How To Get A Mortgage In India (Property Loan) – Step By Step Guide

mortgage in india

A mortgage in India, also popularly referred to as a “property loan”, In its simplest definition can be called as a loan from a bank or any lender to help you finance the buying of a home, or land, or property. Once you take a mortgage, you bear a promise that you will repay the borrowed money along with an interest charged.

Here, the home or property serves as collateral.

Getting a mortgage in India in your 20s is advantages, because your tax liability is decreased as a result of lowered taxable income; something known as tax deduction.

Furthermore, you shall find it much easier for credit to be extended to you as getting a mortgage in India enhances your reputation of having the ability to repay; or in other words, it enhances your credit history, and of course, you have the advantage of not having your rent feeding on your monthly salary.

On the flip side, one should note that a mortgage in India is probably the biggest debt you are going to take in your life. It holds up a lot of your money, a lot, in one investment, and makes it difficult to be accessed.

Adding to the list, the process is very lengthy and requires payment of a hefty amount of documents. And, apart from the documents, you also must have enough credit history to get a mortgage in India.

How Do I Get A Mortgage In India?

Requirements to apply for mortgage in India differs from one bank to the other. However, all banks have the following regulations in common:

1. Whichever bank you want to borrow from, the first step is to open an account with the same bank. Usually along with mortgage in India on a property, banks also require demand deposit payments.

[Demand deposit it nothing but an account with a bank that allows you to withdraw your funds without warning or with less than 7 day notice.]

2. The second requirement you must know about is what documents are required. Banks distinguish between salaried and self-employed applicants. So that means the two have to submit a different set of documents.

The following is a list of general documents required by all banks in India:

Salaried:

1) Fill and sign a “Loan against property” application form.

2) A bunch of passport size photographs.

3) Several copies of all of the following are required as proof for your identity and signature:

3.1. Passport

3.2. Aadhar card

3.3. PAN Card

3.4. Driving License

3.5. Voter ID

And an additional

3.6. Employee Identity Card for government employees

Have to be submitted.

4) All of the following are required to prove your age and address:

4.1. Bank statements

4.2. Rent agreements

4.3. Ration Card

4.4. Passport

4.5. Driving License

4.6. Telephone/ electricity/ water/ Credit Card Bill or Property Tax.

4.7. Class 10 certificate

4.8. Birth certificate

4.9. Passport

4.10. Aadhar card

4.11. Pension Payment Order

4.12. Reciept of LIC Policy

Are mandatory.

5) Copies of salary slips from the past 3 months from the set application date.

6) Submit Form-16, which is to be issued from your present employer.

7) Bank statements of the past 6 months from the date of application.

8) Submit copies of all existing loans.

9) The whole process means that the bank has incurred certain costs in processing your application. You have to submit a cheque that covers all the processing fees incurred in the whole process.

10) Lastly, submit your property papers with OC and CC.

Self-employed business persons:

1) Duly filled and signed “loan against property” form.

2) Passport-size photographs.

3) Several copies of all of the following are required as proof for your identity and signature:

3.1. Passport

3.2. Aadhar card

3.3. PAN Card

3.4. Driving License

3.5. Voter ID

And an additional

3.6. Employee Identity Card for government employees

Have to be submitted.

4) All of the following are required to prove your age and address:

4.1. Bank statements

4.2. Rent agreements

4.3. Ration Card

4.4. Passport

4.5. Driving License

4.6. Telephone/ electricity/ water/ Credit Card Bill or Property Tax.

4.7. Class 10 certificate

4.8. Birth certificate

4.9. Passport

4.10. Aadhar card

4.11. Pension Payment Order

4.12. Reciept of LIC Policy

Are mandatory.

5) Copies of IT returns of 3 years preceding the one in which loan is applied for has to be submitted.

6) Copies of details of all existing loans that the applicant has taken.

7) Property papers with OC and CC.

Some factors to contemplate when deciding when to buy out a mortgage in India

1. When you take a mortgage in India or home loan, you commit to paying almost EMI (Equated Monthly Installments) of as much as up to 60-65% of your monthly income for a period that may be as long as 30 years.

So, you take a large and long term obligation. Hence, it is important that you make the right decision that doesn’t hurt you in the future.

If you’re thinking that you will move often for work or decide to relocate within the next few years, you probably don’t want to take out a mortgage in India just yet.

One must answer the following questions before buying a mortgage in India:

a) How much EMI you can comfortably pay every month:

This should not exceed 60-65% of your net post tax pay.

b) Calculate your loan eligibility for various loan tenures based on this EMI and your age.

Opt for the shortest loan tenure that meets your loan demand.

In addition to your earnings, also inform the bank about your other fixed income such as rent and interest to increase eligibility.

The loan quantity cannot exceed 75 – 80% of the price or market value of the house you’re buying.

So, make arrangements for the balance amount.

2. Check approval status of your property:

Banks might not invariably approve all towers, all blocks and all floors in a project at the same time.

So, it’s vital that you simply check the approval status for the particular flat that you are shopping for.

3) Check the payment plan scheme under which the project has been approved:

Builders sell projects under:

Time linked plans (TLP)

Construction linked plans (CLP), and

Subvention schemes.

Most banks fund projects only under CLP.

Some housing finance firms fund comes underneath TLP and subvention schemes.

Mostly, many builder projects are approved under CLP but the approval list for TLP and subvention schemes is shorter.

Ideally, banks fund upto 75 to 80% of the eligible cost, which does not include items such as:

electrification charges

club membership fees

security deposit

maintenance charges

stamp duty, and

registration charges.

Some banks might fund service tax and VAT partly.

Making a Mortgage in India More Affordable

1) Making the right choice between Floating rate loans and Fixed Rate loans:

In the present market situation, floating rate loans are more preferable than fixed rate loans. Floating rate loans have nil prepayment charges unlike fixed rate loans.

Fixed rate loans may be advisable in a situation where you feel that your monthly cash flows (after paying off EMIs and other expenses) cannot take any additional burden when interest rates increase. Fixed Rate loans, however come with a greater interest rate and mostly carry a prepayment penalty charge.

Moreover, a fixed rate is rarely fully fixed. Most banks provide fixed rate for the initial time frame and convert this into floating rate thenceforth. Fixed rate period may vary from 1 year to 10 years though the total loan tenure may be upto 30 years.

Always check what’s going to be the applicable rate once the fixed rate period ends. Many customers have complained that they see a pointy increase in rate of interest once the loan converts from fixed rate to floating rate.

It is suggested that you choose a bank that allows you to prepay your loan without any charges.

As per RBI circulars, banks are not allowed to charge prepayment penalty or charges on floating rate home loans. However, banks could charge penalty on prepayment of fixed rate loans.

Charges might vary from 1 Chronicles to upto 3-dimensional of the loan quantity. So, check this facet rigorously before choosing a bank and residential loan.

Another option may be a smart loan or an interest saver loan. One must consider Home Credit or Home Saver or Maxgain options which allow you to deposit your surplus savings in a bank account and pay interest on home loan only on the net difference between the two.

So, for the duration that your surplus money stays within the bank, you pay less interest on your home loan.

2) Select the best bank for mortgage in India:

Your choice of banks should be based on the following factors:

a) The rate of interest.

b) Turnaround time and customer service levels: Read customer ratings and reviews. Check if those banks can give you doorstep service and for which ones would you have to go to the bank branch.

c) Check the past base rate trend of the bank. See if the bank changes rates too often. Check if the bank passes on the advantage of lower policy rates to its old customers or not.

d) Compare offers and choose the one that’s best and not necessarily the cheapest.

Compare offers on interest rates, process fees, client ratings, service and all-in-cost.

On the whole, taking the decision of buying a home may seem highly intimidating altogether, because it is a significant financial decision that comes with several risks, especially if you are in the early days of having a career.

Taking a decision of this kind requires deep scrutiny of risks as well as good planning. But once that is provided, the decision of home ownership can prove to be extremely profitable and rewarding.


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