The SBI Home Finance (SBIHF) provides housing finance to individuals, corporate bodies and promoters and developers. The main features of these schemes can be classified as following:
Housing loan Schemes for Individuals: SBIHF sanctions loans to individuals for construction of houses, purchase of houses / flats and repairs, renovation, addition alteration extension etc. The loans are sanction for a period ranging from 5 to 20 years, up to Rs. 10 lakhs based on the repayment capacity of borrower.
Schemes for promoters and developers: The purpose of housing loans given to this category of borrowers is an additional source of finance to supplement their own resources, for construction of residential housing projects. Maximum limit of loan amount is 50% of the project cost or balance required for completion of the project. Repayment is normally done in three years in suitable installments, based on the cash flow of the project.
Schemes for Corporate: The SBIHF has designed three alternative schemes for lending to corporate bodies: (a) for construction / purchase of staff quarters for their own employees, (b) for on-lending to their employees in accordance with their own housing schemes and (c) loans to their employees nominated by them. The upper limit in all the three schemes is Rs. 5 lakh for each individual dwelling.
HDFC SCHEME FOR INDIVIDUALS:
The HDFC advances housing loans to individuals for (a) buying or constructing houses, (b) extension or improvement of existing houses, (c) acquiring a self-contained flat in an existing or proposed cooperative society/ apartment owners association and (d) independent bungalow / row house. Loan can be availed of up to a maximum of 85% of the cost of the property including the cost of land. The maximum loan to an individual can be Rs. 25 Lakh. Although the equated monthly installment of repayment is over 15 years period, the repayment does not ordinarily extend beyond the age of retirement or 65 years of age of the borrower, whichever is earlier.
GLOSSARY – HOUSING LOAN
Acceptance Letter: The letter that a borrower eagerly waits to fill up. Once the loan is issued by the way of sanction letter, the applicant communicates his willingness to accept the loan by way of an acceptance letter. He has to send this within a time frame of 1-3 months from the date of the sanction letter.
Advance EMI: Pay back time! Number of equated installments in the form of post dated cheques, paid out in advance at the time of disbursement of loan. Administrative Fee: Unavoidable pay out by which bank/HFC can make money of you. A one time fee; generally non-refundable; payable before the loan is disbursed. Rates may vary from 1-2% of the loan amount.
Close Relatives: As per the section 6 of the company act, a close relative is one who is acceptable as a guarantor is any of the following: Father, Mother (including step mother), son (including step son), son’s wife, daughter (including step daughter), son’s son, son’s son’s wife, son’s daughter, son’s daughter’s husband, daughter’s husband, daughter’s son, daughter’s son’s wife, daughter’s daughter, daughter’s daughter’s husband, brother (including step brother), brother’s wife, sister (including step sister), wife/husband and sister’s husband. However they should comply with the age and other norms of the company to be considered as guarantors.
Commitment Fee: Much like other commitments, which if one screws up one gets the short end of the straw? It is an interest, which is charged if you do not draw the sanctioned loan amount within a period of 6-7 months. The interest rate is usually about 1-2%.
Credit Appraisal: The IMPORTANT PEOPLE! Every Housing Finance Company (HFC) has its own panel of credit appraisal officers who process applications. They take into account various factors like income of the applicants, number of dependents, monthly expenditure, repayment capacity, employment history, number of years service left over and other factors, which affect the credit rating of the borrower. Proof of income will also be verified for the purpose of approval of loan. The time taken for receipt of such information is crucial since it affects the length of time required for a loan approval.
Documentation: Documentation is the papers to be signed in connection with the loan at the HFC,i.e.the loan papers.
Down Payment: Wonder why it’s called down payment when it has to be paid up-front? Housing Finance companies normally give loans up to 80 -85% of the value of the property. The balance would have to be paid by the buyer, as a payment before he draws on the loan amount.
Encumbrance: Document to ward of the nightmare of property litigation. It records details of transfer of ownership of a property in succession right to the current owner. It shows the date, the names of the parties involving the amount of consideration, the extent and schedule of the property. This certificate can be obtained from the sub registrars’ office for a payment of fee. This certificate is also useful in establishing the events as to how and when the present owner came into possession of the property.
Equated Monthly Installment (EMI): Loan repayments are usually in Equal Monthly Installments over the tenure of the loan. Some banks also offer a Variable Installment Scheme in the beginning of the loan period. This is beneficial for those individuals who are trying to maximise their tax breaks in the initial years and expect future tax breaks to fall
Interest Tax: Housing Finance companies have to pay a tax on the interest income they receive. One should check whether the interest rates quoted include interest tax or not. This tax is normally about 2% of the interest rates charged. Interest tax has been abolished from April,2000 .
License for Construction: This is basically permission to construct or an authorization in writing issued along with the loan application.
Margin Amount: Margin Amount is the difference between the total cost of the project and the loan amount sanctioned. This money has to be invested by the borrower prior to the release of the loan amount
Prepayment Charges: Most HFCs charge some fee for pre- payment of loan before the tenure is over. Your earning capacity normally increases with your age and a pre-payment fee can be a big cost. The fee is normally in the range of 1-2% of the pre-paid amount.