A lot of NRI looking to apply for a home loan in India tend to feel overwhelmed with the process involved. But getting a loan is not as hard as it may seem. Here is a guide to home loans for NRI borrowers.
If you are a non-resident Indian (NRI) who wishes to build, purchase, or renovate a home in India and does not have the necessary funds, you can apply for an NRI home loan. Today, many lenders in India offer special home loan deals for NRI customers. However, to get the desired funds, without any hassles, you must be aware of the important aspects of an NRI home loan.
If you have no prior experience applying for a home loan, the following guide will come in handy.
Know About The Eligibility Requirements
Most lenders in India have a specific NRI home loan eligibility requirement, which is different from the requirements for the resident Indians. While the criteria, may vary from lender to lender, most lenders have the following criteria:
- You must hold a valid Indian passport
- You must be aged at least 18 years (some lenders require the applicants to be at least 21 years) at the time of applying for a loan
- You must have a regular source of income
- You must have been employed in a foreign country for at least two years or have a valid job contract for two years. If you have been serving in any government agency for six months, you are eligible to apply for an NRI home loan
- You must have an existing and operational NRE (non-resident external) or NRO (non-resident ordinary) bank account
- Some lenders also have a minimum income clause for approving NRI home loan
As per the Reserve Bank of India directives, NRIs applying for a home loan in India must repay the amount in Indian currency only through their NRE or NRO account. You can also repay the amount using the rental income you may earn from the property.
The NRI home loan interest rates are generally higher than the interest for the resident Indian applicants. Then lenders determine the interest rate based on the repayment capacity, the amount applied, loan tenure, and income. But, typically, the interest rate for NRI home loans range from 7.20% to 8.05%.
Other charges associated with NRI home loan
Apart from the interest rate, there are many other home loan-related charges that you must incur. Knowing these charges will help you determine the exact loan cost. One of the most significant costs associated with the home loan is the processing fee. Generally, the lenders in India charge about 0.25 to 0.5% of the loan amount you apply plus the taxes. The processing fees must be paid upfront, and it is usually non-refundable.
Some of the other charges you must pay include:
- Property investigation and valuation report fee
- Stamp duty
- Property insurance charges
Take advantage of the tax benefits
As an NRI, you are eligible for home loan-related tax benefits. The amount you pay for the stamp duty, registration charges, and principal amount repayment qualify for tax benefits under Section 80C of the Indian Income Tax Act. Make sure that you take tax advantage of the deduction to reduce your overall tax liability in a financial year.
If you wish to give the property on rent, the amount received from the tenant is taxable (TDS will be applied at 30%).
Now that you are of the different aspects of the NRI home loan make sure that you compare the loan offers from various lenders and choose the one that provides the credit at a competitive interest rate so that the EMI is affordable. Also, read the loan documents carefully before signing.