How banks process Home loan applications?

(The following article examines the documents required to the bank in respect of borrower’s profile and property to be purchased. It also provides the requirement of the bank with the list of  Property related documents for building /Construction of the individual house on an open plot or purchase of flat/constructed property and common requirement for sanction of built up and to be built up property for considering sanction of the housing loan.  It also illustrates the cases  where the banks do not entertain home loan applications)

All the commercial banks and housing finance companies in India sanction home loans (housing loan) to prospective buyers of house properties or construction of building for the residential purpose. The terms and conditions of home loan sanction from commercial banks and housing finance companies are similar. We will examine here how a bank considers sanction of housing loan.

How the loan amount is decided?

Banks generally lend a maximum of 80% of the cost of the house/flat excluding registration and documentation charges. The buyer of the house should bring at least 20% of the cost of the house as a margin. The consideration for sanction of the loan amount is subject to repayment capacity of the borrower and the repayment period of the loan which is depending on the age of the borrower and his/her take-home income. When  take-home salary of single borrower after EMI of the housing loan is less than 40% or 50% (as decided by the bank), the borrower can suggest one or more joint borrowers for the loan so that the income of the joint borrower/s is added to principal borrower’s income, for computation of taking home salary of the borrowers. However, the property to be purchased should be in the joint names of all the borrowers.

What will be the loan repayment period?

The repayment period of a loan depending on the age of the principal borrower. Normally, the maximum repayment period fixed by banks do not exceed 30 years. The repayment period is fixed upon the source of assured income which normally up to retirement age for salaried class and for others in any case before the borrower attaining 70 Years of age.

Though banks were earlier not evincing interest in lending to a person of above 55 years of age as a loan policy. But nowadays, many banks consider the loan application of older persons, provided their legal heirs join along with them as co-borrower/s.

Is any holiday period is considered for repayment of the loan?

Holiday period for repayment varies from case to case. Normally banks allow holiday period up to 18 months for construction of a building and 3 months for the built-up house or flat.

Interest rate and processing charges

Interest rate and processing charges vary from bank to bank which has to be verified by you before deciding from which bank or financial institution you would like to borrow.

Documents required in respect of borrower’s profile and property to be purchased:

A.Personal details of the borrower/s

1.  Proof of age
2. Proof of identity (Passport, PAN card, Voters card, etc.
3. Proof of permanent address.
4. In the case of an employed person, the loan will be considered only to confirmed employees. Proof of continuity in the job in case of the recent change in job (Copy of appointment letter for the present job, either with the appointment or relieving letters from the previous employer).
5. Salary certificates, IT returns for the previous 2-3 years or Form- 16 issued by the employer for the last 2-3 years.
6. Banks normally insist for Company (employer) profile for employees of private companies.
7.  In the case of a self-employed, profile of the applicant’s business on the letterhead of his company, Profit and Balance sheet for the last 2 or 3 years and IT return for past 2-3 years.
8. The copy of ‘ professional certificate’ in the case of the professionals, and the computation of income certified by Charted Accountant.
9. In case, the applicant is operating his/her account with other banks, SB passbook, and Current Account original statement will be verified.

B.Property related documents for Construction of an individual house on an open plot

1. Khata certificate
2.  Parent document and link documents of the title deed for 13 years.
3. The latest property tax paid receipt, EC for the last 13 years.
4. The building plan sanctioned by the appropriate authority.
5. It is a common practice that the financing bank would insist on the borrower to give an affidavit-cum-undertaking letter that he shall not violate the sanctioned plan. It is also obligatory on the part of the borrower to obtain completion certificate within 3 months of completion of construction failing which bank may recall the entire loan.
6. Valuations of the property or estimation for construction prepared by Bank’s panel architect/approved Engineer (valuer). Bank’s panel architect/approved Engineer will have to give the certificates stage by stage giving the details of construction completed as per sanctioned plan.
   viii. A legal opinion from Bank’s panel advocates on the title deeds of the property.

The expenses of the legal opinion from the bank’s panel advocate and valuation report charges of panel’s valuer will be charged to the borrowers.

C.Documents required for purchase of flat/constructed property

The loan applicant has to produce the following documents/records to the Bank.

1. The loan applicant has to give a declaration that the built-up property is as per sanctioned plan and/or building bye-laws, and/or the bank may even ask for building completion certificate.
2. The Legal opinion from Bank’s panel advocates on the title deeds of the property to be purchased.
3. The bank calls for its panel Engineer/Architect’s certificate before releasing loan that the built-up property is strict as per sanctioned plan and/or building bye-laws.
4. Valuation of the property by the panel valuer of the bank.
5. Sale agreement or construction agreement entered with the builder (in the case of an under-construction building) with total construction break up detail issued by the builder in his letterhead.
6. A copy of the Intimation Of Disapproval (IOD) and building completion certificate issued by an appropriate authority. For a construction project, if the builder and developers want to legally construct a building he needs IOD issued by the Municipal Corporation which contains the set of instructions that a developer needs to comply.

D.The cases where the banks do not entertain home loan applications:

Banks do not entertain loan application for properties which fall into the category of unauthorized colonies. However, the loan may be considered by the banks if the property is regularized by the appropriate authority and development and other charges paid by the owner of the property. Home Loan will not be sanctioned if the applicant intended to use the property for commercial purposes and declares so while applying for loans.

E.The necessity of Original titles to the property :

The flat/ house property purchased/constructed under bank loan should be mortgaged to the bank as security for which original title deeds of the property is required to be deposited at the bank.

Related article: How to examine title deeds of house property?

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