10 Steps to peaceful Home loan processing

Building a home of our dream is a life time achievement to a middle class person. For making this dream come true to a middle class person banks are playing a significant role by providing them with the right home loans at door steps. But if do not plan properly and if we are not aware of the policies, terms and conditions of the bank we will end up paying more to the bank in terms of principal and interest components.

For the convenience of our customers we planned to give a 10 steps plan which the customer has to understand to take a home loan to build a dream home of their life.

Please read these 10 steps of processing carefully and follow these to make the transaction a memorable moment in your life.

1. Understand your product

Before going for a home loan processing please be aware of your loan product and the terms and conditions that the Bank is asking to fulfill to have the loan done. There are different products for which bank is having different terms and conditions for each product. Normally the Bank will have the below products which come under home loans.

a. New Purchase of Flat or Independent House: In this a customer can purchase a New Flat or Independent house of his choice which is under construction or in ready to occupy position.

b. Resale purchase: This product is applicable to those customers who wants to go for a Flat or Independent house which was already owned by some body else.

C. Plot + Construction: The product is applicable to those customers who want to buy a Plot and do the construction immediately, but banks ask you to start the construction with in the specific period of time.

d. Balance Transfer (BT): A person who wants to transfer a loan from one Bank/Financial Institution to other can opt for this product.

e. Construction: A person who wants to construct a house in his/her plot can go for this loan.

f. Plot: A customer can go for this loan who wants to purchase a Plot which is under HUDA, Municipality and Grampanchayat limits.

g. Enhancement: Increasing the loan amount which was already taken from the same bank is called enhancement.

h. Top – Up: This loan is just a facility that banks provide to customers to take on the basis of the previous loan and the repayment track.

I. Mortgage: It is the loan that a customer can opt by depositing the original property documents with the bank which he already owns.

2. Rate of Interest (ROI): The most important point to be taken care of in taking a home loan. There are two types of interest rates which banks normally have i.e Floating and Fixed.

Floating Rate of interest is subject to change according to the money market conditions. If the interest rate increases then the bank will increase the Rata of Interest on your loan vice versa.

Fixed Rate of Interest is fixed for the complete tenure of for over a period of time depending on the Banks, but Banks reserve the right to modify the rate of interest if they is any huge differences in the money market conditions.

Taking clear clarifications is suggestible to the customers about the fixed rate of interest if it is fixed for the whole tenure or not in spite of any differences in money market conditions.

3. Tenure or repayment period: A customer can choose the tenure of his own. Usually banks offer a min and max tenure of 1 to 25 years to home loans, and 1 to 15 years to mortgage loans.

Choose tenure of your own for flexible repayments of your loan by keeping all your income and liabilities in mind. It is always advised to choose less tenure to save the interest part on the Home Loan.

4. Eligibility and sanction process: By taking the Fixed and variable income into consideration banks will calculate the eligibility and the sanction will be given upon all the verifications being positive which the customer have specified in the application form. It is suggested to give useful and applicable information only.

Banks reserves the right to sanction or reject the application if they find any information that you have given is misleading.

Once you receive the sanction letter please read it carefully for the conditions of Interest rate revisions, Sanction conditions, Pre-closure charges, Processing fees and terms and conditions of the bank for availing the loan before signing it.

5. Legal documents and scrutiny: The customer is required to submit all the legal documents to the bank of the property which he is buying. The customer should ask the vendor to give all the link documents, Lay out, and plan copies along with his/her ownership documents.

It is to be taken care that if there is any legal disputes on the property then the proceeding and judgement copies are also required.

The customer should verify the legality of the property with a legal advisor because after clearing with the process of the bank if any legal issue raises in future the customer has to pay the loan and the bank do not take any responsibility about the legality of the property.

It is suggested to verify the legality of those pre approved ventures of the Bank for the safety purpose.

6. Technical evaluation: Banks evaluate the value of the property with their panel valuer and the value is final. The customers should take all security measures against the deviations like Horizontal and vertical which will affect the processing and the future transactions also. If any deviations are there with the property then you should ask the vendor for the copies of regularisation. The property should have the necessary permissions or documents to regularise the deviations according to Building regularisation scheme (BRS).

Please check all the details like Plot area, sanction area, Plot No and the Municipal Approved Plan Valid dates before going for a processing.

7. Home Loan Agreement: It is the Agreement which a customer has to sign before going for disbursement of the loan which he requested to the bank to fund on the property. Please read the document carefully before signing it as it is a long term contract between the customer and the Bank. Once you sign the document it can’t be altered or modified until and unless you repay the loan in all respects.

8. Registration: The most vital part of the Home Loan processing ends with the registration of the dream property for which you availed the loan. Please take care of the points typed in the Sale Deed documents which give you the ownership of the property and any small mistake in that leads to bigger controversies. So please read the Sale Deed documents before submitting it for the registration process.

The vendee should collect all the link documents, Plan copies and tax Paid receipts from the vendor at the time of registration only.

9. Processing, pre-payment and foreclosure charges: The customers have to pay the processing charges to the bank for the loan availed.

Depending on the banks some charge a max of 2% along with service tax for making part payments towards your home loan account and some do not charge for these payments, but there is a limit for making these part payments over a financial period.

The customer should know about the additional charges which bank will make in cases of pre payments and foreclosures. A customer needs to pay a max of 4 % of the outstanding principle along with service tax towards the foreclosure charges of the loan.

10. Tax exemption: Apart from giving the joy of a own house the home loan gives Tax exemption on the principal and interest paid over a financial period.

The Customer can get a tax benefit of Rs. 1,00,000/- maximum under section 80C of Income Tax act 1965. In addition to this you will get tax benefit of Rs. 20,000/- maximum on the principal amount repaid during a financial year under the section 88 of the principle repayment of the loan.

A customer can claim tax exemption for the amount paid as stamp duty during the registration process. The Bank will provide you with the provisional certificates to claim the tax exemption from the income Tax department. The loans which do not have tax exemptions are top-up, plot and Mortgage loans.

Technical Deviations

With the effect of the financial markets on the home loans industry now the banks are tightening the rules for giving home loans. Banks are very keen on the eligibility, previous tracks and the legality and technical verifications of the property. Customers are suggested to have a clear look at the property before going for an agreement and with the loan process.

With the new rules and regulations coming into the process a customer to be aware of his property completely before going for a home loan. Now the banks are not funding to those properties which has horizontal and vertical deviations. This is applicable to all types of properties for new and resale.

Banks has given some relief to the old properties if they have gone for Building regularization.

For e.g.:

Horizontal Deviation:

Sanctioned area in each floor as per plan:- 1600 Sft

Constructed area as per the Building:- 2400 Sft

In the above case the property will have a Horizontal deviation of 50% for which bank will not give any loan. In the same way it is also applicable to Independent houses.

Vertical deviation:

Consider if the building is Ground + 2 upper floor’s building then

The sanctioned Height of the building as per plan : 30 ft

Existing height of the building : 40 Ft

In the above case the builder might have constructed a unauthorized cellar or a Unauthorized floor i.e Ground + 3 Upper floor. In the same way it is also applicable to Independent Houses.

In the both cases bank will reject the loan application submitted by the customer as it has both vertical or horizontal deviations and any one of the above.

To get the details of the constructed area and the height of the building please refer with the plan copy and check how much is the sanctioned are for each floor and how much is the constructed area and with the height of the building like is there any unauthorized cellar or any unauthorized floors above the building which are not mentioned in the plan copy.

Tips to Increase Eligibility

Usually customers look for maximum eligibility in a home loan to decrease the margin money which he/she pays from his / her end. As the banks are looking at the track and previous financial history of customer very strictly he / she should be aware of the points which banks usually consider in funding for any home loan. To get maximum eligibility the customer should take care of the below points.

Income and Liabilities:

  1. Customer should close all the liabilities which he/she is having in his/her bank statements and payslips if possible.
  2. Please mention the liabilities which you want to close to avail this loan.
  3. Mention the balance tenure of the loans which are having repayment period more than 12 months and which you don’t want to close.
  4. Please mention the loans which are having repayment period less than 12 months compulsorily.
  5. Submits required proofs for your additional income like bonuses, reimbursement and rental incomes etc.

Credit History:

Credit History is the most important thing by referring which banks are giving loans to customer. If the customer is having any discrepancies in his/her credit history then banks are not taking deviations or even not considering their application for any loan. So it is always suggested to the customers to take care of the below things to avoid these issues which will occur in CIBIL report through which bank looks into your credit history.

  1. Please make sure all your loan payments are going with out any bounces.
  2. Please check your credit cards and their payments.
  3. Convert any high value transaction in to EMI’s if you can’t make the payment in time before statement generation on your credit card.
  4. Avoid making late payments in your credit card or loans accounts which attract late payment fees and in turn spoil your credit history.
  5. Please clear all your dues and over dues before applying for any loan.
  6. Transfer your balances to another card if you can make payment with in a period of 90 days for a interest free period.
  7. If you have made any credit card settlements then keep all the receipts’ of payments made towards those cards for future references.
  8. Don’t issue any cheques if you do not have sufficient funds in your account.
  9. Calculate your loan amortization in terms of EMI and Principal components of the loan.

Possible issues in a Home Loan

A Home loan is a long term legal contract between a bank and the customer, so knowing the legal terms and conditions included in the process is better for those who are planning a house in coming future.

While going through the process of a home loan a customer might face different type of legal issues. So avoid all those issues and to have a hassle free home loan experience, please follow the below tips and please be aware of the legal factors included in your home loan application.

1.    Home loans process starts with the documentation in which the documents which you submit will have a great value in completing the case, so please do not submit any fake documents and don’t try to misguide the bank to avail the loan as the banks have the right to take legal action against those persons who tried to misguide the bank. Details which you mention in the application form should not have any discrepancy, banks will verify the details mentioned in the application and if the bank notices any discrepancy then it can reject the application form with out any prior notice.

2.    Please keep all your receipts of the amount paid towards the credit cards which you settled previously because bank may ask for the receipts of the payments once the details are found in CIBIL.

3.    When the customer submits the property documents banks will verify the property details given by you and the documents will be scrutinized by the advocates and search report will be obtained from the concerned sub-registrar office for the details of deeds and the vendors. If there is any discrepancy in the documents banks will ask the customer or vendor for clarification or for other supporting documents.

4.    Property will be evaluated by the technical valuers and if any deviations observed in the property then customer need to submit additional documents.

5.    Once all process is completed the vendor need to verify all his original documents with the bank official before disbursement of the loan and the customer need to submit latest EC recording all transactions of the property in original.

6.    Customer need to sign all the legal documents and the Home Loan agreements in regard of the disbursement of the loan and the property will be hypothecated to the bank till the loan is repaid back in full after the registration. Customers are suggested to read the agreement copy before signing it.

7.     If the customer gets defaulted in repaying the loan bank can appoint agents to collect the EMI’s from the customers and the customers will have to co-operate with them.

8.    If the customer fails to pay the EMI’s then the bank will cease the property to cover the loan amount taken by the customers, and once this happens the customer will be added into the defaulters list of the CIBIL (Credit Information Bureau of India Ltd).

Every customer is suggested to take as much less amount as possible from the bank to save the interest paid on the loan to be punctual in repaying the loans to keep your credit history good.

Is your property legally clear?

An investment in the real estate is a good idea as it gives great returns in coming future. Most of the people take properties or houses by availing the loans from the banks. Usually builders say that their property is approved from the banks and ask them to submit the documents in that bank. But one should verify the legality of the property before availing the loan from the bank.

We are giving here some simple steps to verify the legality of the property and the different types of cases and their solutions in the legal verification of the property, But before that please understand the type of documents.

Different types of documents in the property registration

Agreement of sale: This is the document which shows the details of the vendee or Executants the person who is selling the property and the vendee or Claimants the person who is buying the property and the details of the property completely.

Here both the parties will agree the laws of land and do the transaction of the sale of the property by entering into this agreement in the presence of witnesses.

Sale Deed: A document which gives the purchaser a complete power and possession of the property in all means. In this vendor is the person who sells the property and vendee is the person who purchases the property. The vendor will transfer all the rights and grants over the property to the vendee by receiving the sale consideration amount which they agreed upon. These documents should be registered in the sub registrar office by paying the stamp duty to the government.

General Power of Attorney (GPA): It’s a document in which a person transfers all the power and rights over a property to the other person. If the document is registered then the Vendee gets all rights to execute all the future transactions.

If the document is not registered then the vendee can’t execute the future transactions on his own, the vendor has to sign the document then only the document gets the validation, if the vendor won’t sign the document the registration or the transfer of property is not valid.

Agreement of Sale cum General Power of Attorney (AGPA): It’s a document in which the vendor agrees to sell the property to the vendee and transfers all his rights and powers over that property to the vendee. If the document is registered then the vendee gets all the rights to execute all the future transactions otherwise the vendor also should sign the documents of the future transactions.

Legal heir document: It’s a document which should be duly attested by the class I magistrate to get the validation. If the person on whom the property is registered gets expired with out writing any will then the document which shows the legal rights holders on that property is “Legal Heirs certificate”.

All the persons whose names are mentioned in the Legal heirs’ certificate should sign the documents then only that transaction is valid.

Encumbrance Certificate (EC): It’s a certificate which we get in the sub registrar over a property. It includes all the details of previous registrations and the details like date of registration, names of Executants and claimants, Document No.

All the above are the documents which we normally find in the property transaction.

Now if we look at the legality of the property please follow the below steps to verify.

  1. Please collect all the legal documents of the property for the last 20 years
  2. The first point of the legal verification of the property is “the present vendor should be the previous vendee”.

E.g.:-

Document Registered In 2008           Document Registered in 2005

Vendor: P. Chandra Bose Ashok Kulkarni

Vendee: Anil Kumar                                             P. Chandra Bose

If you see the above example then the present vendor Anil Kumar has got the document registered from P.chandra Bose in 2008 , and P.chadra Bose has got it from Ashok Kulkarni in 2005 like so.

  1. Please read the sale deed completely to clarify your self that there are any mortgages created over that property by the vendor.
  2. Please cross check all the past registration details with the Encumbrance certificate.
  3. If any GPA’s or AGPA’s are there then please check they are registered or unregistered ones.
  4. Please check with the constructed area and the sanctioned area of the property by verifying them in the plan.
  5. Take Certified copies (CC) from the registration office and check whether all the documents are valid or not.
  6. Please cross check the plot no, house no and the boundaries in the document and the existing ones.
  7. Please collect property tax paid receipts and check whether they paid regularly or not.

And the last but not least is get a legal opinion from a legal advocate before going for a home loan to ensure a smooth loan processing.

Are your Basics right?

Home loan is a product for which a customer needs to go through with the long process to get the loan for the desired property, for which the customer needs to do lot of ground work in terms of his/her profile to get accepted by the bank.

With the current financial markets being more volatile one should make a right move in the view of financial decisions. If you are taking a loan or you are planning for any insurance or any other financial product then please be aware of the financial terms and conditions of the bank. If you planned for any housing loan then take care of your basics which will affect the loan processing. Banks are very keen about the past history of the customer too.

Credit Information Bureau of India limited (CIBIL) is a service that provides the details of customers past records and accounts in association with all major banks in India.

Banks will take the CIBIL statements of applicants with their DOB, Pan Number, Driving license and passport number. A customer who applied for a home loan was rejected due to the written off of the credit card accounts in the co-applicants CIBIL statement which is a recent incident in a leading bank. Please be aware that in the current scenario getting a home loan or any financial product is tougher than before with the considerable changes in the processing.

Coming to the information in application form one should give only useful and appropriate information that will be a positive point to your home loan processing. Banks can take legal action if they feel any information given by the applicant is wrong and it was a trial of misleading the bank.

The second step of home loan processing is legal and technical evaluation of the property. Banks usually have panel advocates and technical valuers for the processing. The value given by the technical valuer is final and report given by the advocates gives the opinion on the legal status of the property. Customer should give the appropriate documents for this processing as it is important to get done for both people.

Last but not least is the processing of disbursement where customer should sign the documents of the bank and request for the disbursal of the loan applied for. Here the customer will be given with the details of the loan amount, EMI and tenure etc. Each and every customer is suggested to read the Home loan agreement which he need to sign to get the loan disbursal done in which bank narrates all the terms and conditions which a customer need to satisfy before and after taking the loan. Home loan is called as a life time contract so take wise decisions before going for it by reading all the documents and by asking the bankers to provide all the information about the loan which you are going to take.

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