Housing finance

It refers to finance provided to individuals or groups of individuals including co-operative societies for purchase or build house or houses. The purpose of a housing finance is to provide the funds which home buyers need to purchase their homes. The objective is simple and the number of ways in which it can be achieved is limited.

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Housing finance is what allows for the production and consumption of housing. It refers to the money we use to build and maintain the nations housing stock. It also refers to the money we need to pay for it, in the form of rents, mortgage loans and repayments.

RBI has stated that banks are free to decide the guidelines on accepting such as age of dwelling units, repayment schedules, margin and security with the approval from the board. The purpose of a housing finance system is to provide the funds which home buyers need to purchase their homes.

Types of housing finance

Direct finance Supplementary finance Indirect finance

Housing finance types

Home purchase loans
The basic home loan you can opt for purchasing new home. This type of home loan is offered by all kinds of banks and Housing Finance corporations.

Home construction loans

Especially meant for the construction of a new home. The plot on which the construction is being erected is purchased within a period of one year, the cost of the plot is then included as the component for the valuation of total cost of the property.

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Home extension loans
Home extension loans are offered for meeting the operating cost of alteration to an existing building. Extension here means addition of an extra room etc.

Home conversion loans

Are offered to those who want finance for the purchase of another home by converting the already existing home and on which loan is already sanctioned . There is no need for prepayment of the previous loan.

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Land purchase loans
This kind of loan can be availed for purchasing land for both home construction as well as investment purposes.

Stamp duty loans

It is offered for the payment of stamp duty in the transaction of the property.

NRI Home Loans

Are meant for NRIs who wish to build or buy a home or expand the home in India.

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Bridge loans Are offered for selling the existing home and purchasing of another. The bridge loan assists in the finance of new home, until a buyer is found for the old home. Refinance loans Loans are availed when a loan from an organization at a particular ROI is dropping leading to a loss.

Institutions offering housing finance

Housing Urban Development Corporation (HUDCO) which was financing only the government housing, has entered into the launch of its HUDCO Niwas Scheme. The projects are in Delhi and most of them are already occupied and its helping in contributing to the developments happening in housing finance.

Examples of institutions
Bank Of Baroda Housing Finance

The bank helps by lending the loans to

purchase of new/old dwelling unit

Construction of plot/land
Repaying a loan already borrowed

Repayment period up to 30 years.

Interest rate is 10.25% wef 09/02/13

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Can Fin Homes Ltd. Biggest Bank sponsored HFC since 1987 Interest rate 10.95% Quantum of loan 75% to 85% Interest up to 30 lakhs 10.95% 30- 75 lakhs- 11.20% Above 75 lakhs -11.50% Rural Housing Scheme 9.95%

Dewan Housing Finance Ltd.

The tenure of the home loan ranges from 1 to 20 years. DHLF offers one of the most competitive rates in the market. The interest rate applicable is based on the DHLFs retail prime lending rate which fluctuates from time to time based on the money market conditions.

Housing Slump
Real estate market crumbles as economy slows. Keith Bradsher , Neha Thirani Bagri, Sept.11 2013 , New York Times NEWS service. Publicly traded real estate investment groups in India are heavily in debt, so they struggle to make interest payments and are not in a position to bankroll further projects.

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The second reason for the said above is the loss is more serious with the developers holding growing inventories of unsold apartments, shops and offices without offering price discounts. One longstanding complaint about business practices in India is that the countrys banks lend heavily to a wealthy elite who often put very little of their own money into deals.

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Housing finance has played a small role in the Indian Banking system , so Indian banks are less vulnerable to real estate downturns than banks in the western countries.

Factors influencing housing finance

Income Age Qualification Work experience No. of dependents Spouse s income Stability of income and employment Assets and liabilities

Tax implications on home loan

Tax deduction benefits on loan repayments on more than one property Tax implication on pre EMI Tax benefits are available from the financial year in which the construction is completed. Tax benefit for home loan processing fee is available under sec 2 (28A)

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Home loans are cheapest loans available in the market. Tax rebate on interest repayment of home loan up to 1,50,000 / Tax rebate on repayment of principal up to 1,00,000/- under sec 80C. A maximum of 1 lakh /year of principal repayment can be availed as deduction from salary under this section.

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Deduction under Sec 24(b) of the IT act - A minimum of 1.5 lakh per year of interest repayment can be availed as deduction from salary.