If you are residing outside India and contemplating of availing a home loan to own your dream home in India, its for you. NRI homes loans are prevalent in India and made available with as much ease as to a resident Indian. However, these loans are slightly different in terms of eligibility, terms and conditions, documentation, etc. Lets look at the features that make the product different from regular home loans for resident Indians.
A Slightly Different Product
At the outset, NRI home loans are made available for the purposes of buying plots, under construction property, freehold property, renovation and maintenance of properties, etc. For extending advances to people who are not currently living in India, all banks and NBFCs go by NRI definition, specified by RBI, i.e., "An Indian citizen who holds a valid Indian passport and stays abroad for employment or carrying out business or vocation under circumstances indicating an intention for an uncertain duration of stay abroad is a NRI."
However, not all NRIs can avail NRI home loan. For the same, an NRI has to be a graduate, with a minimum monthly income of USD 2,000 in residing country in dollar terms. These limits may vary marginally from bank to bank. For instance, ICICI NRI Home pegs the minimum income level requirement at USD 30,000 per annum for salaried employees.
Besides, the tenure for which NRI home loans can be availed is shorter as compared to tenure in regular home loans schemes. The loans tenure for NRIs extends from 7-20 years, which can be extended to 25 years in exceptional cases. The authority to extend home loan tenure comes under sole discretion of the bank.
Unlike regular home loan for Indian residents, NRIs can avail home loan for maximum 80-85 per cent of the value of property, depending upon an individuals gross monthly earnings (GMI). Generally, this amount is up to 36-40 times of the GMI, subjected to a maximum limit specified by thebank. Few banks also use the maximum eligibility through EMI / NMI (Net Monthly Income) ratio, measuring your repayment capability. For instances, SBI Home Loans cap the maximum permissible loan amount up to 40% of NMI for NRIs earning annual income up to Rs 2 lakhs annual income. The criteria for annual income between Rs 2-5 lakh is 50% of NMI; whereas for persons having annual income more than Rs 5 lakh, it is 55% of NMI.
Further, the repayment of loans marks a major difference for NRIs. The loan EMIs can only be paid by the borrower through direct remittances from abroad via the normal banking channels, i.e., the Non-Resident External (NRE) account and /or Non-Resident Ordinary (NRO) account in India, and not through any other source(s). Also for security purpose, most banks stress on keeping the first mortgage of the property in their name; and if the property is under construction, an additional security such as guarantee of third-party is required. This third-party can either be a resident or non-resident of the country.
Offerings By Banks
*Broad range of rates varying as per tenure & amount of loan
1. For home loans up to Rs 20 Lakhs = 20%, for loans above Rs. 20 lakhs: 25%.
2. Maximum Holiday Period of 18 months allowed for Home Loans for the purpose of construction of House / Flat.
3. Applicants below 45 years: 20 years, Applicant s above 45 years: 15 years
4. For Self-Employed persons
5. $30,000 for salaried employees and $42,000 for Self-Employed persons.
6. Persons above 55 years of age are also eligible subject to certain stipulation of RBI.
7. Selectively loan upto 5 years' gross salary / income also permitted
8. Up to Rs 3 crore for loans in Metros, in Bangalore, Pune and Chandigarh.
In terms of interest rates, NRI loans could be slightly expensive ascompared to home loans for resident India. Typically, an extra margin of 0.25-5% is added to the regular home loan rates to cover up the risk. In addition, NRI home loans are always available on floating interest rates and fixed rate loans are not offered by banks.
Documentation is one critical area that NRIs need to deal with while availing a home loan in India. NRI borrowers are required to submit additional documents, like copy of the passport and copy of contract of work, minimum work of experience, etc. and in most cases, Power of Attorney (PoA) in a name of a representative in place of NRI, who would deal with the bank requirements. However, PoA is not mandatory and usually drawn in the name of NRIs parents / wife / children.
Typically, the following documents are needed to obtain a NRI home loan in India:
1. Passport and Visa
2. A copy of appointment letter and contract from the company employing the applicant.
3. The labor card / identity card, if the person is employed in Middle East.
4. Pay slips/ salary certificate specifying name, date of joining, designation and salary details.
5. Bank statements for NRE/ NRO account, usually for last 6 months and
6. Brief profile of the applicant and business / Trade license or equivalent document, in case of self-employment.
7. In case of self-employment, P&L account and balance sheet of the company for last 3 years, certified by CA / CPA or any other relevant authority will be required.
In addition to the documents related to income proof, one also needs to submit the following property documents for the loan approval and disbursement:
1. Original title deeds tracing the title of property, for a minimum period of last 10-13 years.
2. Encumbrance Certificate for last 10-13 years.
3. Agreement of sale /construction, if any.
4. Receipts for payments made for purchase of dwelling unit.
5.Approved plan / license.
6. Proofs of income transfer/ receipts for transferring the margin money through normal banking channels from Non-Resident (External) / Non-Resident (Ordinary) account in India.
7. Latest tax paid receipt.
8. Allotment letter from co-operative society / association of apartment owners.
9. Agreement for sale / sale deed /detailed cost estimate from Architect / Engineer for property to be purchased / constructed /extended / improved.
10. Copy of approved drawings of proposed construction / purchase / extension.
In general cases, NRIs cannot claim tax benefits on home loans in India as they have to pay tax in the nation where they are currently earning and residing. However, if they pay tax in India for income earned in India, they can claim for the tax rebate available for home loan. The tax treatment in this case would be similar to a regular home loan, as available to resident Indian.
The NRI home loan is easily available with little document hassles, which is completely justified given the banks risk of dealing with a frequent traveler. Moreover, NRI home loans are available with most banks and NBFCs with negligible incremental cost in terms of interest rates. So, get the information and leverage the opportunity to make your dream house come true.
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