When can I make an application?
You can make an application at any time after you have decided to acquire/construct a property, even if the property has not been selected or the construction has not commenced.
How do I make an application?
One needs to submit the application form along with the necessary documents. On receipt of your application, the housing finance company will review it, ask questions wherever necessary and convey its decision to you.
What is the maximum I can borrow?
The maximum amount that one can borrow is a function of many factors, which include the purpose of the loan, whether for purchase of property, or improvement or purchase of land for development.
In addition, ones residential status whether resident in India or non-resident will also have a bearing on the maximum quantum of loan that one can borrow.
Typically, if one is a Resident Indian, then he can borrow upto 85% of the cost of the property, including cost of land, subject to a maximum of Rs 5,000,000.
How is my loan eligibility determined?
Your repayment capacity is determined by taking into consideration factors such as income, age, qualifications, number of dependants, spouse�s income, assets, liabilities, stability and continuity of occupation and savings history.
The primary concern of housing finance companies in determining the loan eligibility is that you are comfortably able to repay the amount you borrow.
What are the fees and charges payable and when are they payable?
Housing finance companies charge fees at the time of application (generally called processing fee) and at the time of loan sanction (termed as administrative fees).
The processing fee could range between 0.8% to of the loan amount applied for, and is generally levied to cover the costs incidental to the application.
Once the loan is sanctioned, an administrative fee of 1% of the loan amount sanctioned will have to be paid.
It should be noted that both the processing fees and administration fees are payable upfront.
What is the rate of interest that will be charged on my loan?
The rate of interest is a function of the quantum of loan sanctioned. Interest rates are applied as per pre-determined slab rates.
Though interest rates for housing finance are not very volatile, one may well be advised to look out for indication of any rate increases or decreases to finalise the timing and amount of loan.
What are the documents required at the time of application?
Each housing finance company has its own list of documents that one must submit at the time of application.
Who can be co-applicants?
Proposed owners of the property, in respect of which you are seeking financial assistance, have to necessarily be co-applicants. However all co-applicants need not be co-owners.
What is the maximum period over which I can pay the loan?
The maximum duration of period of the loan is a function of your residential status and varies for every housing company, and is also different for every scheme.
As a resident Indian, you could avail of a loan for duration of 5 years to 20 years. As a non-resident, you can avail of a loan only for a maximum period of 7 years.
What is the EMI?
EMI or Equated Monthly Instalments, refers to the fixed sum of money that you will be paying to the housing finance company every month.
The EMI comprises both interest and principal repayment. The size of the EMI depends on the quantum of loan, interest rate applicable and the term of the loan.
What security do I have to provide?
Security for the loan is a first mortgage of the property to be financed, normally by way of deposit of title deeds and/or such other collateral security as may be necessary. Interim security may be required if the property is under construction. Collateral could be in the form of life insurance policies, the surrender value of which should be equal to the loan amount, guarantees from sound and reliable guarantors, pledge of shares and such other investments that are acceptable to the housing finance company.
When can I take disbursement of the loan?
You can take disbursement of the loan after the property has been technically appraised, all legal documentation has been completed and you have invested your own contribution in full. Your contribution is the total cost of the property less the loan amount
In how many installments can the loan be disbursed?
The loan will be disbursed in full or in suitable installments (normally not exceeding 3) taking into account the requirement of funds and progress of construction, as assessed by the housing finance company.
Can I repay my loan ahead of schedule?
Yes, you can pay your loan ahead of schedule. However, it must be noted that housing finance companies charge a fee for early redemption of loan. This fee can vary between 1-2% of the loan amount being prepaid.
Do I get a tax benefit on the loan?
Yes, you are eligible for tax benefits on the principal and interest components of the loan under the Income Tax Act, 1961. As the benefits could vary each year, please check out the current benefits available.
Does the agreement for sale have to be registered?
In many states in India, the Agreement for Sale between the builder and the purchaser is required by law to be registered. You are advised, in your own interest to lodge the Agreement for Sale at the office of the Sub-registrar appointed by the State Government under the Indian Registration Act, 1908
Does the property have to be insured?
You will have to ensure that the property is duly and properly insured for fire and other appropriate hazards, as required by the HFC during the period of the loan and will have to produce evidence each year and/or whenever required by the HFC. The HFC will be the beneficiary of the insurance policy. This is an added cost that will add to the final cost of purchase of the property.
What tax benefits can one avail on a home loan?
Tax benefits can be claimed on both the principal and interest components of the home loan as per the Income Tax Act, 1961. These deductions are available to assessees, who have taken a loan to either buy or build a house, under Section 24(b).
(A) Interest on borrowed capital is deductible as follows:
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If the following conditions are satisfied, interest on borrowed capital is deductible upto Rs 150,000.
1.
Capital is borrowed on or after April 1, 1999 for acquiring or constructing a property.
2.
The acquisition/construction should be completed within 3 years from the end of the financial year in which capital was borrowed.
3.
The person, extending the loan, certifies that such interest is payable in respect of the amount advanced for acquisition or construction of the house or as refinance of the principle amount outstanding under an earlier loan taken for such acquisition or construction.
*
If the conditions stated above are not satisfied, then the interest on borrowed capital is deductible up to Rs 30,000. However, the following conditions have to be fulfilled:
1.
Capital is borrowed before April 1, 1999 for purchase, construction, reconstruction repairs or renewal of a house property.
2.
Capital should be borrowed on or after April 1, 1999 for reconstruction, repairs or renewals of a house property.
3.
If the capital is borrowed on or after April 1, 1999, but construction is not completed within 3 years from the end of the year, in which capital is borrowed.
(B) In addition to the above, principal repayment of the loan/capital borrowed is eligible for a deduction of upto Rs 100,000 under Section 80C from assessment year 2006-07.
A person avails deductions allowed under Section 24 in respect of his self-occupied house property and he takes an additional loan for extension/addition to the same house; can he claim benefits from the interest deduction on the additional loan taken?
The maximum deduction permissible in a financial year for the original loan (if any) plus for any additional loans taken is Rs 150,000. Hence if the person's deductions on the existing loan are less than Rs 150,000, then he can claim further benefits from the additional loan taken, subject to the upper limit of Rs 150,000 for a financial year.
If a person avails deductions, allowed under Section 24 in respect of his self-occupied house property and he takes an additional loan for extension/addition to the same house, can he claim benefits from the interest deduction on the additional loan taken?
The maximum deduction permissible in a financial year for the original loan (if any) plus for any additional loans taken is Rs 150,000. Hence, if the person's deductions on the existing loan are less than Rs 150,000, he can claim further benefits from the additional loan taken, subject to the upper limit of Rs 150,000 for a financial year.
If a person fails to make EMI payments on his home loan, can he claim tax benefits on the interest payable, under Section 24 and deduction under Section 80C of the Income Tax Act?
Tax benefits under Section 24 and deduction under section 80C of the Income Tax Act can be claimed only when the payment is made. If a person fails to make EMI payments, he cannot claim tax benefits for the same.
If a home loan is taken by the father and the loan has been sanctioned on the basis of the son's salary, can the son claim the tax rebate and deduction in respect of the interest payments?
According to the Income Tax Act, only the person who has taken the loan can claim tax rebates. Hence, in this case only the father will be eligible for the tax rebate.
If a fresh loan is taken to repay an existing loan, which was taken for constructing a house, can the interest on the fresh loan be claimed as a deduction?
Tax deductions can be claimed on home loan interest payments, subject to an upper limit of Rs 150,000 for a financial year. Interest on the fresh loan can be claimed as a deduction, subject to the stated upper limit.
Does interest on loan taken for repairs, renewals or reconstruction also qualify for the deduction of Rs 150,000?
Yes, the interest on a loan, taken for repairs, renewals or reconstruction, also qualifies for the deduction of Rs 150,000.
Can a husband and wife, both of whom are tax-payers with independent income sources, get tax deduction benefits, with respect to the same housing loan?
Yes, in this case, the husband and wife (being tax-payers with independent sources of income) can get tax deduction benefits with respect to the same housing loan
In the above case, in what proportion will the tax benefits be shared?
To the extent of the amount of loan taken in their own respective name.
What are the tax implications if a person buys a house with a loan and sells it (a) within the same year, (b) after three years? Further, what is the impact on benefits related to interest and capital repayment?
If a person buys a house and sells it within the same year/after 3 years, and if any profit is made, then a capital gains tax liability arises on the same.
Let us take an example to better understand the same. For example, if you purchase a house for Rs 500,000 by taking a loan and you sell it in the same year for Rs 700,000, then you make a profit of Rs 200,000. On this profit, you will be liable to pay short-term capital gains tax since the sale took place in the same year. But, if the sale had taken place after 3 years, then a long-term capital gains tax liability would have arisen.
The long-term capital gains will be exempt from tax if the profit amount (after factoring in the indexation benefits) is invested in capital gains tax saving bonds or in a house property as specified under Section 54.
Under what circumstances can the tax benefit for taking a home loan towards purchase of a property be denied?
If it is proved that the home loan is simply an arrangement between the loan-seeker and the builder or with a third party for the purpose of claiming tax benefits, then tax benefits will not be allowed and benefits, previously claimed, will be clubbed to the income and taxed accordingly.
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