Home Loan Procedure In India.docx

1.2 Home Loan Procedure in India:Submission of Application Form: After choosing a particular home loan, the customer submits the application form to the housing finance company (HFC) along with other relevant documents as required by the HFC. They comprise documents to establish income, age, residence, employment, investments, etc. The customer also needs to hand over a cheque for payment of an up front (non -refundable) processing fee of about 0.5-1% of the loan amount to the HFC. Validation of the Information: In the next stage, HFCs validate the information provided by the customer on the application form. They usually conduct checks on the residential address of the customer, the place of employment of the customer, and credentials of the employer. Some HFCs may insist on a personal interview with the customer and perform a reference check on the references provided by the customer on the application form. Issue of Sanction Letter :After due appraisal of customer profile, a sanction letter is issued which contains details such as loan amount, rate of interest, annual / monthly reducing balance, tenor of the loan, mode of repayment and general terms and conditions

of the loan. This is the actually the approval of the money lending procedure by the company. However, the money is sanctioned only after the documents and the property on behalf of which the loan is being granted is thoroughly verified. Submission of Documents: Once the sanction letter is passed, the customer is required to leave the entire set of original documents pertaining to the property being purchased with the HFC as security for the loan amount sanctioned. These documents remain in the custody of the HFC till the time the loan is fully repaid. Once the documents are handed over to the HFC, they send all the documents for a thorough legal scrutiny. Validation of Property: Prior to disbursement, the HFC also conducts a site visit to the customer's property to ensure that all construction norms have been adhered to properly. Once the HFC is satisfied that the property is legally and technically clear, they disburse the loan amount. The disbursement from the HFI is on the basis of the stage of construction of the property. Payment Procedure: Once all the above mentioned process, the borrower is entitled to take the money from the lender party. Until such time that the entire sanctioned amount is not drawn, the customer is supposed to pay a simple interest on the Actual Amount drawn(without any principal repayments). The EMI payments commences only after the entire sanctioned loan amount is drawn. 5.3 INTEREST RATES PROVIDED BY VARIOUS BANKS

Finance Institution

Loan period (In year)

Fixed

EMI/Lakh (INR)

Floating

EMI/Lakh (INR)

Up to 5

9.00

2076

8.00

2028

BANK OF BARODA

STATE BANK OF INDIA

HDFC

ICICI BANK

LIC HOUSING FINANCE

6 to 10

9.25

1230

8.25

1227

11 to 15

9.50

1044

8.25

970

16 to 20

9.50

932

8.50

868

Up to 5

9.50

2100

8.75

2064

6 to 10

9.75

1300

9.25

1280

11 to 15

9.25

1029

16 to 20

9.75

949

Up to 5

11

2175

9.50

2101

6 to 10

11

1375

9.50

1294

11 to 15

11

1137

9.50

1045

16 to 20

11

1033

9.50

933

Up to 5

10.75

2162

9.50

2101

6 to 10

10.75

1364

9.50

1294

11 to 15

10.75

721

9.50

1045

16 to 20

10.75

1016

9.50

933

Up to 5

10.50

2149

9.50

2100

6 to 10

11

1373

9.50

1294

11 to 15

11

1137

9.50

1044

16 to 20

11

1032

9.50

932

PNB HOUSING FINANCE

Up to 5

9.00

2076

10.50

2150

6 to 10

9.00

1267

1350

11 to 15

9.25

1030

1106

16 to 20

9.50

933

999

The above table illustrates the comparison between the interest rates from various Housing Finance Companies and banks. It can be seen that if one wishes to go for floating loans, the bank which gives the best deal as far as the interest rate is concerned is HDFC followed by PNB Housing Finance with the lower rates. Lock-in facility by banks:A lock-in, also called a rate-lock or rate commitment, is a lender’s promise to hold a certain interest rate and a certain number of points for you, usually for a specified period of time, while your loan application is processed. (Points are additional charges imposed by the lender that are usually prepaid by the consumer at settlement but can sometimes be financed by adding them to the mortgage amount. One point equals one percent of the loan amount.) Depending upon the lender, you may be able to lock in the interest rate andnumber of points that you will be charged when you file your application, d u r i n g processing of the loan, when the loan is approved, or later. A lock-in that is given when you apply for a loan may be useful because it’s likely to take your lender several weeks or longer to prepare, document, and evaluate your loan application. During that time, the cost of mortgages may change. But if your interest rate and points are locked in, you should be protected against increases while your application is processed. This protection could affect whether you can afford the mortgage. However, a locked-in rate could also prevent you from taking advantage of price decreases, Unless your lender is willing to lock in a lower rate that becomes available during this period. It is important to recognize that a lock-in is not the same as a loan commitment, although some loan commitments may contain a lock-in. A loan commitment is the lender’s promise to make you a loan in a specific amount at some future time. Generally, you will receive the lender’s commitment only after your loan application has been approved. This commitment usually will state the loan terms that have been approved (including loan amount), how long the commitment is valid, and the lender’s conditions for making the loans such as receipt of a satisfactory title insurance policy protecting the l ender. Oral or written lock-in agreement?: Some lenders have preprinted forms that set out the exact terms of the lock-in agreement. Others may only make an oral lock-in promise on the telephone or at the time of application. Oral agreements can be very difficult to prove in the event of a dispute. It is wise to obtain written, rather than verbal, lock-in agreements to make sure that you fully understand how your lender’s lock-ins and loan commitments work and to have a tangible record of your arrangements with the lender. This record may be useful in the event of a dispute. Charges of a lock-in:-

Lenders may charge you a fee for locking in the rate of interest and number of points for your mortgage. Some lenders may charge you a fee up-front, and may not refund it if you withdraw your application, if your credit is denied, or if you do not close the loan. Others might charge the fee at settlement. The fee might be a flat fee, a percentage of the mortgage amount, or a fraction of a percentage point added to the rate you lock in. The amount of the fee and how it is charged will vary among lenders and may depend on the length of the lock-in period. Types of lock-in:-Locked-In Interest Rate--Locked-In Points :Under this option, the lender lets you lock in both the interest rate and points quoted to you. This option may be considered to be a true lock-in because your mortgage terms should not increase above the interest rate and points that you’ve agreed upon even if market conditions change. Locked-in Interest Rate--Floating Points:Under this option, the lender lets you lock in the interest rate, while permitting or requiring the points to rise and fall (float) with changes in market conditions. If market interest rates drop during the lock-in period, the points may also fall. If they rise, the points may increase. Even if you float your points, your lender may allow you to lock-in the points at some time before settlement at whatever level is then current. (For instance, say you’ve locked in a 10½ percent interest rate, but not the 3 points that went with that rate. A month later, the market interest rate remains the

same, but the points the lender charges for that rate have dropped to 2½. With your lender’s agreement, you could then lock in the lower 2½. Points.) If you float your point sand market interest rates increase by the time of settlement, the lender may charge a greater number of points for a loan at the rate you’ve locked in. In this case, the benefit you might have had by locking in your rate may be lost because you’ll have to pay more in up-front costs. Indian Economy is growing at a nice pace (8% p.a) which is also driving per capita in come rise. The demand of real estate has reached at a new peak according to ninth five year plan there is a shortage of 42million houses .But in India the figures to GDP are smaller in comparison to the other countries Contribution of housing to GDP is close to 8%. Sources: NHB 5.4 Indian Market for Home loans is more than Rs.500,000 crore :Today, not only the metros are witnessing the housing crunch even the second tier cities like- Jaipur, Bhubaneswar, Lucknow, Trivandrum etc. are falling into the dearth of living space and wanting for more expansion. India Report: Indian credit report in comparison to the other Asian countries is shown in the statistics below, which is among the lowest. It is Indian psyche that credit is termed bad, Indian aretraditionally not inclined to take credit this reflects in the figures below:GRAPH :- 5.1

Domestic credit as a % GDP 180 160

153

150

140

138

136

120

114 103

100 80

77

60 40 30

20 0 0

1

2

3

4

5

6

7

8

9

5.5 Indian home loans Industry:India n Ho m e lo ans industry is gro wing at a fast pace 3 0 % per annum , this can be seen in the stats shown below with average ticket size (loan size) and Amount disbursed is rising every year the opportunities have become more dominant for different organization in India. The dem and driv ers are fast gro wing m iddle cla ss po pulatio n, rise in wo rking women workforce, bigger aspirations of youth, Tax saving, Transparency in the real estate market. GRAPH: - 5.2