Story till now: I had purchased a property in Nerul on the outskirts of Mumbai in early 2008. I finalized a sale transaction for the property recently and started looking for houses near Chembur in Mumbai close to where my parents stay. Had shared a few observations about the entire process in my previous blog posts.
Having finalized my dream home and paying a token to the builder, I started another painful process called 'Searching for a Home Loan'. Having taken a loan for my last purchase in 2008, I was quite experienced with the process and was aware of the various steps and processes. Since I had spent many sleepless nights in 2008 worrying about my loan disbursement I decided not to take any chances this time. My plan was simple - Apply to 2-3 banks at the same time and take the loan from the one which gives the best deal in terms of interest rate and speed of disbursement.
For the uninitiated let me first take yo guys through the process of a home loan sanction and disbursement in India. (Disclaimer: This is not a moronic Economic Times type articles meant for the retards)
Step 1: The collection of documents. Since I belong to the salaried class I shall cover aspects mainly related to my clan. If you have less than 2 years of work experience, please don't bother applying to a Private, MNC or a PSU bank for a home loan, you are better off trying with a NBFC.
Basic documents you will need are:
- Salary Slips (3-6 months depending on the bank which you are applying to
- Form 16 (1 - 3 years depending on the bank which you are applying to)
- Bank Account statement (6 months minimum, and this is for the account into which your salary is paid)
- PAN card copy (everyone needs it)
- Identity and Address proof (Driving License or Passport Copy)
- Photographs (1-4 depending on the bank where you apply)
- IT returns (1-3 years, usually Form 16 should do, but some banks insist on this)
These are some basic documents which every bank asks for. I suggest that you make 3-4 sets and keep them ready. Please ensure that you sign on each and every page of all the documents. Most banks do this to confirm that the documents received are from prospective customer only and not someone else (to prevent fraud).
Now for the silly document requests.
- Copies of degree / post graduation certificates (some PSU banks)
- Copies of repayment records and closure letters of past loans (once again PSU banks and some NBFCs)
- Recommendation letters from branch managers where you took education loans in the past (Bank of baroda actually asked me for this)
- Appointment letter from present employer (some private banks and most PSU banks ask for this)
Tips:
- If you are applying for a joint loan with the wife / husband, please keep a copy of your marriage certificate ready. if you haven't bothered getting your marriage registered forget about applying for a joint loan. (more tips about obtaining a marriage certificate in a later post)
- If you have any personal loans / educational loans / car loans please mention it truthfully in the application form, else the bank credit will get back saying you withheld information from them.
- There is a difference between a co-applicant and a joint applicant. A co applicant is a stupid concept introduced by banks to ensure that someone takes over the liability in case you die, the co applicants financials wont be considered for loan eligibility and he / she need not be a joint owner of the property. A joint applicant is also a joint owner of the property and his / her financials are considered to increase your loan eligibility.
- If your loan amount is small (below Rs 25 lakhs) even Sales executives will throw attitude and collect your documents according to their convenience.
Step 2: Logging in the documents
This is where the home loan executive collects your documents and creates a file in your name. The file is checked for discrepancies like missed signatures, information missing from the home loan application form etc. In case there is any discrepancy then the executive will contact you again and get it rectified. Finally when your file is complete in all aspects, it is logged in the operations department of the Home loan vertical. This process is almost uniformly followed by most banks.
Tips:
- The worst time to log in your file would be the last five days of a month. The executive will keep avoiding you on one pretext or the other. Most of them have disbursement targets and they are running around to get the disbursals in the cases which are already sanctioned. The best time to send your documents for processing would be the first 10 days of the month.
Step 3: The Verifications
This is a two part process, the first part consists of verification of your home and office address and telephone numbers. The second part consists of verifying your CIBIL records to check for any past defaults in loan payments / credit cards.
Tips:
- In case you have a friend working in the credit card department of any bank please use your charm and get a copy of your CIBIL report for free beforehand. You can also get it through a painful process through the CIBIL site which is best avoided. Usually banks look for a CIBIL score of 750+ to sanction a loan
- If you have some late payments in your credit card or personal loan accounts worry not, they are unsecured loans and a home loan is a secured one so the late payments don't matter so much. However a default is a serious matter and might result in you application being declined.
- Many a times (especially with PSU banks) you repay a loan and they forget to update the CIBIL records. Always ensure that you have documentary proof of a loan repayment (statement / closure letter). This is important because outstanding loans on your CIBIL file will reduce your loan eligibility.
Step 4: The Approval
This is where the people in the credit department approve your home loan amount and give the go ahead to another department to issue the sanction letter to you.
This is just the start, we still have 2 more painful processes lined up which I shall cover in my next blog post. The technical and legal evaluation of the property can make or break your deal.
General Tips and Observations:
- The first thing you need to be aware is how much loan you want and for how long. Private Banks usually finance 85% of the property value (this includes agreement value + stamp duty + registration). ICICI bank goes up to 89% in some cases. Banks like Kotak do this for their employees but not for external customers. PSU banks are generally more chindi and sometimes do only upto 80%. MNC banks also usually do 85%, for some senior employees they go upto 90%. So if your agreement value is 90 lakhs ad stamp duty and registration works out to Rs 10 lakhs. Most banks will want to give you only Rs 80 lakhs to Rs 85 lakhs. Rest has to be paid from your own pocket BEFORE loan disbursal. Bank will also ask you to show your account statement to evidence that the payment was indeed made from your own account.
- In case you wish to get 90% funding, ICICI Bank or an NBFC (Indiabulls / Reliance / Dewan Housing Finance) would be your best bet. The interest rates in the NBFCs will be slightly higher (0.5% to 1% more thank bank rates).
- Please make it very clear to all bank executives that you are negotiating with 2-3 banks for rates and approval terms, ensure that they give you an option to stop processing your papers once you have finalized something with a competitor. Once the sanction letter is out, no one will refund your processing fees.
- Some banks (like HSBC) give 25 year loans, this is really helpful to increase your loan eligibility and reduce EMIs.
- Some banks like Standard Chartered and HSBC have an interest saving product called Smart Home / Interest Saver. Its a very good product where all your savings go into a savings account linked to your home loan account. The tenor of your home loan keeps increasing according to the savings kept in your account.
- Most banks have a tie up with General / Life Insurance providers to provide you with a term cover on your loan which reduces with your outstanding. Simply out, if you die the insurance company pays off your home loan and the property belongs to your family. However some banks force you to buy the insurance product and some even club the premium amount with your loan amount hence reducing your payout to the builder. Make it very clear to the sales executive if you want the insurance or not and ensure that the premium amount is kept out of your loan sanction.
- Loan eligibility norms of most banks differ, however from experience I can safely say that PSU banks will show that you have the lowest loan eligibility. Private bank sand MNC banks are better.
- If you are looking for low interest rates only please go to a PSU bank, however be warned that the sanction process takes 10-15 days there and largely depends on your relationship with the Branch Manager. Disbursal takes a further 15-20 days as their technical and legal evaluation procedures are too lengthy.
- If the project is pre-approved / approved (for under construction properties) by a bank it makes a lot of sense to apply for a loan there as the legal and technical evaluation is already done. For a property which is for ready possession and if you are buying through a builder please enquire and find out which banks have financed flats in the building and approach those to reduce the time to disbursal.
- Resale properties (where you are buying from the house owner) are slightly trickier. Most banks wont touch a flat if the building cooperative society is not formed yet. If the society is not formed please talk to the sales executive upfront and give your papers for processing only if he confirms that his bank finances such projects. Better still, give a copy of the previous sale agreement and related documents to the sales executive so that he can check and confirm.
- If you are buying a property in Navi Mumbi be careful, two main issues: firstly the way the builders calculate super built up there is totally different from the way Mumbai city builders calculate it. As a result my 865 sq ft Chembur apartment is larger than my 970 sq ft Nerul one. Secondly there are two types of building plots Gaothan plots where the builder has purchased land from a villager who used to own it and CIDCO plots where the developmental authority (CIDCO in this case) sells the plot directly to the builder. Most banks will easily finance the second case and stay away from the first one. This is simply because in a Gaothan plot other family members of the villager might stake a claim to the plot in future and demand money from the builder and the property might get involved in a legal dispute. However a Gaothan plot becomes cool once a society if formed.
Enough gyan about the loan approval part for now. Please to let me know your views and feedback.
Coming Soon: So Long and Thanks for the House (where we evaluate the technical and legal aspects of a loan disbursal)
Previous posts about Househunting:
The Joke called Property websites
The Broker strikes back
Having finalized my dream home and paying a token to the builder, I started another painful process called 'Searching for a Home Loan'. Having taken a loan for my last purchase in 2008, I was quite experienced with the process and was aware of the various steps and processes. Since I had spent many sleepless nights in 2008 worrying about my loan disbursement I decided not to take any chances this time. My plan was simple - Apply to 2-3 banks at the same time and take the loan from the one which gives the best deal in terms of interest rate and speed of disbursement.
For the uninitiated let me first take yo guys through the process of a home loan sanction and disbursement in India. (Disclaimer: This is not a moronic Economic Times type articles meant for the retards)
Step 1: The collection of documents. Since I belong to the salaried class I shall cover aspects mainly related to my clan. If you have less than 2 years of work experience, please don't bother applying to a Private, MNC or a PSU bank for a home loan, you are better off trying with a NBFC.
Basic documents you will need are:
- Salary Slips (3-6 months depending on the bank which you are applying to
- Form 16 (1 - 3 years depending on the bank which you are applying to)
- Bank Account statement (6 months minimum, and this is for the account into which your salary is paid)
- PAN card copy (everyone needs it)
- Identity and Address proof (Driving License or Passport Copy)
- Photographs (1-4 depending on the bank where you apply)
- IT returns (1-3 years, usually Form 16 should do, but some banks insist on this)
These are some basic documents which every bank asks for. I suggest that you make 3-4 sets and keep them ready. Please ensure that you sign on each and every page of all the documents. Most banks do this to confirm that the documents received are from prospective customer only and not someone else (to prevent fraud).
Now for the silly document requests.
- Copies of degree / post graduation certificates (some PSU banks)
- Copies of repayment records and closure letters of past loans (once again PSU banks and some NBFCs)
- Recommendation letters from branch managers where you took education loans in the past (Bank of baroda actually asked me for this)
- Appointment letter from present employer (some private banks and most PSU banks ask for this)
Tips:
- If you are applying for a joint loan with the wife / husband, please keep a copy of your marriage certificate ready. if you haven't bothered getting your marriage registered forget about applying for a joint loan. (more tips about obtaining a marriage certificate in a later post)
- If you have any personal loans / educational loans / car loans please mention it truthfully in the application form, else the bank credit will get back saying you withheld information from them.
- There is a difference between a co-applicant and a joint applicant. A co applicant is a stupid concept introduced by banks to ensure that someone takes over the liability in case you die, the co applicants financials wont be considered for loan eligibility and he / she need not be a joint owner of the property. A joint applicant is also a joint owner of the property and his / her financials are considered to increase your loan eligibility.
- If your loan amount is small (below Rs 25 lakhs) even Sales executives will throw attitude and collect your documents according to their convenience.
Step 2: Logging in the documents
This is where the home loan executive collects your documents and creates a file in your name. The file is checked for discrepancies like missed signatures, information missing from the home loan application form etc. In case there is any discrepancy then the executive will contact you again and get it rectified. Finally when your file is complete in all aspects, it is logged in the operations department of the Home loan vertical. This process is almost uniformly followed by most banks.
Tips:
- The worst time to log in your file would be the last five days of a month. The executive will keep avoiding you on one pretext or the other. Most of them have disbursement targets and they are running around to get the disbursals in the cases which are already sanctioned. The best time to send your documents for processing would be the first 10 days of the month.
Step 3: The Verifications
This is a two part process, the first part consists of verification of your home and office address and telephone numbers. The second part consists of verifying your CIBIL records to check for any past defaults in loan payments / credit cards.
Tips:
- In case you have a friend working in the credit card department of any bank please use your charm and get a copy of your CIBIL report for free beforehand. You can also get it through a painful process through the CIBIL site which is best avoided. Usually banks look for a CIBIL score of 750+ to sanction a loan
- If you have some late payments in your credit card or personal loan accounts worry not, they are unsecured loans and a home loan is a secured one so the late payments don't matter so much. However a default is a serious matter and might result in you application being declined.
- Many a times (especially with PSU banks) you repay a loan and they forget to update the CIBIL records. Always ensure that you have documentary proof of a loan repayment (statement / closure letter). This is important because outstanding loans on your CIBIL file will reduce your loan eligibility.
Step 4: The Approval
This is where the people in the credit department approve your home loan amount and give the go ahead to another department to issue the sanction letter to you.
This is just the start, we still have 2 more painful processes lined up which I shall cover in my next blog post. The technical and legal evaluation of the property can make or break your deal.
General Tips and Observations:
- The first thing you need to be aware is how much loan you want and for how long. Private Banks usually finance 85% of the property value (this includes agreement value + stamp duty + registration). ICICI bank goes up to 89% in some cases. Banks like Kotak do this for their employees but not for external customers. PSU banks are generally more chindi and sometimes do only upto 80%. MNC banks also usually do 85%, for some senior employees they go upto 90%. So if your agreement value is 90 lakhs ad stamp duty and registration works out to Rs 10 lakhs. Most banks will want to give you only Rs 80 lakhs to Rs 85 lakhs. Rest has to be paid from your own pocket BEFORE loan disbursal. Bank will also ask you to show your account statement to evidence that the payment was indeed made from your own account.
- In case you wish to get 90% funding, ICICI Bank or an NBFC (Indiabulls / Reliance / Dewan Housing Finance) would be your best bet. The interest rates in the NBFCs will be slightly higher (0.5% to 1% more thank bank rates).
- Please make it very clear to all bank executives that you are negotiating with 2-3 banks for rates and approval terms, ensure that they give you an option to stop processing your papers once you have finalized something with a competitor. Once the sanction letter is out, no one will refund your processing fees.
- Some banks (like HSBC) give 25 year loans, this is really helpful to increase your loan eligibility and reduce EMIs.
- Some banks like Standard Chartered and HSBC have an interest saving product called Smart Home / Interest Saver. Its a very good product where all your savings go into a savings account linked to your home loan account. The tenor of your home loan keeps increasing according to the savings kept in your account.
- Most banks have a tie up with General / Life Insurance providers to provide you with a term cover on your loan which reduces with your outstanding. Simply out, if you die the insurance company pays off your home loan and the property belongs to your family. However some banks force you to buy the insurance product and some even club the premium amount with your loan amount hence reducing your payout to the builder. Make it very clear to the sales executive if you want the insurance or not and ensure that the premium amount is kept out of your loan sanction.
- Loan eligibility norms of most banks differ, however from experience I can safely say that PSU banks will show that you have the lowest loan eligibility. Private bank sand MNC banks are better.
- If you are looking for low interest rates only please go to a PSU bank, however be warned that the sanction process takes 10-15 days there and largely depends on your relationship with the Branch Manager. Disbursal takes a further 15-20 days as their technical and legal evaluation procedures are too lengthy.
- If the project is pre-approved / approved (for under construction properties) by a bank it makes a lot of sense to apply for a loan there as the legal and technical evaluation is already done. For a property which is for ready possession and if you are buying through a builder please enquire and find out which banks have financed flats in the building and approach those to reduce the time to disbursal.
- Resale properties (where you are buying from the house owner) are slightly trickier. Most banks wont touch a flat if the building cooperative society is not formed yet. If the society is not formed please talk to the sales executive upfront and give your papers for processing only if he confirms that his bank finances such projects. Better still, give a copy of the previous sale agreement and related documents to the sales executive so that he can check and confirm.
- If you are buying a property in Navi Mumbi be careful, two main issues: firstly the way the builders calculate super built up there is totally different from the way Mumbai city builders calculate it. As a result my 865 sq ft Chembur apartment is larger than my 970 sq ft Nerul one. Secondly there are two types of building plots Gaothan plots where the builder has purchased land from a villager who used to own it and CIDCO plots where the developmental authority (CIDCO in this case) sells the plot directly to the builder. Most banks will easily finance the second case and stay away from the first one. This is simply because in a Gaothan plot other family members of the villager might stake a claim to the plot in future and demand money from the builder and the property might get involved in a legal dispute. However a Gaothan plot becomes cool once a society if formed.
Enough gyan about the loan approval part for now. Please to let me know your views and feedback.
Coming Soon: So Long and Thanks for the House (where we evaluate the technical and legal aspects of a loan disbursal)
Previous posts about Househunting:
The Joke called Property websites
The Broker strikes back
6 comments:
On the insurance piece, you have to carefully inquire and read the terms of insurance if the loan is foreclosed.. A friend of mine was given back only 70% of the premium paid, because he foreclosed the loan after 3yrs and they said that he cannot continue the insurance w/o the home loan as they are covered under a group policy..
It is ideal if u take multiple term insurance policies with an independent company to avoid being cheated by the home loan bank..
For eg. I took a loan of 75 lacs on my house last year, I have taken 3 insurance covers of 25lacs, 2 from ICICI(premium of 6200 p.a.) and one from LIC(premium of 8000 p.a.).. Now as and when I repay the loan to the extent of 25 lacs, I have a choice of get rid of one of the 3 policies..
It gives me 2 advantages,
1. My home loan and insurance are mutually exclusive, so I can change as many loan banks, w/o having an impact on the insurance cover
2. I can periodically review the insurance cover that I require and its not based on the whims of my banker.
Also I claim tax break on the policy, not sure the joint product can avail the benefit
@Jitesh Thanks mate..I had completely forgotten about the premium I was forced to pay by Kotak for my Nerul house. Hope I get some part back.
So you are suggesting that instead of taking a home loan cover I take standard term policies covering my exposure?
@jitesh
The only disadvantage of taking insurance cover independent of your loan is that the premium amount be higher.
From your article how to increase the CIBIL Score?. I got my car loan and house lone easily...
thanks
My loan was rejected. Credit Sudhaar was my choice. Initially they were slow. But their counsellors were able to handle all my queries. I will give Credit Sudhaar a positive review
I had no idea my credit was bad. The guys at Credit Sudhaar analysed my report. The process took some time but my credit was restored, enhanced and protected. I have no reason for complaints.
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