A Handbook on Housing Loans in India

Providing housing facilities to its people has been accepted as one of the priorities of Government of India. As such, the government have been encouraging all means to achieve this goal. Among various methods of raising resources for owning a house the most popular one is Housing Loan provided by banks and other housing finance institutions.

 What is Housing Loan?

Direct housing finance is one of the several types of Real Estate Finance. It simply means financial assistance given to individuals or group of individuals by financial institutions for the purpose of purchase or construction of a house or apartment.

Housing loans upto Rs. Twenty Lacs provided to individuals for construction of houses are treated as Priority sector lending. It is the reason as to why banks are competing to give more and more housing loans. Moreover, as far as they are concerned it is comparatively a secured loan category.

As a part of its all-out endeavours to encourage housing sector, Government of India have been asking banks to fulfill the targets fixed for them.

Various Purposes for Which Housing Loans are Provided by Banks

Now, let us examine the various purposes for which housing loans are provided by banks, which are enumerated below:

1. Buying a new house or apartment

Before sanctioning housing loan for buying a new house or flat, banks will ensure that the proposed house or flat is an authorized structure. Therefore, the applicants will be asked to produce a copy of the approved plan along with an affidavit that the house/flat has been constructed as per the sanction.

2. Buying a plot and constructing a house thereon

In such cases of housing loan, banks will get a declaration from the borrower to the effect that the house will be constructed within the specified period.   Before disbursing the installment of loan for construction, the borrower will have to submit a copy of the plan duly approved by the authorities concerned.

It is the practice of banks that the loan will be disbursed in different phases according to the progress of the construction. Before disbursement of each installment, the bank will ensure that the construction has been completed till the level for which the earlier installment was released.

3. Constructing a house on the plot already owned by the borrower

This type of loan can be availed when the borrower wants to construct a new house on the self owned property. In this case the technical team of the bank will visit the site for valuation. The loan amount will be disbursed in several stages as per the progress of the construction.

4. Buying an old house or apartment

In such cases, banks will allow housing loans based on the valuation made by the bank’s approved valuers. In this case also banks will see whether the construction is an authorized one or not.

5. For repair/renovation/extension of an existing house or apartment

For any type of housing loan, banks will examine the repaying capacity of the borrower. For this, the borrowers will be asked to produce copies of income tax return or other income proof.

Advantages of Housing Loans Vis-a-Vis Other Loans

1. Rate of interest is comparatively low.
2. As housing loans are classified as Priority sector loans, banks are generally enthusiastic to give it. Naturally, it is easier to secure housing loans from banks.
3. Longer repayment period is allowed and as such, EMI will be lower.
4. It is the easier way to acquire a house property especially for a person who is not affluent enough to raise the huge lump sum from own savings for purchasing or constructing a house.
5. Several income tax benefits are allowed in the case of a housing loan beneficiary.

A housing loan beneficiary can claim deduction under section 80C for the amount repaid towards principal portion of his housing loan subject to the prescribed limit of Rs.150000 along with other permissible investments such as provident fund, LIC premium, Tuition fee etc.

Income chargeable under the head ‘income from house property’ shall be computed after making among other things the deduction of the interest payable on such capital where the property has been acquired ,constructed, repaired, renewed or reconstructed with borrowed capital.

Of course, in respect of self occupied property the amount of deduction shall not exceed thirty thousand rupees. (Because, in the case of self occupied property, the annual value can be taken as nil).

However, if the property is acquired or constructed with capital borrowed on or after 01.04.1999 and such acquisition or construction is completed within three years from the end of the financial year in which capital was borrowed, the maximum amount of deduction is Rs. One Lac and Fifty Thousand.

Hope you found the information on this article on housing loans in India useful. If you have any doubts or queries, please contact us or comment here.

 Source: Income Tax Act, 1961 as amended from time to time.