In pursuance of National Housing Policy of Central Government, Reserve Bank of India has been facilitating the flow of credit to housing sector. Since housing has emerged as one of the sectors attracting a large quantum of bank finance, the current focus of RBI’s regulation is to ensure orderly growth of housing loan portfolios of banks. Banks with their vast branch network throughout the length and breadth of the country occupy a very strategic position in the financial system and were required to play an important role in providing credit to the housing sector in consonance with the National Housing Policy.
Eligibility Criteria: The following are the eligible categories to avail housing loans under Direct Housing Finance:
- Bank finance extended to a person who already owns a house in town/village where he resides, for buying/constructing a second house in the same or other town/village for the purpose of self occupation.
- Bank finance extended for purchase of a house by a borrower who proposes to let it out on rental basis on account of his posting outside the headquarters or because he has been provided accommodation by his employer.
- Bank finance extended to a person who proposes to buy an old house where he is presently residing as a tenant.
- Bank finance granted only for purchase of a plot, provided a declaration is obtained from the borrower that he intends to construct a house on the said plot, with the help of bank finance or otherwise, within such period as may be laid down by the banks themselves.
- Banks may consider requests for additional finance within the overall ceiling for carrying out alterations/additions/repairs to the house/flat already financed by them.
- In the case of individuals who might have raised funds for construction/acquisition of accommodation from other sources and need supplementary finance, banks may extend such finance after obtaining paripassu or second mortgage charge over the property mortgaged in favour of other lenders and/or against such other security, as they may deem appropriate.
Age Criteria – The age of the borrower should be between 21 to 65 years at the time sanction of the loan.
Assessment of Loan – The quantum of loan will be arrived based on the gross & net income of the borrower and other factors like spouse income, assets, liabilities, stability of income etc. Further, the loan amount also depends on the tenure of the loan and interest rate of the loan as these variables determine outflow which in turn depends on disposal income of the borrower/spouse.
Loan To Value (LTV) Ratio – In order to prevent excessive leveraging, the LTV ratio in respect of housing loans should not exceed 80 per cent. However, for small value housing loans i.e. housing loans up to Rs.25 lakh (which get categorized as priority sector advances), the LTV ratio should not exceed 90 per cent. In order to ensure proper LTV, banks should not include charges such as stamp duty, registration/document charges in the cost of the asset.
Interest Rate – It is the discretion of the banks to levy their own interest rates.
Gestation Period – Normally, the gestation period allowed is 12 to 18 months. However, it can be extended maximum period of 30 months from the date of first disbursement.
Repayment – The maximum period allowed for repayment of home loan is 30 years or up to the age of 75 years of the borrower whichever is earlier.
Equated Monthly Installment – Normally, banks fix EMI which covers Principal as well as Interest. Some banks offer Floating and Fixed Interest Rates and it is up to the borrower to choose. Under Floating Interest, the interest rate is subject to changes from time to time by the Bank with reference to Bench Mark rate (Base Rate) where as Fixed Interest Rate is a rate which continues to be the same during the entire tenor of the loan. Banks are also offering flexible repayment options viz., Step-up and Step-down, depending on the future cash flows of the borrower. Under Step-up option, the lower EMI in the initial years and EMI increases as years roll by. It is convenient for borrowers who are in the beginning of their careers. In case of Step-down option, EMI is high initially and decreases in the subsequent years, which is useful who are close to their retirement.
- In cases where the applicant owns a plot/land and approaches the banks/Fis for a credit facility to construct a house, a copy of the sanctioned plan by competent authority in the name of a person applying for such credit facility must be obtained by the Banks/Fis before sanctioning the home loan.
- An affidavit-cum-undertaking must be obtained from the person applying for such credit facility that he shall not violate the sanctioned plan, construction shall be strictly as per the sanctioned plan and it shall be the sole responsibility of the executants to obtain completion certificate within 3 months of completion of construction, failing which the bank shall have the power and the authority to recall the entire loan with interest, costs and other usual bank charges.
- An Architect appointed by the bank must also certify at various stages of construction of building that the construction of the building is strictly as per sanctioned plan and shall also certify at a particular point of time that the completion certificate of the building issued by the competent authority has been obtained.
- In cases where the applicant approaches the bank/Fis for a credit facility to purchase the built up house/flat, it should be mandatory for him to declare by way of an affidavit-cum-undertaking that the built up property has been constructed as per the sanctioned plan and/or building bye-laws and as far as possible has a completion certificate also.
- An Architect appointed by the bank must also certify before disbursement of the loan that the built up property is strictly as per sanctioned plan and/or building byelaws.
- No loan should be given in respect of those properties which fall in the category of unauthorized colonies unless and until they have been regularized and development and other charges paid.
- No loan should also be given in respect of properties meant for residential use but which the applicant intends to use for commercial purposes and declares so while applying for loan.