Accessibility to Housing Loan: The Procedure

The Supreme Court while making an effort to define the importance of reasonable accommodation has said, “Right to Life would take within its sweep right to food, right to clothing, right to decent environment and right to reasonable accommodation to live in. This blog talks about the eligibility of applicants for housing loan and how and by when they can repay them and end with some suggestions for friendlier terms.

Housing is one of the essential ingredients to live a peaceful life with. Without shelter, human life is worthless. The Supreme Court while making an effort to define the importance of reasonable accommodation has said, “Right to Life would take within its sweep right to food, right to clothing, right to decent environment and right to reasonable accommodation to live in. The difference between the need for an animal and a human being for shelter has to be kept in view. For the animal it is the bare protection of the body, for a human being it has to be a suitable accommodation, which would allow him to grow in every aspect – physical, mental, and intellectual.’’[1]

Such is the importance of household that there is a provision in financial systems of every country where the banks and money institutions lend you a loan to help build a house of your own. The banks, both public and private, have been given the authority to lend the housing loans for the purpose of providing shelter to the people. Housing loan means nothing but lending of money by the bank, at the interest rates specified by the RBI.

Applying for housing loans in India is a difficult task for a self-employed or a corporate employee. Compared to the Central Government employees who have specific job tenure, it’s a very complex procedure for a salaried employee working in a private company to apply for a loan from the bank. Nevertheless, the provision for borrowing housing loan makes it easier for the masses to finance the construction of the house. There are certain rules to be adhered to apply for a housing loan.

The eligibility criteria:

For any person to borrow money from the bank he must have completed the age of 21 years (minimum) and maximum 58 years (salaried employee), 60 years (government employee), and 65 years (self-employed). The person applying for the loan must be a graduate at least. The grant of loan depends upon the repayment capability of the person applying for the loan.  Generally, 80 to 85% of the total cost of your house is granted as the home loan by the bank. The applicant has to submit to the bank for the documents such as passport size photos, address proof, income receipt, identity proof like Aadhar, Pan card Driving License, Passport etc. It must also include bank statement for past 6 months, Balance statement/ profit and loss statement of the last 3 years, documents relating to the title of the property etc. And the list of Assets and liabilities. In case the spouse works the income of the spouse is also to be disclosed.  The need for these documents may change from time to time as every bank has its own set of rules to comply.

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Repayment of the loan:

It is generally prescribed that a person must not consume more than he can digest. Therefore the money borrowed must suit his income. There are many types of repayment methods of which EMI is most popular. Loan payment at specific intervals at interest rates is called an EMI.  It is generally on a monthly basis. The home loan tenure is generally fixed at 15 years by the RBI. Some Financial Institutions can extend it up to 20, 25, and 30 years if the rules are complied with. But it must not exceed the age of the person i.e. 60 years. Whichever is earlier.

Tax Benefits: There are tax benefits for applying on the home loan. For income up to 2 lakhs, the interest portion of the EMI paid can be claimed as the deduction. However, in this, construction of the house must be completed within 5 years on the date on which the loan was taken. This deduction can be claimed from the year in which the construction of the house is completed.  Under section 80(c) of the Income Tax Act, the principal portion of the EMI paid for the year is allowed as deduction. The maximum amount that can be claimed under this is ₹1.5 Lakh.  Under section 80EE, the first-time home buyers can claim deduction up to ₹.50000. To claim this, amount the loan was taken should not exceed ₹35 Lakh and the value of the property must not be more than ₹50 Lakh.

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[1] M/s Shantistar Builders vs. Narayan Khimalal Totame, AIR 1990 SC 630