NRI Real Estate and Property Investment in India
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NRI Housing Finance

In order to get a housing loan approved by a Housing Finance Company, a NRI borrower is required to submit several documents pertaining to the property. Financing a home through housing finance companies carries a double advantage for NRIs.

Apart from making funding easier for the investor, the HFC examines the documents before disbursing the loan, and certifies that the papers are in order. Even though all liabilities are eventually borne by the buyer, the process reassures him of the credibility of the investment.

Besides, since NRIs are allowed to repay the loan in foreign currency, the proceeds of the sale from the property are fully repatriable, in case he wishes to dispose of it at a later date.

To avail a loan, the following elements can be kept in mind:

Eligibility

  • Non-resident Indians planning to return home
  • Government servants stationed overseas on duty with the Indian missions or deputed abroad by foreign Governments or international agencies
  • Loans are also granted for renovation of an existing property.

Persons of Indian origin, however, are not extended housing loans by housing finance companies.

Loan Limits
Housing finance companies can cover up to 85% of the cost of the residential property, with an upper limit of Rs.1 crore. The capacity to repay determines the maximum that an NRI can borrow, which in turn is determined by such factors as: income, age, qualifications, work experience, number of dependants, income of spouse, assets, liabilities, stability and continuity of occupation, employment prospects in India, and savings history.

As per a circular issued by the RBI on 31st January, 2007, if the loan is against the NRI's NRE and FCNR accounts, the maximum loan amount cannot exceed Rs. 20 lakhs.

Rate of Interest and other charges
Interest rates will range from 11.25% to 14.25% per annum, as different finance companies have an independent structure broadly guided by RBI directives.
Processing fee to be paid on the loan varies between 1 and 2% of the loan amount, depending on the financial institution.

Interest Payable
The interest is generally paid on the reducing balance, i.e. interest is paid only on the unpaid portion of the loan. Individuals must check on the calculations - whether it is being calculated on a monthly, quarterly or annual reducing balance. A monthly reducing balance, wherein interest is calculated every month is easier on the pocket, as the principal becomes lower at monthly intervals.

The shorter the period of the loan the higher the amount you pay each month. So choose your repayment capacity, and then work backwards to settle your payback period. To calculate your payment plan your dealer wi11 calculate your total liability, i.e. principal and interest, and then apportion it into EMI's (Equated Monthly Installments). Processing fees and administrative fees also have to be borne by the borrower.

An amortization schedule is a helpful tool to keep track of the loan amount, as it gives the reduced loan amount every month. It also gives the breakup of every EMI towards repayment interest and outstanding principal of the loan.

Time Span of Loan
Generally loans are disbursed for a period of 3 to 10 years, and NRIs can avail of time spans to suit their convenience.

Repayment of Loan
Loans are repaid in Equal monthly installments (EMI) comprising principal and interest Repayment starts from the month following the month in which the loan was disbursed. Pre-EMI interest is paid on the principal amount first, before the EMI starts. NRIs can make EMI payments through post dated cheques from their NRO account.
Payments for fees, charges, and pre-EMI interest should be remitted from abroad through normal banking channels or from the Non-Resident (External) Account/Non-Resident (Ordinary) account in India.

Loans can also be repaid by the borrower's close family through their account in India by crediting the borrower's loan account. Settlement of loan in foreign exchange is treated as equivalent to foreign exchange received for purchase of residential property.

Guarantee for the loan
The residential property that is being purchased is mortgaged to the financing institution, by submitting title deeds and other collateral security as may be required.

Loan Disbursal
The borrower can choose between a one-time disbursal of loan and a series of instalments to suit the payment module of the property one intends to buy. Either way, the loan can be availed as soon as the documents are processed and the individual has paid up his own contribution.

Pre-payment of Loan
The NRI can repay the loan well ahead of schedule by remittances from abroad through normal banking channels, the Non-Resident (External) Account and/or Non-Resident (Ordinary) Account in India. Most institutions do not levy a pre-payment charge.

Supporting documents to avail a Housing Loan:

1. Employment/Residency related documents

Photo copies of:

  • Employment contract (if the contract is in a language other than English, an English translation of the same attested by the Embassy/Employer should be attached).
  • Latest salary slip.
  • Latest work permit.
  • Identity card issued by current employers.
  • Visa stamped on the passport.
  • Continuous Discharge Certificate (CDC) - (if applicable).
  • Overseas Bank Account Statement for the last four months.

2. Property Related Documents

  • Receipts for payments made for purchase of the dwelling unit.
  • Copy of approved drawings of proposed construction/purchase/extension.
  • Agreement for sale/sale deed/detailed cost estimate from Architect/Engineer for property to be purchased/constructed/extended.
  • Allotment letter from the co-operative society/association of apartment owners.

3. Power of attorney

 

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