With lending rates down and offers pouring in from banks, your housing loan may be approved quickly if you meet all the criteria, says Balaji Rao

It is raining offers from banks and housing finance institutions ever since RBI eased the CRR rates early this month and infused liquidity into the banking system. Most banks including the National Housing Bank have reduced the lending rates on home loans ranging from 0.25 to 0.50 per cent.

The good news continues with offers such as waiver of processing fee and pre-payment charges. A private bank has announced that if the EMI payments are made on time throughout the loan duration it will offer 12 months of complete EMI waiver.

It is time for new borrowers to shop around for the best home loan offers. Choosing floating rate is highly recommended considering that the rates are set to soften in the coming months.

People usually consider taking loan a tedious exercise because of various processes and procedures that a HFI follows to sanction it. But if we see this from a lender’s perspective, perhaps, we will not consider this as a laborious process.

Risk involved

A housing loan is the longest of all individual loans, spanning half of the earning life of a borrower.

Naturally the risk too will be higher for such a long period of repayment time, because the borrower would be exposed to various systematic and unsystematic risks that could arise out of job losses, decrease in income due to recessionary trends, economic instability, temporary or permanent disability that leads to unstable income and such other unavoidable circumstances and situations. To protect oneself from such incidences a lender would have to be doubly careful before sanctioning a loan.

Shamila, AGM, Can Fin Homes, Jayanagar, shared the process as well as the documentation procedures that is usually followed by all housing finance companies before sanctioning a loan.

The loans related to housing are approved on (1) Construction of a new house (2) Purchase of a readymade house or a flat (3) Extension of a existing house (4) Repairs, renovation, upgradation of existing house (5) Purchase of site as approved by select government authorities (6) Composite loan wherein the loan is sanctioned simultaneously for purchase of a site/plot and constructing a house on it.

Though the minimum age to get a housing loan is 18 years, every lending institution will consider those individuals who have a work or business experience of at least five years at the time of approving a loan.

For the salaried

For salaried individuals these documents are essential: (1) A letter from the employer on the company’s letterhead confirming the employment of the borrower/applicant; (2) Last six months’ pay slips; (3) Form 16 and IT returns filed for three previous years; (4) Latest three months’ bank statement, from the bank where the salary is getting credited; (5) Age proof; (6) Address proof; (7) One guarantor whose income is at least to the extent of the proposed EMI with income proof and net worth proof; (8) PAN card copy; (9) Employment ID card, if available; (10) Passport copy, if available; (11) Highest educational qualification proof.

Self-employed

For self-employed individuals or professionals, except for the letter from the employer and employee ID proof, rest of the documents would be essential.

Other factors

There are other factors too about the individuals that are considered to be most important by the HFI while the request for the loan is presented by any applicant. (1) Age at the time of taking the loan (younger the better), (2) Qualification (academically well qualified), (3) The employer (working for renowned companies is considered favourably) and (4) Income v/s Savings capacity v/s EMI outflow.

The quantum of loan sanctioned is 75 per cent (in certain cases up to 80 per cent) on the cost of the property or cost of construction. Such quantum is also decided based on the repayment capacity of the individual which would be arrived at while appraising the financial strengths.

Other factors that are closely observed are if there are any other loans and the duration of such loans.

Usually short-term loans such as car loans, two-wheeler loans, consumer durable loans, and personal loans are not considered as a threat. But if there are any long-term loans such as site loans or another home loan active with another institution, the new loan to be sanctioned would be scrutinised and approved based on the income v/s current commitments v/s repayment capacity.

The tenure of loan sanctioned ranges from five to 20 years which can be stretched up to 30 years in certain cases. The collateral would be the property itself and at times a guarantor too is insisted.

Property documents

Property related documents such as (1) Sale deed, (2) Khata Certificate, (3) Up- to-date Property Tax paid challan, (4) Encumbrance Certificate for the last 13 years, (5) Approved building plan from the concerned government authority, (6) In case of construction estimation received from a registered engineer and in case of purchasing a readymade house/property, valuation report and other documents as would be asked at the time of obtaining the legal opinion from the approved lawyer.