Tuesday, 25 March 2014


Generally, it is very difficult to construct a house without availing housing loan. There are numerous Housing finance Institutions (HFIs) viz. Banks and Housing Finance companies which provide housing loans ranging from few thousands to millions of rupees.Inspite of existence of various agencies that provide for housing loans, availing such loans may not be an easy task since there are lot of instances where such loan borrower  are rejected out rightly due to various reasons.

When an application for the house loan is rejected, it is quite natural for the applicant to get disappointed and at the same time wonders what went wrong for the rebuff.There may be a big communication problem at that juncture and the applicant may never get to know about the exact reason for the rejection of the application or he may get an evasive response.The Bank Official who deals with the Borrower will play a major role and enlighten the borrower about the procedure rather than keeping the applicant in the dark.

Types of Housing Finance/Loans
There are different types of Housing finance/loans available for the different categories which are listed below.
1. Purchase of land–Loan is given for purchase of site. Most of the Bankers do not entertain sanction of such loans since calculative risk is more in such loans.

2.Constructed houses or Flats–Loan is sanctioned for the purpose of purchase of a house which is already constructed and available as readymade. The same can be availed for the purchase of flats too.

3. Construction Loan –As the name itself suggests, loan can be availed for construction of a building on the entire property.

4. Composite Loan–This means that loan can be availed both for buying a site and constructing a house.

5. Take over Loan–This means taking loan from one bank to another Bank, in order to clear the dues of the other bank.

For each of the above said loans, margin money will differ and also certain restrictions will be imposed by the Banks before the loan is sanctioned. For instance,when a person avails the composite loan,he should construct the house within the stipulated period, which may vary from 12 to 24 months as per the terms agreed.There have been many cases where the applicant and a builder enter into an agreement for availing housing loan, which is required for the builder to commence the project and subsequently vanishes with the unutilized loan amount once the huge chunk of principal amount is received by the builder, leaving the applicant in the lurch and making him to face the consequences. It is advisable for the applicant to take necessary precaution before applying for the loan and utilizing it properly.However, this kind of problem can be avoided if the applicant approaches reputed and established Builders.

Regular Income of the applicant  
The first and foremost criteria of the Banks before sanctioning or even entertaining the loan application is about the steady monthly income of the applicant. If the applicant is a salaried man, either serving in a Government organization or private company, the first hurdle is cleared. Then the Banks will enquire about other aspects such as IT returns being filed by the applicant for the past two or three years, Bank Statements for the last 6-12 months and other relevant documents to ascertain financial status and banking transactions.Further,Bank financial statements will reveal outstanding loans and repayment details,bounced cheque details, regular credit of income, any subsisting encumbrance and if such statements are satisfactory to the Bank, then it is the first round of victory for the applicant.

Margin Money
Usually, Banks provide the loan to an extent of 85% of the total estimated amount of the plot or property or flats.The remaining 15% has to be arranged by the applicant and the loan will be sanctioned by the bank only after giving satisfactory evidence regarding his capability of mobilizing that 15% of the balance amount.

Credit Rating
Loan will be sanctioned on the basis of the present salary and only 50% of the salary amount will be considered for the loan repayment purpose by the Bankers.For instance, if the applicant is getting Rs. 10,000 PM take home salary, loan will be sanctioned taking into consideration his salary status, 50% of the salary will be taken for repayment of the proposed loan and the remaining Rs.5,000/-will be considered as the amount for his expenses. Even if a person is getting Rs.25,000PM as gross but Rs.10,000 as take home salary, he may get the loan amount considering his take home salary and not his gross. Apart from this, other factors like the applicant’s antecedents are also thoroughly checked before sanctioning of the loan, wherein the  Bank will look into the total number of dependents of the applicant to ascertain his repayment capacity.If the dependents are more, the loan amount sanctioned will be obviously less.

Each Bank has its own prescribed criteria pertaining to monthly income of the applicants based on which the loan is sanctioned.There is also a necessity of a Guarantor’s signature in some cases.Applicants who do not have a fixed income are not entertained by a majority of Banks.

Age Factor
Generally availing loan jointly by all the co-owners will increase the borrowing capacity. Further, the age of all the co-owners should neither be less than the lower limit nor exceed the upper limit.However, age limit will vary from one Bank to another.It may also affect the tenure of the house loan as well as EMI’s. Some of the Banks may stick to 70 years as the upper age limit for the co-applicant. If the applicant is 35 years and the co-applicant is 60 years, then the loan will be sanctioned for a maximum period of 10 years.In other cases, the applicant’s retirement age is also taken into account. If the applicant is 54 years old and would be retiring by 60, then the maximum loan tenure would 6 years only.

Property age
It is a known fact that the age of the property is vital in case of a resale. In many cases, loans are sanctioned on resale properties if such properties are aged less then 50 years.If the applicant intents to buy properties situated in the areas which are black listed by the Banks for various reasons,then such application will be rejected, irrespective of applicant’s financial status.The said property should be within the geographical limits as defined by Banks for the sanctioning of the loan.Some of the multi-national banks have their own set of rules and normally do not entertain the loan applications of TV and other artists, police, journalists, politicians, advocates and others.

Legal Aspects
All said and done, paramount importance should be given to the legal aspects. The title of the property should be clear in all aspects right from the origin, flow and the present status.If the title is not clear, the application will not be entertained and it may be rejected.The Banks will not sanction the loan even if the opinion is clear but the supporting original documents are missing since it may conclude that the property is either mortgaged elsewhere or having some other problems.The actual market value and the percentage of deviation of the property will also be taken into consideration before the sanction of the loan.

Thus, there are not many hassles to get a loan from the Banks of your choice provided all the pre-requisites are fulfilled by the applicant. Some years ago, a person would have ventured to construct a house after 45-50 years duly saving the required amount to construct a house. But now due to the accessibility and availability of easy loans from Banks, youngsters between the age group of 25-35 are either constructing new houses or buying an apartment which is indeed a good sign.

Though the switch-over to a liberalized lending regime has brought in competition and efficiencies in the housing finance market, factors like the ability to cater to the larger segments of the population, including those in rural areas is still a challenge.These segments are outside/below the income tax bracket and the fiscal benefits are no concessions for them.The Bankers expect higher equity from the applicant’s side for sanctioning the loan. 

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