Caution points while taking a home loan!

Despite the growing popularity of home loans as the most convenient and financially smart way to get a dream house for your family there are many aspects which most of the borrowers never discuss with their bankers while taking the loan. Even the bankers do not disclose several hidden elements of the loan in fear of loosing customers. In the recent past the eligibility criteria has been relaxed to a great extent and the application process has been simplified to ensure more and more people are able to take advantage of the situation and aid boost the construction sector. Here are some of lesser known aspects that merit attention of the home loan applicant before signing the agreement.

The Amount: This is the biggest consideration that a prospective borrower must analyze for himself with great care. While the banker may be willing to give a higher amount considering the net worth of the property being purchased the borrower must make the calculation for himself so as to avoid landing up in repayment difficulties at a subsequent stage. Though banks will permit the EMI to be as high as 40% of the net monthly income after standard deductions it is prudent to keep the EMI below 25% of the net monthly income in order to cater for other avenues of investment and unforeseen circumstances.

Future Plans: there are many people who opt for a higher loan amount keeping in mind the increase in pay that they expect over the forthcoming years. However it must be understood that a home loan is a long term commitment for about two decades during which along with the income the expense and financial commitments will also grow substantially leaving the margin of money for home loan repayment at its present level. Additionally there is no guarantee of the pay hikes while the EMI amount is fixed the moment the loan is availed.

Interest Rate Changes: the bankers will never explain to the customer that even the fixed rate of interest is not completely fixed. There may be situations where this rate will be increased depending on the base rate fixed by the RBI which can result in substantial increase in the EMI which the borrower has to cater for while deciding the home loan amount. Failing to cater for such increases in the Emi midway through the repayment tenure may lead to severe financial crunch that may even result in defaulting on the loan servicing.

Thus planning right for the future without unnecessarily borrowing a bigger amount on offer for a home loan is a smart way of deciding the amount. The amount should always be such that one can comfortably pay the EMIs without having to cut down too much on the monthly family budget. 

How to increase your home loan eligibility!

While looking for the right home loan to buy a dream house one may come across a situation when the total amount that one is eligible for is insufficient. It is such situations that one needs to work out ways and means to increase the total eligible amount in order to be able to acquire the right home that one desires. There are several means which if combined can have a significant effect on this total eligible amount for home loans. With careful research and diligent planning one can easily increase his home loan eligibility.

§ Longer Tenure: The eligibility is calculated on the basis of repayment capacity of the applicant on a monthly basis. By increasing the tenure the EMI per Lakh of loan reduces and hence the applicant can now borrow more number of Lakhs with the same monthly repayment capacity. However increasing the tenure implies that one will ultimately end up repaying more as interest will be levied on a longer duration.

§ Clear Other Outstanding loans: Other outstanding loan liabilities of an individual drastically reduce his loan eligibility as the EMIs being paid towards those loans are deducted from the monthly repayment capacity. Thus repaying these loans from other sources will greatly move up the total amount for home loan. However this is only possible if the outstanding amount is within the reach of the individual. Up to 15 – 18 remaining EMIs is considered repayable under normal circumstances.

§ Combining Incomes: When it is apparent that the income of the individual is inadequate to get him a loan that he requires to buy a house then it is advisable to combine the incomes of other family members which will have a positive impact on his repayment capacity. In such cases the acceptable combining of incomes income include that of spouse, father, mother or children. The net increase in eligible amount can be many folds in such scenarios.

§ Opt for Step Up Loan: These are loan products that take into account the increase in incomes of individual over the period of loan repayment. This kind of a home loan has lower EMI in the initial stages which is increased in a step wise manner as the income of the burrower increases with time. Thus the total amount eligible is now calculated on the basis of a higher income that the current earnings which can increase the amount substantially. This a smart move for young professional who want to invest in properties right from the beginning of their earning career.

§ Include all perks: While applying one can include the various perks that the employer provides in addition to the basic salary as net income. This will have a positive impact on the repayment capacity thus increasing the eligible amount for home loan. These perks may include performance linked bonus or additional pay for overtime etc.

However when attempts to enhance the total amount that he is eligible for in taking a home loan there has to be a practical consideration of the actual repayment capacity. Availing a bigger loan to buy an expensive home may end up in creating tight financial conditions for individuals who hike up their eligibility falsely.

Home loan Document Checklist!

Home loans are easy to come by these days. So, don’t fret over it. Focus on the documents you need to furnish while applying for a home loan.

Documents required:

We give you a standard list of documents your bank will ask for. Besides this you need to submit details of the property or home you are obtaining the loan for.

Tip: Check with your Bank or Non-Banking Financial Companies to figure out which of the following documents you need to submit, as the requirements differ from bank to bank.

1. Identity proof
– Driving license
– Voters ID
– Passport
– PAN card
– Ration card
– Employee ID
– Bank passbook
– Letter from a recognized public authority or public servant verifying your photograph
– Confirmation letter from your employer or another bank verifying your photograph

2. Address proof
– Driving license
– Voters ID
– Passport
– Ration card
– Bank passbook or Bank account statement
– LIC policy/ receipt
– Utility bill – telephone, electricity, water, gas (less than 2 months old)
– Letter from any recognized public authority verifying residence address of the customer
– Letter from your employer

3. Age proof
– Driving license
– Passport
– Bank passbook
– PAN card
– Birth certificate
– 10th standard mark sheet
4.Income proof
Income proof and property proof vary for a salaried individual and a self-employed individual.

a. Self Employed/Businessmen
– A brief introduction of Business/Profession
– Balance Sheet, profit and loss account statement of income, proof of income tax returns for the last 3 years certified by a CA
– Photographs
– Receipts of advance tax payments if any made
– A photocopy of Registration Certificate of establishment under Shops and Establishments Act/Factories Act
– Registration Certificate for deduction of Profession Tax
– Certificate of Practice
– Receipts of Bank loans
– Proof of investments (FD Certificates, Shares, any other fixed asset)

b. Salaried individuals
– Income Proof (any one of the following):
Latest Pay slip
Form 16
Increment/Promotion letters
Appointment letter
Pay slip (Last 2 months) with salary account bank statement
Certified letter from Employer
IT returns ( for three years )
– Investment proof (FD certificates, shares, any fixed asset etc.)
– Documents supporting the financial background of the borrower (liabilities and assets if any)
– Photographs

5. Property documents

If a flat is purchased from a builder, you need the following property documents:
– Original copy of your agreement with the builder
– 7/12 extract – This is issued by the concerned land authorities giving details such as the survey numbers, area, date from which current owner is registered as owner etc.
– Property register card, which is obtained from the City Survey Department
– N.A. permission for the land from the collector, if its agricultural – If the land is agricultural and is being utilized for residential/ commercial/industrial use, then such agricultural land has to be converted to non-agricultural land and a Non-Agriculture Order has to be obtained from the Collector of the district where the property is located.
– Search Report and Title Certificate – A search report and title certificate can be obtained from an advocate who will conduct a survey of the title of the property by visiting the office of registrar. A legal opinion can avoid any legal hassles later and is mandatory to be filed with the agreement for sale.
– Development agreement between the owner of land and the builder
– Copy of order under the Urban land Ceiling Act
– Copy of building plans sanctioned by the competent authority
– Commencement certificate granted by the Corporation
– Building completion certificate
– Latest receipts for taxes paid towards the land or property or flat to be purchased
– Partnership deed or memorandum of association of the builders firm

If a flat is purchased from a Cooperative Society, you need the following property documents
– Original share certificate of the Society
– Allotment letter from the Society in your name
– Copy of the lease deed, if executed
– Certificate of the registration of the society
– Copy of the bye laws of the Society
– No objection certificate from the Society
– 7/12 extract or property register card in the Society’s name
– Copy of N.A permission for the land from the collector
– Search Report and Title Certificate
– Copy of order under the Urban Land Ceiling Act
– Copy of the building plans sanctioned by a competent authority
– Commencement certificate granted by Corporation
– The latest receipts of taxes paid for the property
– Original Agreement to assign / Deed of assignment

If you are constructing on your own land, then you will need the following property documents.
– Original sale deed of land and extract of Index II
– 7/12 extract or property register card in your name
– Copy of N.A. permission for land from the collector
– Search and title report
– Copy of tax paid under Urban Land Ceiling Act (obtained from Commissionerate of Urban Land Ceiling and Urban Land Tax)
– Copy of the building plans sanctioned by a competent authority
– Building permission granted by the Corporation
– The latest receipts of taxes paid for your land
– Estimate of the cost of construction certified by the architect

SEBI notice on Mutual Fund Investment

The Securities and Exchange Board of India (SEBI) has mandated various regulatory changes vide their Circular no. CIR/IMD/DF/21/2012 dated September 13, 2012 and SEBI (Mutual Funds) (Second Amendment) Regulations, 2012. This communication is intended to update you on these regulatory changes which you need to know as a mutual fund unit holder. These changes would be effective from October 1, 2012 (hereafter referred to as the “Effective Date”). We urge you to read and note the contents.


A. Fees and expenses

Investment Management & Advisory Fee: The AMC may charge the Scheme(s) with investment and advisory fees within the limits of total expenses prescribed under Regulation 52 of the SEBI (Mutual Funds) Regulations 1996.

Brokerage & transaction costs: Brokerage and transaction costs incurred for execution of trades and included in the cost of investment shall be charged to the Scheme(s) in addition to the limits on total expenses prescribed under Regulation 52(6). Currently, SEBI has prescribed that these expenses shall not exceed 0.12 per cent of the value of trades in case of cash market transactions and 0.05 per cent of the value of trades in case of derivatives transactions.

Service Tax on Fees & Expenses: Service Tax on investment and advisory fees shall be charged to the Scheme(s) in addition to the limits on total expenses prescribed under Regulation 52(6). Service Tax on expenses other than investment and advisory fees, if any, (including on brokerage and transaction costs on execution of trades) shall be borne by the Scheme(s) within the limits of total expenses prescribed under Regulation 52(6).

Additional expenses for geographical penetration: To improve the geographical reach of the Scheme(s) in smaller cities / towns, as may be specified by SEBI from time to time, expenses not exceeding 0.30 per cent of daily net assets may be charged to the Scheme(s), in addition to the limits on total expenses prescribed under Regulation 52(6) of the SEBI (MF) Regulations, subject to certain conditions. The amount so charged shall be utilized for distribution expenses incurred for bringing inflows from such cities. However, the amount incurred as expense on account of inflows from such cities shall be credited back to the Scheme(s) in case the said inflows are redeemed within a period of one year from the date of investment. Currently, SEBI has specified that the above additional expense may be charged for inflows from beyond ‘Top 15 cities’. Top 15 cities shall mean top 15 cities based on Association of Mutual Funds in India (AMFI) data on ‘AUM by Geography - Consolidated Data for Mutual Fund Industry’ as at the end of the previous financial year.

Additional expenses under Regulation 52 (6A)(c): Additional expenses, not exceeding 0.20 per cent of daily net assets, may be charged to the Scheme(s) towards Investment Management and Advisory Fees and the various sub-heads of recurring expenses mentioned under Regulation 52 (2) and (4) respectively, in addition to the limits on total expenses prescribed under Regulation 52(6).

Investor Education and Awareness initiatives: The AMC shall annually set apart at least 2 basis points (i.e. 0.02%) on daily net assets of the Scheme(s) within the limits of total expenses prescribed under Regulation 52, for investor education and awareness initiatives undertaken by the Fund.

Exit Load: All exit loads (net of service tax) charged, if any, from the Effective Date, shall be credited to the Scheme(s).

Thus, the total expenses of the Scheme(s) including the investment management and advisory fee shall not exceed the limits as specified under Regulation 52 of SEBI (MF) Regulations.

B. Single plan structure for schemes

Mutual funds/AMCs shall launch schemes under a single plan and ensure that all new investors are subject to single expense structure. Existing schemes with multiple plans based on the amount of investment (i.e. retail, institutional, super-institutional, etc) shall accept fresh subscriptions only under one plan. Other plans will continue till the existing investors remain invested in the plan. For details on the changes affecting our schemes/plans please read our addendum (see link below).

C. Harmonizing applicability of NAV across schemes

Under all Schemes (other than liquid schemes), in respect of applications for purchase / switch-in of units of an amount equal to or more than Rs. 2 lakh, the closing Net Asset Value (NAV) of the Business Day on which the funds are available for utilization shall be applicable provided that:

1. Application for purchase / switch-in is received before the applicable cut-off time.

2. Funds for the entire amount of subscription / purchase / switch-in as per the application are credited to the bank account of the respective schemes before the cut-off time.

3. The funds are available for utilization before the cut-off time without availing any credit facility whether intra-day or otherwise, by the respective scheme.

Where application is received after the cut-off time on a day but the funds are cleared on the same day, the closing NAV of the next Business Day shall be applicable. All multiple applications for investment (at the first holder’s PAN level) in a particular scheme (irrespective of the plan / option / sub-option) received on the same Business Day, will be aggregated to ascertain whether the total amount equals to Rs. 2 lakh or more and to determine the applicable NAV. For investments of an amount equal to or more than Rs. 2 lakh through systematic investment routes such as Systematic Investment Plans (SIP), Systematic Transfer Plans (STP), Flex STP, Swing STP, FLEXINDEX Plan, the units will be allotted as per the Closing NAV of the day on which the funds are available for utilization by the Target Scheme.

D. Prudential limits and disclosures on portfolio concentration risk in debt-oriented schemes

As specified by SEBI, the total exposure in a particular sector (excluding investments in Bank CDs, CBLO, Government Securities, T-Bills and AAA rated securities issued by Public Financial Institutions and Public Sector Banks) shall not exceed 30% of the net assets of debt scheme(s) of the Fund and this requirement shall be complied with on or before September 12, 2013.

E. Periodic disclosures

1. Scheme Portfolio:

Portfolio of the Schemes as on the last day of the month will be available on the website by 10th of the next month.

2. Half Yearly Financial Results:

Half Yearly Financial Results: Schemes un-audited half-early financial results will now only be available on the website within 1 month of close of half year ended March 31 and September 30 each year.