Who can take a joint loan and how?

Home Loan eligibility can be enhanced by clubbing the incomes of relatives or kins. This is one of the main reasons why one would want to opt for a joint home loan.

Clubbing of incomes of relatives:

Eligibility is also calculated by clubbing your income with your kin's. All banks allow clubbing of the spouse's income to work out the loan eligibility. In such cases, they insist on making the spouse as a joint borrower (or co-borrower).

The basic premise behind using pooled incomes for calculating eligibility is both parties will actually combine their income and pay off all expenses (including the home loan installment).

However, banks are selective in extending this concept of pooling of incomes to other relations.

Some banks allow parents and children to be joint borrowers, while a smaller number of banks allow brothers to be joint borrowers. The reason for the restrictions is because in the event of some dispute arising between the joint borrowers, the income stops getting pooled and there may be a problem in paying the loan installments.

Of course, disputes may arise between spouses too. Banks factor in these risks while computing the cost of doing business. Which is why, banks do not allow friends to be joint borrowers. This can pose a problem for a small community of couples living together without marriage or even same-sex couples.

The amount of loan offered by the bank differs according to the borrowers income profile and repayment track-record.

As a rule of the thumb, you may get 4 times the annual gross income as a home loan.

Are 'nationalised' bank loan products better than those of 'private' banks?

A bank is a bank is a bank. It does not matter whether the bank is a public sector bank or a private sector bank. What matters is the loan product. Having said that some consumers prefer public sector banks because in their opinion there will be no coercive measures if they happen to default on their loans. Whilst this is true to some extent nowadays even public sector banks have begun appointing private collection agencies for collection of their outstanding amounts and hence this differentiation may not remain.

How do I find out if there are hidden charges in my loan product?

There are other 'small' or virtually hidden charges in a home loan product.

Apart from the interest rate the consumer should consider the following charges:

• Any processing or administrative fees of any nature,
• Commitment fees though this is rarely charged nowadays,
• Legal fees payable to the lender or to the legal consultants of the lender,
• Technical or Valuation charges - payable to the lender or to his technical consultant,
• Stamp duty on creation of mortgage - some banks charge this fee whilst other banks normally just have a clause that requires this to be paid in the event the state government actually charges this amount. The escape route for non-payment of this duty are progressively being eliminated and the fact that the consumer carries the liability to pay this duty in the future if demanded by the state government along with interest and penalties in the future. So, this should not really be used by a consumer to eliminate a lender just because he is paying this stamp duty to the government,
• Prepayment Charges - This is the biggest charge that most consumers miss taking into account. More than 50% of the consumers will prepay their home loans and will incur this cost.
• A loan can be prepaid either in part or in full at any given point of time. You can also prepay a loan even when it is only partly disbursed. However, most banks have an upper limit on the number of times a person can prepay his loan in a year as well as on the minimum amount you can prepay each time. Until recently, banks charged a penalty for part or full prepayment.

• Increased competition has forced most banks to allow partial prepayment at nil charge. Most banks charge a prepayment charge if you make full repayment and ask for release of your property documents.

Which is the best bank to take a loan from?

There is no such thing as a 'best bank' in the market.

If such would be the case, all other banks and schemes would have no consumers at all. Different banks are strong in different areas depending on the type of client, the type of property and specific loan needs.

You will have to explore the market to find the 'best bank' suited to your needs. You can also use loan marketplaces like www.apnaloan.com to meet your needs.

How much loan can I get?

The loan amount sanctioned depends on a host of factors. Primarily, it depends on your income and repayment track records. But besides that, the cost of the property to be purchased is also a deciding factor. So, even while you are looking for a lender, make concrete efforts to identify a property.

Your ability to repay is based on your income and expenditure pattern. For instance, if your monthly income is Rs.10, 000, and your monthly expenses are Rs.8, 000, you can certainly pay Rs.2, 000 towards any potential home loan you take.

This amount can now be used as the installment amount and your eligibility can be reverse-calculated. This is easy. The following example will demonstrate the eligibility calculations.

At an interest rate of 9%, the monthly installment of a Rs.1 lac, 20-year loan is Rs.900. Banks then calculate your eligibility using a simple formula:

Home loan eligibility in lac is equal to the amount determined by the bank as available for loan repayment divided by loan installment per lac for the selected tenure

OR

Loan eligibility = Rs.2, 000/900 x 1 lac = Rs.2.2 lacs

Obviously, the larger your repayment capability, the higher will be your loan eligibility.

In the same example, if the bank also takes into account the amount of rental (say Rs.1,000) that you will save as a result of moving into your own house and thus calculates the amount available for loan repayment as Rs.3,000 (by adding Rs. 1,000 to the Rs. 2,000 you had earlier), then the eligibility will shoot up by 50% to 3.3 lacs as follows:

Loan Eligibility in lacs = Rs 3, 000/900 x 1 lac = Rs 3.33 lacs

In actual practice, however, it is difficult to estimate the monthly expenses of each borrower separately. Which is why banks use a pre-determined percentage of your income as being available for paying the loan installment, based on their past experience as well as available household expenditure data. For instance, a bank may assume that if your income is Rs.20, 000 per month, 40 per cent of that (i.e. Rs.8000) will be available for repayment. They then calculate the loan eligibility accordingly.

This percentage also varies depending on your income on the assumption that those with higher incomes should be able to spare a higher percentage of their income for repayment. Hence, the bank could have slabs like:

For income up to:

• Rs. 9, 999 : 35%
• Rs. 10, 000 to Rs. 14,999: 40%
• Rs15, 000 to Rs 19,999 : 45%
• Rs 20,000 and above : 50%

As per this formula, if your monthly income is Rs.10, 000, the loan eligibility is:

• Amount available for payment of loan installment = Rs 10, 000 x 40% = Rs 4, 000
• Loan eligibility in lacs = 4, 000/900= Rs 4.44 lacs
• If your income is Rs.20, 000 your loan eligibility is calculated as follows:
• Amount available for payment of loan instalment = Rs.20, 000 x 50% = Rs.10, 000
• Loan eligibility in lacs = 10, 000/900= Rs.11.11 lacs

Thus even though the income only doubles from Rs.10, 000 to Rs.20, 000, the loan eligibility could be 2.5 times as per this increasing percentage formula.

But whatever the norm, invariably, for the same income, the eligibility for a longer tenure loan will be much higher.

For instance, if your monthly income is Rs.15, 000 and if, as per the bank's formula, they assume you can afford Rs.7, 500 (50%) for monthly repayment of the home loan, then your loan eligibility is calculated as follows:

At an interest rate of 9 per cent, the monthly instalment for Rs 1 lac for a tenure of 5, 10, 15 and 20 years will be Rs.2, 076, Rs.1, 267, Rs.1, 014 and Rs.900 respectively. In this case, you can use the simple formula above to calculate your eligibility:

Thus you can see that for the same income the eligibility for loan is higher for longer tenure loans.

You can also check the 'advanced home loan eligibility calculator' on the website if you have the relevant numerical data.

If you are self employed, click on the link below:

http://www.apnaloan.com/loan-advice-india/advanced-loan-eligibility.html

If your are salaried, click on the link below:

http://www.apnaloan.com/loan-advice-india/simple-loan-eligibility.html

What are the documents required to apply for a loan?

While submitting the application form, banks will ask for documents to establish your income.

This will need to be backed up by proof such as copies of last three years' I-T returns (along with copies of computation of income/annual accounts, if any), Form 16/Form 16A, last three months salary slips, copies of the last 6 months' statements of all your active bank accounts in which your salary/business income details are reflected, etc.

For self employed persons, if the income has increased dramatically in the past year, it might be advisable to have your explanation ready as to why you think this is a permanent increase in your income rather than just a one time aberration which may decrease in future.

The impact is that if the bank is convinced with your explanation, then the loan eligibility can be considered in relation to the latest income rather than considering the much lower average income.

For salaried employees, if the income has increased since the last financial year as evidenced by the latest salary slips then such increased salary can be taken into account for loan eligibility purposes.

Your bank statements are scrutinized for:

Level of activity: in the case of self employed persons, this gives a very good clue about the extent of business activities

Average Bank balance: a cursory glance at the average Bank balances maintained in a savings Bank account speaks volumes about the spending/saving habits of any individual

Cheque returns: a small charge debited by your Bank in the statement indicates that a cheque issued by you was returned by your Bank. Many such returns can have a negative impact on your loan sanction.

Cheque bounces: if cheques deposited by you are returned by the issuer’s Bank they will be visible in your Bank statement and again Banks have specific norms as to how many such returns are acceptable in a period of 1 year.

Regular periodic payments the existence of periodic payments to other finance companies/Banks etc. indicate an existing liability and you will need to prove full details to the lender. (for details on how an existing loan impacts your loan eligibility refer to page 17)

Your age-Proof will need to be submitted such as school leaving certificate/Driving license/Passport/ration card/PAN card/Election Commission’s card/etc.

Proof that you are staying at your current address - Similar documents

Identification Proof: Same as above but with photograph. Sometimes the same document if it contains a photograph, the current residential address and the correct age can be the proof for all 3 things.

Your employment details

If your company is not well known, then a short summary about the nature of the company, its business lines, its main customers, its competitors, no. of offices, no. of employees, turnover, profits, etc may be needed. Usually the company profile that is available on the standard website of the company is enough.

Your investments ­ - This helps the bank to estimate your ability to pay for the down payment as well as your savings habit.

Which rate should I opt for, 'fixed' or 'floating'?

When applying for a home loan, opting for interest rates is a cause of dilemma. Should one opt for 'floating' or 'fixed' rates of interest?

Home Loan Interest Rates have been fluctuating since the last 6 years, so much so that the consumer is not sure of the future.

In March 2000, the interest rates on home loans were about 14%; which started falling quite steeply. By the last quarter of 2003, the interest rate (floating) on home loans fell to 7%. Again the loan interest waves have splashed to a high of around 11.50% (floating rate of interest) in January 2007. This hike is dramatic; considering that it is a jump of 4.50% since the historic low of 7% reached in March 2003.

While the interest rates are a deciding factor in taking a home loan, we must remember that this is not a one-time decision.

Be a vigilant consumer even if you have opted for a fixed rate if interest. As a matter of practice, assess how the markets have moved in a six-month period and consider the costs and benefits of changing your decision.

A 'fixed' interest rate is one which remains fixed during the entire tenure of the loan. It should be such that the bank does not have the power to change the rate under any circumstances. Very few banks offer such interest rates.

Unlike the 'fixed' interest rates on the home loans; floating rates will be changed by the bank. As a consumer, it makes sense to opt for 'transparent floating' interests on home loans. This essentially means that the interest rates should move downward when general interest rates register a fall and move up when the general interest rates move up.

To check whether the bank offers a 'transparent floating interest rate on home loans'; request for its record of benchmark rates in 2002 and 2003. This data will help you gauge whether the bank has actually passed on the benefit of reduced rates to its existing consumers at the time when the lending rates had fallen rather dramatically.

Apnaloan.com strongly recommends the option of 'transparent floating interest rates on home loans'. Our choice is based on certain criterion:

• These loans are at least 2% cheaper than a comparative tenure fixed rate home loan
• There is safety in numbers. Over 90% of the home loan consumers opt for floating rate loans. This is a potent and large community which the politicians can ill afford to ignore (witness the imbroglio when the PSU banks tried to raise their home loan rates) and hence a dramatic increase in rates in a short time is very unlikely
• If you go in for a transparent floating rate home loan, you also get the benefit of reducing interest rates as (not if) and when the interest rate cycle turns and commences on its downward journey. Even if the interest rates rise, in the interim as long as they do not rise above the 2% differential; you are still a net gainer.

Apnaloan.com advises you to go in for a transparent floating rate loan unless, you want to play it completely safe and are willing to pay the premium (in terms of high interest rates) for such safety. In any case, signing a fixed rate loan; that is not a real fixed rate loan-makes no sense whatsoever.

How should I choose tenure?

If loan eligibility is a constraint, go for the longest possible tenure (some banks allow 25 years though most banks allow only up to 20 years). The maximum tenure is also restricted by your age at the end of the tenure. Thus, a 45 year old person cannot get a 20 year loan-since he will be long past retirement by then. So, he will be eligible only for a 15 year loan. However, if he is self-employed- then the bank may consider a 20 year loan since retirement age for self employed people is assumed at 65 by most banks.

Most people in their anxiety to pay off the home loan as quickly as possible, take on a longer than warranted EMI burden by restricting tenure.

Even if loan eligibility is not a constraint, you should opt for as long a tenure as possible with a no prepayment penalty option. This way you retain the flexibility of low EMIs and at the same time you can pre-pay the loan whenever you have surplus funds.

Subtract the existing loan amount from the total loan amount and that will be the amount of second loan you are eligible for.

Can I get a second loan if I already have a loan?

You can get a loan for buying resale property though these could be some additional legal requirements.

You will need the chain of title of the existing owner. This means that if the existing owner has also brought the property on resale the documents relating to that sale and so on till the first purchase will be needed in the original.

Another complication is that sometimes if any of the documents in the chain of title is not adequately stamped as regulated then the bank may not be willing to provide the loan for this purpose.

Also if the building is more than 10 years old, then some banks may have a problem with providing a loan for such property.

The valuation done by the technical experts of the bank may be lower than the price that you are actually paying for the property. You will be eligible for a lower loan amount as the bank caps the loan amount at around 85% of the valuation arrived at by its technical consultant. It maybe useful in this case to pay a small fee and get the flat valued before hand and approach banks at a later stage.

Can I avail of loans on resale property?

You avail a loan on resale property if you buy directly from the builder or as a resale from another owner. It primarily depends on your income and repayment ability. Even your repayment track record is taken into consideration. Besides, banks have their own evaluation process before they sanction a loan. Age of the building is a determining factor in this case.

Are there any tax benefits for taking a homer loan?

Of course, there are tax benefits for taking a home loan. To know the various tax implications of home loans and property, please check the 'tax tips'.

Can I avail of tax benefits if I repay a home loan on a home owned by my wife?

You have raised a very interesting question. Under Section 64(i) (iv), the income arising to the spouse of the assesses from assets transferred directly or indirectly to the spouse by such individual otherwise than for adequate consideration is clubbed as the income of that individual. In simple English it means that the income arising out of the house that is purchased from the cash gifted by you shall be taxed as your income.

It is clarified under explanation 2 of Section 64 that "income" includes a loss. Therefore, the loss that arises from the self occupied "house property" will be taken as your "loss" and be allowed to be set off against your other incomes such as salary or income from business or profession. However this interpretation is not free from doubt and you should take expert tax advice since this is a highly technical issue.

The deduction under section 80C for repayment of the capital portion of the loan will not be available. Alternatively, you can check 'tax tips'.