The Process of Home Loans in India

Home loans are planned long term loans availed by various customer segments in India. It is preferred by both individuals and business users. Home loans are important but can be tricky if proper planning and adherence of the same is not taken into account. Henceforth it is important to understand the process of seeking a home loan and following the same in a step-by-step manner.

  1. Self-Assessment:  Self-Assessment usually works on two levels. At the individual level, you got to assess your own risk factors before taking a home loan. It’s like understanding your current salary and assets and forming an idea how much loan and what should be your ideal repayment time. Secondly, if you have a property in your mind, home loan process becomes quicker. You need to visit the website of a bank or HFC (Housing Finance Company) for list of documents. For cases where you have already finalized your property, arrange the property documents as per as list of property documents required by bank. The main objective is to understand all documents are in place and you have a clear idea that you want to avail a home loan.
  2. Application: You can avail assistance of Bank Representatives or you can yourself visit nearest bank branches to avail a home loan. You can also enquire via the bank website. The representatives automatically will get in touch with you. Fill up the application form and submit all the necessary documents.
  3. Evaluation of application by Bank: Next step is the assessment by bank that the application is duly submitted with all the documents. This is the 1st step of initiation for the internal process. Bank will evaluate all of your documents and fix the loan eligibility. Some factors considered by  bank are :
    1.  Age Proof.
    2.  Income Proof.
    3. Nature of Job.
    4. Existing Liabilities.
    5. Existing Assets.
    6. Repayment capability.

                                    Banks generally carry a Residence, Office and CIBIL verification during home loan process.

  1. Bank Verifications: Banks usually do both property and legal verification for home loan clearance process. As part of the legal process, independent legal verification of the property is conducted by the lawyer. A legal verification report is submitted by the lawyer to the bank. Customers can also have the same paying a nominal amount of fee.

                                  As a part of technical valuation, Bank will appoint a valuer who will assess the fair market value of the property so that appropriate loan amount can be disbursed against the property.

  1. Home Loan Sanction: After all the requisite verifications completed by the Bank, Bank will sanction home loan against property. A sanction letter is issued to the borrower who has to sign the home loan agreement. Home loan agreement will have all the information along with terms and conditions. Borrower has to submit the original documents, ECS along with cheques, as per as Banks requirement for completion of the process.
  2. Loan Disbursement:  Borrower may finalize date of registration after home loan agreement is signed. Borrower may give written request to Bank for disbursement letter and the Bank will issue the DD/Banker’s cheques and the process is completed.

Some Important points to understand here:

  1. Property value less than Rs. 20 Lakhs, You can avail loan up to 90% of property value , else it is 80% of the property value subject to your repayment capability with the bank.
  2.  No matter where in India you want to have a property, you can avail home loan from your base location.
  3. A CIBIL score of 750 is a must but it does not guarantee assured home loan approval.
  4. The entire process usually takes maximum of 10 days to complete.

                                       So Go Grab your home Loan today only.

Tax Queries Answered Featured

Tax season is on! And so every individual (salaried or businessman), needs to do proper tax planning to ensure that excessive money is not lost or wasted. Tax planning sometimes can be tricky, especially if you don’t know how to file it properly.

Here are some  basic queries most Indians do have while filing their tax

  1. What are the major sections under which I can file tax?

Very basic, but very pertinent question while Income tax Planning, lets understand the various sections under which you can basically file your tax:

  1. Section 80C: The most prima facie section to do a proper tax filing. Section 80C deals with a total limit of Rs. 1.50 lakh from the financial year 2014-2015(assessment year 2015-2016). Under this section you can file for your tax returns if you have schemes like NSC, PPF, pension plans, life insurance plans and government bonds. Also under section 80C the principal amount paid for your home loan is also eligible for a tax deduction.
  2. Section 80D: This section deals with the health insurance premium paid with an increase of limit up to Rs.30, 000 p.a for someone who is paying premium for senior citizens.
  3. Section 80E: Payment of educational loans can be filed via this section.
  4. Section 80CCG: This section allows you to file for Rs. 25,000 if you have a Rajiv Gandhi Equity Savings scheme up to Rs.50, 000 on certain conditions.
  5.  Section 80DDB: Under this section, you can file for tax deduction on the expenses made on a dependent’s treatment for specified diseased. Maximum deduction is Rs. 40,000 (on Senior citizens, its Rs. 60,000).
  6.  Section 54EC:  If you have sold any property and have capital gains up to Rs.50 lakhs, you can invest to save tax on capital gains.
  7. How much usually it takes to get my previous year returns :

Income Tax Department usually is a streamlined process so the refunds are usually processed within 120 days if not more. However remember to file your ITR on time and provide proper bank details.

  1. When can you be audited?

If you have a turnover of more than Rs. 1 crore as a business person or you have a turnover less than 1 crore but your profit is less than 8% of turnover you will be audited u/s 44 AD. You will also be audited, if you are CA/Doctor/Lawyer and you have receipts more than Rs. 25 lakhs.

  1. What are the tax implications in the early stages  if you purchase a home loan :

You can get deductions in your home loan under section 80C only up to the extent of your principle amount paid but that also in your early stages of your home loan cycle is hard to receive full. Let’s say amount deducted for PF and insurances are Rs. 80,000. You can only receive tax deductions up to Rs. 70,000 only (Upper cap being Rs. 1, 50,000 U/s 80C), no matter how much more you pay.

  1. Difference between New and Old ITR forms:

In new ITR forms, introduction of Electronic Verification Code, easy filing for super senior citizens, detail listing of all bank accounts in FY  with details of both domestic and foreign travels, domestic and foreign assets etc. will be the new provisions which will be added for making the process more transparent for both users and the authority.

Why shouldn’t the China crisis worry you?

Markets dwindling, economies struggling and Governments fumbling!! Sounds catastrophic, doesn’t it? Well not quite that catastrophic like a typical “2012” movie or a Zack Snyder directed Superman vs. General Zod fight scene.

Nevertheless the present economic situation of the world is quite precarious. China, the manufacturing hub of the world is on the brink of an economic meltdown.  For the first time in decades, its economy has shaken up with a jolt. While the inflation rate is growing leaps and bounds, producer prices have undergone a free fall. It might not be long before the inflation rate puts the Chinese economy into tantrums.

To add to the woe, the global purchaser USA is suffering a serious dearth of cash flow. It is a widely known fact that the biggest consumer of credit on Mother Earth is the United States of America. But now the cash required to feed it’s credit is drying up slowly which might pose a serious problem to the global economy.

Other nations too are feeling the heat owning to the fact that the two mighty economies of the world is going through an economic slowdown.  This is particularly true for the Asian economies which have been stuck in a conundrum between the Chinese economic crisis and the American shortfall of cash. However, it doesn’t mean that you should be filled with despair. There are ample reasons to be optimistic as well from an investor’s point of view. Just like old leaves fall off a tree only to make way for shiny green twigs, same is the case with the economy. It is essentially a cycle and eventually the bad phase will be over to make way for a brighter economic phase.

So it’s important not to freak out yet. Don’t just start cutting down on your consumption randomly. But doing this, you are simply putting fuel to the fire. Spend on things that are necessary but avoid luxuries.

You must also keep in mind that often, economic slowdowns are the good time to invest wisely. You get time to think and invest in commodities, properties, mutual funds and stocks with a long term prospect in mind. So judge the pros and cons, and make that investment that you were always eyeing to do. You have got to mobilize your finance to make that investment happen though. You can also consider taking a loan if the investment you are going to make is worth it. Even if the economic downturn hits us, i.e. India, we still have some time left to get prepared.

 However, an economic downturn hitting India is less likely to happen. Our economy has a quite robust base and India is to a large extent, insulated from such global meltdown effects. In the past too, the effects of recessions were significantly much less on the Indian economy. So it goes without saying that the present slowdown in the Chinese economy or the USA to some extent, may open up new doors for India. But concern remains on whether to take advantage out of this situation.

So in a nutshell, it can be concluded that there is no need to go for the panic button and you can simply ease up to play it out wisely. The China crisis shouldn’t be a reason for you to lose sleep.

 

15 Mar 2017
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Importance of CIBIL Score and Risk Index and their Calculation Featured

One important thing to be noticed by the money lending institutions before lending money to any borrower is the risk involved in lending to that particular borrower. And this is assessed by help of CIBIL score or risk index calculation. These two assessments carefully track the past credit history and on basis of the same provide a borrower with CIBIL score or risk index. Which further suggests if the borrower is fit to be lent or not

CIBIL score and risk index are the primary level of short listing the long list of money borrowers. However the money lending institutions cannot leak the criteria of short listing the borrowers as it would create commotion and panic among the borrowers. Sometimes when the CIBIL score or risk index are not in good shape then some institutions and websites offer the borrower a chance to improve their CIBIL score by paying additional amount of money (keep in mind that this is of no use as top money lending institutions would ultimately look for your past records, basically 6 months). CIBIL score is analyzed o the basis of credit history of the last 6 months, the offered is basically between 300-900 whereas the risk index is calculated where the borrower is having a credit history of less than 6 months or no credit history. The risk index is offered from 1-5.

CALCULATION AND NATURE OF CIBIL SCORE/RISK INDEX

In case of assessing the borrowers, they are all put into 3 major categories;

  1. Individuals with no credit history or no data available to CIBIL:

In this case the index is notified as NA (not available) or NH (no history). Anyways this is not considered as low score by any means, yet some institutions don’t lend money if an individual has no credit history as the person is a total surprise with no negative points yet has a lot of risk involved.

 

  1. Individuals with a credit history of less than 6 months:

In this case CIBIL offers risk index to the individuals as per the nature of their credit history. Risk index is marked between 1 to 5 and the lower the number the greater the risk and the greater the number, much is a possibility of being awarded with a loan.

è Index 1 and 2 refer to a situation of high risk.

è Index 2 denotes medium risk.

è And index 4 and 5 denote lesser risk 

  1. Individuals with more than 6 months of credit history: 

In this case individuals are marked with CIBIL scores. The higher the score obtained the lower is the risk involved and vice-versa. To categorize:

  • Score 300-600 is considered enough to get the loan proposal rejected.
  • Score 600-700 is just OK. And the decision is solely in the hands of the bank.
  • Score 700-775 is considered good enough.
  • And score above 775 is considered to be an account of flawless credit history of the individual. 
  • There are around 70 different aspects that are taken under consideration for assessing the CIBIL score of an individual. As cases of exception, some individuals with very high CIBIL scores can also be denied of their loans as the “BANKS” have always been infamous for their overcautious nature. They may ignore all the good points of a credit history and stick to a single mistake made by an individual in the past.

Hence you don’t just need good CIBIL score/risk index but also a pinch of luck to be awarded with a loan from a bank.