Anyone falling under the definition of the Foreign Exchange Management Act 1999 (FEMA) is eligible for a home loan in India. FEMA defines an NRI as a person who resides outside India for “employment, business or vocation in circumstances which would indicate an intention to remain outside India for an indefinite period”. He also says that an individual will also be considered an NRI if their stay in India is less than 182 days during the previous fiscal year.
However, as an NRI you cannot buy more than two residential properties in India. According to Om Ahuja, CEO, Residential Services, Jones Lang LaSalle India, a real estate consultancy firm: “An NRI cannot buy more than two properties in India. This regardless of whether you own property in the country in which you work and reside. There are, however, no such restrictions on commercial property. However, NRIs are not allowed to buy agricultural land here. “
This means that an NRI home loan can be used to buy, build, renovate a new or existing home. You can also take out home loans to buy land for residential use.
Shyamal Saxena, managing director of retail banking products, Standard Chartered Bank, says there is indeed a strong demand for home loans from NRIs. “Demand is at its peak during the holiday season. This is the time when NRIs make their annual trips to India and have time to tour the properties and go through the formalities. “
Ram Sangapure, managing director of retail banking, Central Bank of India, said a large portion of home loans taken out are from NRIs from Kerala, Hyderabad and Bihar.
The procedure for obtaining a home loan remains more or less the same as that applicable to any resident Indian. However, there are certain criteria to keep in mind.
Income and educational qualifications play an important role in deciding the maximum loan amount available for an NRI. You need at least a graduate degree to apply for a home loan.
For example, to get an NRI home loan from ICICI Bank Ltd, you must have at least a graduate degree or diploma with at least three years of overseas employment or a professional qualification with one year of employment abroad. And if you are working in West Asia, you must have a minimum wage of 36,000 dirhams per year (for loans with a term of up to five years) and if you are in the United States, you must earn at least 30 $ 000 per year.
The income taken into account for the calculation of eligibility for housing credit is repatriable income (income abroad) to which is added any income in India.
Documents such as passport copies, valid visa and work permit, employment contract, work experience certificate, salary certificate and non-resident (NRE) or ordinary non-resident ( NRO) are generally required. The salary certificate must be attested by the embassy if the salary is not credited to a bank. You also need to provide proof of local address and Power of Attorney (PoA) to someone in India. This could be your accountant or someone close to you. This is done because if there is a problem with the repayment of the loan, the bank can contact the person with the PoA. The details of the permanent address in India are also required. This is a mandatory requirement.
Submission of documents
You don’t need to travel to India to apply for a loan. Many banks have branches in places such as Dubai, Singapore, London, and other cities. Some banks even offer this possibility online.
But don’t forget to run the PoA authority to someone in India.
Amount of the loan
The loan amount that can be availed differs from bank to bank. For example, ICICI Bank Ltd offers one with a home loan of between 5 lakh and 1 crore and Citibank will give you a home loan of up to 5 crore.
Loan to value ratio (LTV)
Simply put, the LTV is the ratio of the amount you want to borrow for a home to the actual value of the home. Banks allow an advance of 80-85% of the value of the property, subject to an individual’s gross monthly income.
For example, if the house you are planning to buy costs 1 crore, you can take out a loan of 80-85 lakh.
While a resident can benefit from loans of up to 30 years from some banks, the term of NRI home loans is limited. It is available in the 5-15 year range. “The term of NRI home loans is shorter than that of a normal home loan because it is generally found that their repayment capacity is greater than that of resident Indians. And they don’t take longer term home loans, ”says Sangapure.
The interest rate on NRI home loans is the same as that of an Indian resident. For example, the interest rate for Union Bank of India home loans is 10.25-13.25% (including both fixed and variable rate home loans).
The reimbursement or the equivalent monthly payment of these loans can only be made through NRE or NRO accounts with payment from abroad. No other funds can be used for the repayment of these loans. Refund is to be made in Indian Rupees only.
The deposit should also be made through normal banking channels or an NRE or NRO account in India.
If you are unable to repay the loan, remember that the loan is on your property and the bank will claim the property if you don’t pay. Saxena says the bad debts with respect to the NRIs are not high because the loan is issued against the property. “The person can disappear, but since the property is in India, the bank can seize it,” says Saxena.
What should NRIs do
If you focused on a house or land in India, you can finance it by taking out a home loan. But keep in mind that you need the required documents and keep them ready for the know your client process. Also make sure that you have appointed a PoA for the loan. Check whether the bank you are taking the loan from imposes a prepayment penalty or not. Some banks, like ICICI Bank, charge 2% on the amount owed and anything that has been prepaid in the past 12 months for loans taken out at a fixed rate.
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