As mentioned above, my NRI friend Deepika who has been living in the US for the past 13 years and now wants to shift to India permanently. We had discussed topics regarding her NRI status and the number and type of properties she could buy. In this blog, we shall be covering topics regarding home loans. Due to weak rupee against dollar NRIs find it easier to buy property in India. However, if you’re buying your first property it’s always better to take loan to get tax benefits from the Govt.
Benefits of Being an NRI in India
Well the answer to the question is yes, an NRI can get a home loan just like any resident Indian by any Indian bank or Non Banking Financial Company (NBFC). The interest rate for NRIs is slightly higher and the loan tenure is lower because borrowers earn a handsome income abroad which indicates a higher repaying capability and they also wish to close the loan at the earliest.
An NRI or Person of Indian Origin can get a housing loan in the following cases:
1. For buying a flat or built house.
2. For purchasing a site to construct a house on it. Composite housing loans are available for home loan seekers which provide loans for purchasing and constructing a house but utilisation of the loan amount for purchase of plot is restricted to 60% of the total sanctioned amount. If one wants to invest in a vacant plot with no immediate plans to construct a house, then one can opt for a land loan or plot loan which is similar to a home loan but with few key differences.
3. For undertaking repairs, renovation and expansion of the house where the upper limit is Rs. 15 Lacs.
4. For acquiring a second house or apartment even if the borrower already has one which was taken with or without a loan.
Eligibility for NRI Home Loan
1.My friend Deepika is a 45 year old lady so she can easily get a home loan because NRIs between the age bracket of 21-60 years or retirement age (whichever is earlier) at the time of loan maturity are eligible for a loan. However, age limit varies from bank to bank.
2.It is also taken into consideration whether the NRI is salaried personnel or self-employed. Deepika is a salaried employee.
3.Overseas work experience should be at least six months with total work experience of 2 years. Her overseas work experience is 13 years so she is in a comfortable position financially.
4. Minimum income should be 5 lac per month INR but this also differs from country to country. Her salary is 12 lacs per month so she is in a safe bracket income wise.So now that we know that Deepika is eligible for the NRI home loan, let’s understand what all documents are required to get a home loan.
List of Documents Required for an NRI Home Loan
1. Proof of Identity like Passport, Green Card, PAN Card, Aadhar Card or Driving License.
2. Address proof such as Aadhar Card, Driving License, Voter ID, Govt. of India issued ID Card, Electricity/ Gas/ Landline Bill, Property Tax Receipt
3.Date Of Birth documents like Passport, PAN Card or Aadhar Card
4.Signature Proofs include Passport, PAN Card or Banker’s verification
5.Completely filled and duly signed application form for home loan along with all the applicants’ latest passport size photos
6.Processing Fee and relevant cheques
7.Self-attestation of borrowers on all original and/or photocopied documents submitted
8. Security also has to be provided like an equitable mortgage of a house or flat, a guarantor or a LIC policy.
The amount of home loan that Deepika can get depends on her income, requirement, repayment capacity and past credit history. The rate of interest varies from 8.2% to 12% p.a. including a processing fee which is payable one time and amounts to 0.25% to 3% of the loan. Loan is repaid in EMIs in Indian currency only. Duration given to repay loan ranges from 3 to 30 years.
The RBI states that the repayment of the loan must be done by utilizing NRE or NRO accounts. If the property is rented out, the rent receipt can be used against the EMI. The Indian Govt. has stated that an NRI can only own two residential properties in India even if they are being rented out. However, they can own any number of commercial properties but they cannot own land for agriculture unless its gifted or inherited.
Deepika is planning to appoint her brother who is an Indian resident, her Power of Attorney (POA). The main reason for appointing him as the POA is that he is responsible and trustworthy and will be able to handle urgent and important matters in her absence.
Although Deepika has no plans right now to pre-close the home loan but she would like to know the requisite steps in case a situation arises like that in future.
In case she plans pre-close the home loan, she will have to follow the following steps:
1. First and most importantly, she should inform the bank or financial institution of her decision to pre-close the loan in writing. The date should be mentioned clearly by which she would like to make the full and final payment. The outstanding amount plus interest should be informed thereon.
2. As and when the bank or financial institution responds, she can make her prepayment.
3. Before signing the final acknowledgement, it should be made sure that she has received all the original documents that she had deposited at the time of documentation.
4.A No Objection Certificate will be received from the bank.
5.In case of a lien, she and a senior bank official would have to go to the Registrar’s office and get it terminated.
6.Then she will apply for a new Encumbrance Certificate at the Registrar’s Office. The updated EC will reflect the full repayment of the loan.
7.Finally she can contact the bank and make sure that they inform CIBIL about the pre-closing of the loan and get her credit score updated.
Deepika was also wondering if she wouldn’t have to pay the loan if she renounces her Indian citizenship.
1. Citizenship has no role to play when it comes to repayment of any kind of loan. An individual is given a loan in good faith that it would be returned with the principal amount and interest. It is a contract between the lender and borrower and all the conditions should be fulfilled no matter what the situation.
2.Like a resident, if an NRI defaults on his/her loan repayment she/he would be declared a willful defaulter. It would destroy reputation, affect credit score and taking loan in the future would be quite a hassle.
3.If one becomes bankrupt, then one can surrender to the court and claim insolvency where one would have life protection but all earnings would be forfeited.
It is always advisable to limit the borrowing and not stretch one’s expenses beyond their repayment ability. Living a respectable life with limited means is better for physical and mental health.