Most NRIs buy residential property for their loved ones while others do so for pure investment purposes. Here are some major factors that they should consider while availing a home loan.
Buying housing property has always been a hot cake among the NRIs. Most NRIs buy residential property for their loved ones while others do so for pure investment objectives. Our domestic regulations also encourage them to realise their dream homes by availing home loans.
Here are some major factors that NRIs should consider while availing a home loan:
1. Loan eligibility: As in other cases, home loan eligibility for NRIs depends on their credit score, disposable income, job profile, employer profile, etc. For those working in countries with restrictive repatriation policy, lenders will only considers their repatriable income while evaluating their loan eligibility. Some lenders may also consider the applicants’ educational qualification and time spent overseas while approving their loan applications.
Fetch your credit report at least six months prior to applying for a home loan. Generally, credit scores of 750 and above are considered as good and have higher chances of loan approval. Some banks also offer loans at lower rates to those have higher credit score. Fetching your credit report before making a home loan application would also allow you to fix errors in it (if any), and/or take corrective steps to improve it. Alternatively, you can visit online lending marketplaces to fetch a free credit report and its monthly updates. Doing this will get you customised home loan offers based on your credit score, disposable income and other eligibility parameters.
2. Loan tenure & EMI affordability: Lenders usually offer home loan tenures of up to 30 years based on your age, profession, repayment capacity, etc. However, some lenders offer shorter loan tenures to NRIs, ranging anywhere from 10 to 20 years, depending on their country of residence, educational qualification, etc. (Example ICICI Bank).
Factor in your repayment capacity and investment commitments for your financial goals while choosing home loan tenure. Do not settle for an aggressive repayment schedule just to lower your interest cost. You will always have the option to make prepayments later on with the surplus liquidity without paying any prepayment penalty for it.
3. Loan-to-Value (LTV) Ratio: This ratio is the proportion of your housing property that can be financed through a loan. Rest of the property value has to be financed from your own sources. The RBI has capped this ratio at 90% for home loans amounting to Rs 30 lakh; 80% for those above Rs 30 lakh to Rs 75 lakh; and 75% for those beyond Rs 75 lakh. However, your lenders will additionally consider various risk assessment parameters while fixing your LTV ratio. A lower LTV ratio might lead to lower EMIs and interest cost while a higher ratio can lead to the opposite. While choosing your LTV ratio, do not sacrifice your emergency funds and existing investments for your financial goals.
4. Interest rate type: While most lenders offer home loans on floating interest rates, many also offer the option of mixed-interest rates. Loans offered on mixed-interest rate remain fixed for a pre-determined period and then get charged on a floating rate basis. A few lenders also offer home loans on fixed interest rates. However, such loans have higher interest rates than the other variants. Many lenders also allow home loan borrowers to change their loans from floating to fixed rates and vice versa after paying a switching fee. Opt for floating-rate home loans as they do not penalise pre-payments.
5. Loan reset frequency: Bank home loans sanctioned since April 2016 follow MCLR-based interest rate regime. This regime requires banks to compulsorily reset the floating rates of each borrower on pre-specified reset date(s) at least once in a year. The interest rate prevailing on that reset date will become applicable till the next reset date. Thus, in the current rising interest rate scenario, try to shop for a home loan with an annual reset date.
6. Power of attorney: Most lenders insist on a Power of Attorney (POA) while lending home loans to NRIs. As the borrower will be based outside India, a POA will provide the lender someone to deal with, if in case some property or loan-related issue crops up. Usually, lenders prefer the NRI borrowers to appoint their parents, spouse or children as the POA-holder.
(By Naveen Kukreja, CEO & Co-founder, Paisabazaar.com)