a particular
ROI you have taken drops over the years and you stand to lose. In such cases you may opt to
swap your loan. This could be done from either the same HFI or another HFI at the current rates
of interest, which is lower.

NRI home loans:-

This is tailored for the requirements of Non-Resident Indians who wish to build or buy a
home or property in India. The HFCs offer attractive housing finance plans for NRI investors
with suitable repayment options.

On would be entitled for home loans in the range of Rs 5 lakh to a maximum of Rs 1 crore, based
on the repayment capacity, previous credit history and the cost of the property. The bank may
provide a maximum of 85% of the cost of the property or the cost of construction as applicable
and 75% of the cost of land in case of purchase of land. The repayment capacity is calculated
taking into account factors such as:

 Age
 Income/Salary
 Qualifications
 Dependant/(s)
  Assets/Liabilities
 Credit History
 Stability / continuity of your employment/business
 Income of co-applicant/(s)

Taking home loans these days has become simpler. With the RBI regularly bring down interest
rates; taking home loans have become extremely easy. Housing loans which were 16.5% to 18%
a few years ago fell by 8.5% & more. With interest rates going down, people increasingly
number apply to take these loans. Some of the leading banks offering home loans in India,
including ICICI Bank, IDBI Bank, HDFC Bank State Bank, Bank of Baroda, Kotak Bank, SBI,
Standard Chartered Bank and Axis Bank
1.12 DISBURSEMENT OF HOME LOANS :-

The every bank has its own procedure to disburse the loan amount among customers.
After choosing your right home, the next step is disbursement of home loans. The loan amount is
disbursed after identifying and selecting the property or home that are purchased and submit the
requisite legal documents. In the disbursement of home loans a clear title and full verification to
ensure that a person has full rights on his house. The 230A clearance of seller and /or 371
clearances from the appropriate authority of income tax is also needed.

1. Eligibility criteria:-

However, if one is a resident or non-resident individual who is planning to buy a house in

India, one can apply for a home loan. If a person has decided to buy a property in the near future,
he/she can apply for a loan before even selecting the property. Once the maximum amount to put
into the property has been decided, the Housing Finance Institutions or Banks will let the
customer know that how much he/she is eligible for and this helps to plan out the budget.

2. Conditions regarding co-applicants: -

All Housing Finance Institutions lay down conditions on who can be co-applicants. all
co-owners to the property. need to be co-applicants to the loan necessarily. These institutions
do not permit minors to join in as either coowner or as co-applicants because a minor is not
eligible to enter into a contact as per law. They do not permit even friends or relatives who are
not blood relatives to take a property jointly.However, Income of co-applicants can be clubbed
together to get higher loan eligibility. Given below is a Table that throw light on acceptable
relationship of a co-applicant for clubbing of income.
Income Clubbing of Co-applicants:-

It is as follows:-

Combination Income Clubbing: -

 Husband-Wife: - Income of husband-wife can be clubbed.

 Parent - son: - It can be clubbed if only son is there but not if any male sibling exists.

 Brother-Brother: - If they are currently staying together and intend to stay together in the
new property, then only, their income-can be clubbed for above purposes.

 Brother-Sister: - No clubbing-is possible.

 Sister-Sister : - No clubbing is possible.

 Parent-Minor- Child: - No clubbing is possible in this case also.

(iii) General Terms and Conditions: - The following are the terms and conditions applicable to
the basic home loan product only. These are likely to change on the basis of the variations of the
home loan product. Typically, in general home loans, the following conditions are applicable :-

1) The loan to value ratio (LTV) cannot exceed a particular percentage. This differs from
product to product and from one Housing Finance Institutional Bank (HFI/B) to another. The
components of the value of the Property calculated here are covered under cost of property.

2) The maximum tenure of the bank is nominally fixed by HFI/Bs. However, HFls/Bs do
provide for different tenures with different terms and conditions.

3) The installment that one pay is normally restricted to about-50-per cent of the monthly-gross
income of the candidate.
4) The total monthly outflow towards all the loans that have been availed of, including the
current loan is normally restricted to 50% of the gross monthly income.

5) One will be eligible for a loan amount which is the lowest as per one's eligibility. This is
calculated as per the LTV norms, the HR, norms and the FOIR norms as mentioned above.

6) Most HFls/Bs consider the profile before they judge the repayment capacity. The judgement is
based on age, qualifications, number of dependents, employment details, employer credentials,
work experience, previous track record of repayment of any loans that have been availed of,
occupation, the industry to which the candidate's business relates to, if he/she is self-employed,
then the turnover in the last 3-4 years etc.

7) Some HFIs/Bs insists on guarantees from other individuals for the repayment of the loan. In
such cases, the customers has to arrange for the personal guarantee before the disbursement of
the loan takes place.

8) The property should be technically clear before the HFIs/Bs disburses the loans amount.
Most of institutions and banks have a teams of technical experts who visit the site to get a
technical report before the disbursement of loan. This is also beneficial to the customer as they
check for the technical quality and compliance with local laws.

9) The property should be legally clear before one can avail of a disbursement of the loan
amount. Housing-Finance Institutions /Banks (HFIs/Bs) take legal clearance from their lawyers
before the disbursement of amount. This proves to be beneficial to the customers as a legal
expert checks his/her documentation to ensure that he/she get a proper title to the property.

10) The disbursement of the loan is as per the progress of construction of the property unless it
is a ready property in which case the disbursement will be by one single cheque. PEMI or simple
interest on the loan amount disbursed to the customer in case of a part disbursement will be
payable by the customer on the disbursement.
11) The disbursement in most cases will be favoring the builder or the seller or the society or
the development authority as the case may be. The disbursement will come in the customer's
favour under special circumstances only.

12) The repayment of loan can be made either through deduction against salary, post-dated
cheques, standing instructions or Auto debit instructions to bank.

13) The principle is amortized either on annual reducing or monthly reducing basis as the case
may be.

The above terms and conditions are generally true for most Housing finance
Institutions/Banks with respect to the general Home Loans. However, the specific terms and
conditions vary with respect to special Housing Finance Institutions or Banks.

(iv) Charges applicable to home loans :-

The different kinds of charges applicable to home loans are discussed below:

a) Processing fees :-

First of all, comes the process fee. This is a charge that is levied by most HFls/Bs. This has
to be paid at the time of submission of the application form. It's normally charged as a
percentage of the loan amount sanctioned. Some HFls also charge a flat fee based on the loan
amount instead of a percentage. When a lower amount is sanctioned the excess fees paid at the
time of submission of the application is adjusted with the charges, which one make to the HFI/B
subsequently. Most HFls/Bs refund the processing fee if the loan application is rejected.
b) Administrative fees :-

This charge is again, normally, a percentage of the loan amount sanctioned. It is collected by the
HFI/B for the maintenance of customer's records, issuing interest certificates, legal charges, technical
charges, etc. though the tenure of the loan. It is payable by the customer when he/she accepts the offer
letter given by the HFI/B. This payment has to be made before the availment of the disbursement. The
mode of collection of these fees varies from one HFI/B to another.

c) Rate of interest :-

This is the rate of interest applicable on the loan amount through the tenure of the loan. It is
charged on the principal monthly reducing method. Most HFIs/Bs give an option to select either
a fixed rate of interest or a variable rate of interest.

d) Legal Charges:-

Some HFIs/Bs mainly Public Sector Banks levy legal charges that they incur on getting the
property documents vetted by their panel of lawyers.

e) Technical Charges:-

These charges are also levied by certain Housing Finance Institutions/Banks (HFIs/Bs) to
meet their expenses on the technical site visits to the customer's property. This ensures quality of
construction and construction within the norms as stipulated by the respective approval authority.
f) Stamp duty and registration charges:-

HFIs that go in for a registered mortgage pass these charges on to the customer. These are
rather heavy in certain states depending on the laws laid down by the state where one buy a
property.

g) Personal Guarantee from Charges :-

Since the personal guarantee provided by the customer need to be stamped, these charges are
also recovered from the customer. They are charged to him by HFIs who demand for Guarantees.

h) Cheque Bounce Charges :-

In case the cheques through which one make a payment to HFls get dishonored, some
minimum charges are levied by the HFI. The same are recovered from the customer.

(i) Delayed payment charges :-

HFls/Bs charge delayed payment charges from the customer if he/she delays the payment of
installments beyond the due date.
(j) Additional charges :-

These are levied as a percentage on the delayed payment charges by most HFls. They are
levied if one fail to pay the dues within the stipulated time after a delay has taken place.

(k) Incidental charge :-

This is payable in case the HFI/B sends a representative from their organization to collect their
outstanding dues. It is normally charged at a flat rate per visit. These charges are levied by most HFls/Bs.

l) Prepayment Charges :-

This is a penalty charged by HFls/Bs from when one makes either a part prepayment or a full
repayment of the loan. This charge is levied only on lump sum payments and not on the EMls that one
pays. This charge is levied on the amount prepaid by one and not on the entire outstanding principal.
These charges are gradually being discount. So, these are the charges levied by most Housing Finance
Institutions and Banks while granting home loan to the customers. Now, the decision on the repayment
capacity shall be talked about as follows.

(v) Judgement regarding repayment capacity on the basis of income :-

To understand how the income of a customer is considered to arrive at his repayment capacity, it is
first necessary to classify customers into salaried and self employed individuals.

a) The income of the salaried individual is considered in the following manner:-

Gross monthly income as it appears on the salary slip

Less:- Any non regular variable income appearing on the salary slip (including overtime, etc.)

Add : - 50 per cent of the average variable income of the last six months.

Add: - Any fixed cash/voucher payments for which proof can be submitted.

Add: - 50 per cent of the average variable cash/voucher payments with proof like traveling
reimbursement etc.

Add :- HRA receivable if not being received already in the salary slip.

The above income calculated for the calculation of eligibility using IIR and FOIR norms. For calculation of
FOIR, the installments of all the loans that one has availed of currently for which repayment is being
made is taken into account as well. The lower of the two eligibilities is considered as the maximum
repayment capacity.

b) To consider income of Self-employed individuals we further classify them into Professionals and non-
professionals .

 Professionals:- Comprising doctors, chartered accountants, lawyers, architects, etc. For

calculation of eligibility of professional's income is computed by most HFIs using the gross
professional receipts instead of the Net profit as in the case of self-employed non-professionals.

 Non-Professionals: - The income of non-professionals is normally calculated by HFIs in the

following manner: -

Average of the net profits of last 2 years as it appears in the profit and loss account (Returns need to be
filed for the same. They should be filed regularly before the due date is over).
Less: - Any income, which is unusual and non-recurring in nature like sale of some asset, etc which
affects profits substantially,

Add: - Any expense that is unusual and non-recurring in nature like repairs and maintenance that has
not been capitalized and effect profit adversely.

Add: - 50 per cent of the average depreciation of the last two years. The above income is calculated for
the calculation of eligibility using IIR and FOIR norms.

For calculation of FOIR the installments of all the loans that one has availed of currently for which
repayment is being made is taken into account and the eligibility is worked out. The lower of the two
eligibilities is considered as the

maximum repayment capacity.

(vi) Credit documentation:-

Given below is the exhaustive list of credit documents- that need to be submitted for a general
home loan product. The documents vary from one HFI/B to another based on one's employer,
qualifications experience etc. the general requirements are as follows: -

(a) Income Documents : -

For salaried slips for the last three months appointments letter-salary certificate-retainership
agreement, if appointed as a consultant-Form 16 issued by the employer in customer's name income
document for self employee - last three years profit and loss account statement duly attested by
Chartered Accountants. Last three years Balance Sheets duly attested by Chartered Accountant, last
three years Income Tax Returns with computation chart duly filed and certified by the Income Tax
authorities.

b) Proof of employment : -
 Identify card issued by the employer- Visiting card.

(c) Employer's details (In case of private limited companies) : -

Profile of employer on employers letterhead (to be signed by a senior person in the organization)
comprising

• Name of promoter/directors

• Background of promoters/directors

• Nature of business activity of your employer

• Number of employees

• List of branches/factories

• List of suppliers

• List of clients/customers

• Turnover of employer

• Annual reports of the employer for the last two to three years.

(d) Proof of age (Anyone of the following) : -

 Passport- Voter's ID card-PAN card-Ration card-Employer's identity card-School leaving certificate-
Birth certificate.

(e) Proof of residence (Anyone of the following) : -

Ration card-Passport- PAN card-Rent agreement, if the customer is staying currently on rent- Bank
Pass book-Allotment letter from the company if he/she is residing in company quarters.

(f) Proof of name change (If applicable) : -

A copy of the official gazette –A copy of a newspaper advertisement publicizing the name
change-Marriage certificates.

(g) Proof if investment (If required) :-

Bank statement for the last six months of all operating and salary accounts - Bank statements
for the last six months of all current accounts, if self-employed-any other photocopies of investments
held, if required by the HFC.

(vii) Legal documentation :-

Legal Documentation the typical legal documents that need to be submitted to the HFC
arc discussed here. Given below is a list of legal property documents that need to be submitted to
the HFC for mortgage of the property. The name and the list of documents vary from state to
state and also depend on the type of property being financed. A broad outline of the documents
required is given below.
a) Acceptance copy of the offer letter issued by the HFC/B.

b) Title documents of the property that include -sale agreement duly

Registered-Own contribution receipts - Allotment letter-Registration receipt-Land documents indicating

ownership, if applicable- Possession letter-Lease agreement, if applicable (Property bought from a
development authority) - Mortgage deed if the HFC opts for a registered mortgage.

c) No Objection Certificate from the developer, society or development authority as applicable.

d) Personal Guarantees, if applicable.

e) In case of alternator additional security, documents for the same depending upon the security
details.

f) Post dated cheques for the EMls.

The above documents are only indicative in nature and do not cover the entire list. It may, also be noted
that in a resale case, the previous chain of agreement also need to be taken.

(viii) The tax benefits that are applicable to housing loans for individuals :-
Currently Tax Benefits to individuals are available only for the Home Loans and Home Extension Loans
products. The benefits available are covered under these sections.

Property Insurance :-

Is it compulsory to insure the property? some HFls insist on a mortgage redemption life insurance
policy. In this case the customer gets a benefit of an interest rate reduction. Though the HFI may not
insist, it is better to go in for property insurance to safeguard the asset against any sort of damage or
loss. The customer can select the tenure for the property insurance. The insurance premium is changed
up front. Most insurance companies provide for huge discounts on the rate of premium for larger
tenures. The premium charged currently is seventy-seven for every lakh of property for a year. So a
customer has to fulfill various conditions to be eligible for availing home loan from a Housing Finance
Institution/Bank After fulfilling these conditions, a customer can avail loan at low interest rate i.e. fixed
rate floating rate. A decision on whether one should go in for a fixed-rate loan or a floating-rate loan
now is a function of two factors i.e. One's perception of where interest rates in the economy are headed
and one' capacity to ride the interest rate changes. A floating-rate loan let one take advantage of further
falls in interest rates but one stand to loose if interest rate, rise again. However this decision is based on
the perception of the consumer.