Documentation of Individual housing finance

Student Research Project ( Posted on 5/9/2006)

Owing a home is perhaps the biggest and most important dream of an average family therefore ownership of a home goes beyond pure financial considerations. Home loans purchase has witnessed an increase owing to competition between a number of public and private players. The cut in the loan interest rate has also fuelled the demand for this product.

Basic qualifications for a home loan (Resident Indian)

A resident Indian is eligible for a home loan if he satisfies the following conditions:

1. He must be earning a regular monthly income.
2. If he is from the salaried class, then he should a minimum of 5 years of service left.
3. If he is a business person or a professional or a self employed individual, then his age should be less than 58 years at the time of applying for the loan.
4. The property that he wishes to purchase/construct should have a clear and marketable title.

Documents required to be submitted at the time of application

There are certain sets of documents that need to be submitted at the time of application. The documents sets will vary according to individual status- either resident or non-resident in India, as also the type of loan that an individual may want to avail of.

(A) 1. Resident Indian

1.(a) Salaried Individual

• Salary slip/Form 16A

• A photocopy of the first and last pages of ration card or copy of PAN /telephone/ electricity bills.

• A photocopy of Investments (FD certificates, Shares, any fixed asset, etc) or any other documents supporting the financial background of the borrower

• A photocopy of LIC policies with the latest premium payment receipts (if any)

• Photographs (as applicable)

• A photocopy of bank statement for the last six months.

1. (b) Self employed or businessman

• A brief introduction of business/profession

• Balance sheet, profit & loss account and statement of income with Income Tax returns for the last 3 years certified by the Chartered Accountant

• A photocopy of advance tax payments (if applicable)

• A photocopy of registration certificate of establishment under shops and establishments Act/factories Act

• A photocopy of registration certificate for deduction of profession tax (if Applicable)

• Bank statements of current and saving accounts for the last six months

• A photocopy of certificate of practice (if applicable)

• A photocopy of any bank loan (if applicable)

• A photocopy of the first and last pages of the Ration card or a copy of PAN/telephone/electricity bils

• A photocopy of investments (FD certificates, shares, any other fixed assets)

1. ( C ) If flat is purchased from builder

• Original copy of your agreement with the builder

• 7/12 extract of your agreement with the builder

• Copy of N.A. permission for the land from the collector

• Search and title report (with the details of the documents) for the last 30 years

• Development agreement between the owner of land and the builder

• Copy of the order under the urban land ceiling Act

• Copy of building plans sanctioned by the competent authority

• Commencement certificate granted by the corporation / Nagar Palika

• Building completion certificate (if available)

• The latest receipts of taxes paid

• Partnership deed or memorandum of association of the builder firm

1. (d) If the property is being purchased in a co-operative society

• Original share certificate of the society

• Allotment letter from the society in your name

• Copy of the lease deed, if executed

• Certificate of the registration of the society

• Copy of the bye-laws of the society

• No objection certificate from the society

• 7/12 extract or property register card in the society’s name

• Copy of N.A permission for the land from the collector

• Search and title report (with the details of documents) for the last 30 years

• Copy of order under the urban land ceiling Act

• Copy of the building plans sanctioned by the competent authority

• Commencement certificate granted by the corporation / Nagar Palika

• The latest receipts of tax paid

• Original Agreement to assign/ Deed of assignment

1. (e) If constructing on own land

• Original sale deed of land and extract of index 2

• 7/12 extract or property register card in your name

• Copy of N.A permission for land from the collector

• Search and title report (with the details of documents) for the last 30 years

• Copt of order under urban land ceiling Act

• Copy of the building plans sanctioned by the competent authority

• Building permission granted by corporation / Nagar Palika

• The latest receipts of taxes paid

• Estimate of cost of construction certified by the architect

Non-residents

2. (a) Income Documents

• Employment contract (if the contract is in any language other than English, the same has to be translated into English and arrested by the employer/Indian Embassy)

• Certified copy of the latest salary slips of the past 6 months

• Identity card issued from the current employer

• Continuous discharge certificate, if applicable

• Latest work permit

• Visa stamped on passport

• NRE bank account passbook sheets

• Overseas bank account statements for the past 6 months

• Bio-data covering educational qualifications, age job experience, nature of profession/ business with necessary proof

• Power of attorney in favour of local representative in India, if required Guarantor forms along with net worth proof / income proof. Number of guarantors as per the norms of the company. The guarantors should be related to the applicant(s)

2. (b) Property documents: purchase of a flat from the builder/promoter

• Title deeds of the builder/land owner for a period of at least 13 years

• Development agreement between the builder and land owner if applicable

• Power of attorney executed in favour of the builder, if applicable

• Non-encumbrance certificate for the past 13 years

• The khata certificate (basic document indicating ownership of property as entered in the register of the government authorities)

• Up-to-date tax paid receipts of the property

• A sanctioned plan and Licence

• An agreement for sale and a construction agreement with the borrower

2.( C) In case of purchase of house from second owner

• Title deeds of land owner for a period of at least 13 years

• Non-encumbrance certificate for the past 13 years

• Khata certificate

• Up to date tax paid receipts of the property

• Sanctioned plan and license

• Agreement for sale in favour of the applicant(s)

• Valuation report from the qualified valuers

2.(d) Incase of repairs/ renovation/ extension of house/ flat

• Title deeds of land owner for a period of at least 13 years

• Non-encumbrance certificate for the past 13 years

• Khata certificate

• Up to date of tax paid receipts of the property

• Sanctioned plan and license for the extension

• Agreement for sale in favour of the applicant(s)

• Estimates of costs from the qualified engineer

2.(e) Personal Documents

• 1 passport size photograph

• 1 copy of your passport/ PAN card/ Driving License/ school leaving certificate/ birth certificate/ LIC policy/ bankers sign verification

• 1 copy of last months telephone bill / ration card (first and last page) / title deed property / rental agreement / driving license

Loan amount eligibility

The maximum amount that a resident Indian can borrow from housing finance companies is 75% - 85% of the project cost. Subject to this condition, the borrowers repayment capacity takes into consideration factors such as income, age, qualifications, number of dependants, spouse’s income, assets, liabilities, stability and continuity of occupation and saving history. Loans beyond the above mentioned limits can be considered by the housing finance companies depending on the merits of the case.

Documents required to be submitted after sanction

Apart from the various documents to be submitted at the time of application of loan, there are further documents to be given to the housing finance company once the loan is sanctioned.

• Tri-partite agreement between the borrower, builder and housing finance company

• Proof of investment of margin money

• Loan papers by the applicants

• Guarantee agreements with sureties

• Post dated Cheques

• Original documents executed with the builder or previous owner

• No objection certificate from the builder to mortgage the property in favour of the housing finance company

• No objection certificate from other housing finance companies if the builder has availed a project loan

• No objection certificate from the co-operative housing society

• Share certificate of housing society

Steps to avail a home loan

A person applying for a home loan has to go through various steps, before the loan is actually disbursed to him. We list below in brief, the various steps in a loan application.

• Inquiry stage: Here a person from the housing finance company will explain the types of loan available, the interest rates, the amount of loan eligible by the customer and the amount of installment payable and the requirements of the loan.

• Submission of loan application form: The loan application form asks for information regarding the borrower, his family, his income and expenditure details, his assets, liabilities, cost of the property intended to be purchased, availability of resources, details of personal finances including bank account numbers, details of property to be developed or purchased, amount of loan required etc. the applicable processing fee is also to be paid while submitting your application form. All documents asked for in the list of documents are to be submitted along with application form.

• Legal scrutiny report: The documents pertaining to the property are then srcutinised by legal personal. It is very important that the property under consideration for purchase or mortgage has proper and marketable title.

• Pre-sanction inspection of the property: On receipt of the application for loan, an officer from the housing finance company will conduct an inspection of the property proposed to be bought to ascertain the location of the property, verify the technical details of the house like structural stability etc. and stage of construction if the loan is for construction.

• Credit appraisal: The loan officer will then process the application considering the monthly income of the applications, number of the dependants, monthly expenditure, repayment capacity, employment history, number of years of service left over and other such particulars that affect the credit rating of the borrower. The loan officer for the approval of the loan then verifies proof of the monthly income and other relevant particulars. Some information from employers, bankers, etc may also be called for.

• Sanction letter: On the approval of the loan, a sanction letter communicating ther sanction terms and conditions is issued to the borrower.

• Acceptance letter: The applicant will then, on reading the terms of the loan must communicate his willingness to accept the loan by the way of an acceptance letter within one month from the date of sanction letter also pay the requisite administrative fee.

• Inspection of property: Post sanction inspection of the property is done at each stage of disbursement to ensure that the borrower invests the margin money and the progress of work is as per schedule.

• Investment of margin money: The margin money being the difference between the cost of the property and the loan amount sanctioned to the borrower has to be invested by the borrower on the property prior to release of the loan amount incase of a construction of a house.

• Submission of documents and signing of loan papers: The original documents to be submitted by the borrower pertaining to the property as enumerated in the legal scrutiny report are then submitted. The loan papers to be signed by the borrowers and the guarantors will be kept ready by the branch. On the appointed day the loan papers is to be signed by the borrowers and the guarantors.

• Release of the loan amount: Depending on the purpose of the loan, the disbursement will be made either in stages, if it happens to be for construction or in full on the day of registration if it is for purchase of a house.

• Submission of post-dated cheques for payments of installments: The repayment of the loan, which is also very important aspect from the point of view of the borrower as well as the financier, is to be arranged by the borrower as per the terms specified, either through salary deduction or through post-dated Cheques.