Ib&fs module 3
- 2. Housing Finance: Role, Types of housing loans, Institutions and banks offering Housing Finance, Procedure and Interest rates. Income Tax Implication. Reverse mortgage loan Non-Banking Finance Companies: Types, Growth, Functions, RBI Guidelines, Prudential Norms.
- 3. Housing Finance Housing Finance: Housing finance brings together complex and multi- sector issues that are driven by constantly changing local features, such as a country’s legal environment or culture, economic makeup, regulatory environment, or political system The purpose of a housing finance system is to provide the funds which home-buyers need to purchase their homes. This is a simple objective, and the number of ways in which it can be achieved is limited. Notwithstanding this basic simplicity, in a number of countries, largely as a result of government action, very complicated housing finance systems have been developed. However, the essential feature of any system, that is, the ability to channel the funds of investors to those purchasing their homes, must remain
- 4. Types of housing finance Conventional Loans Conventional loans usually are more lenient with respect to the appraisal and condition of the property. If you are purchasing a "fixer-upper", you may need to use a conventional loan. Also, expensive homes above the FHA loan limit are generally financed with conventional loans. FHA Loans FHA Loans are insured by the Federal Housing Administration.They usually require less down payment than conventional loans and are easier to qualify for.
- 5. VA Loans VA Loans are guarenteed by the Veterans Administration. A veteran must have served 180 days active service. VA loans can be done with a zero down payment. Fixed Rate Loans Fixed Rate Loans have one interest rate which is fixed for the entire term of the loan. Adjustable Rate Mortgages Adjustable rate mortgages have an interest rate that is adjusted at certain intervals based on a specific index. Some ARM programs fix the interest rate for an initial period of two to five years, and adjust the rate thereafter at pre-determined intervals.
- 6. Non-Qualifying Loans Non-qualifying loans are pre-existing loans which can be assumed by a buyer from the seller of a property. Without going through the qualifying process, the buyer pays the seller for his/her equity and then starts making payments
- 7. Types of Home Loans The Home Loans that are available in the market have different criteria to avail. They also have number of segments that are categorized according to varied demand of the market – different home loans for different requirements. The following is the list of different types of Home Loans you can avail from the market:
- 8. Home Purchase Loans Home Construction Loans Home Improvement Loans Home Extension Loans Home Conversion Loans Land Purchase Loans Stamp Duty Loans Bridge Loans Balance Transfer Loans Refinance Loans Loans to NRIs
- 9. Home Purchase Loans: Home Purchase Loans are the basic home loan you can opt for purchasing new home. This type of Home Loan is offered by all kinds of Banks and HFCs. Home Construction Loans: Home Construction Loans are especially meant for the construction of a new home. Formality of availing this loan has a little different from the normal Housing Loan. The plot on which the construction is being erected is purchased within a period of one year, the cost of the plot is then also included as the component for the valuation of total cost of the property. But in case the date of purchase exceeds one year to the date of application the above condition is not applicable.
- 10. Home Extension Loans: Home Extension Loans is offered for meeting the operating cost of alteration to an existing building. Extension here means addition of an extra room etc. Home Conversion Loans: Home Conversion Loans are offered to those who want finance for the purchase of another home by converting the already existing home and on which loan is already sanctioned. Through this loan, the existing loan is transferred to the new home including the extra amount required and there is no need for pre-payment of the previous loan.
- 11. Land Purchase Loans: Land Purchase Loans can be availed for purchasing land for both home construction as well as investment purposes. Stamp Duty Loans: Stamp Duty Loans is offered for the payment of stamp duty in the transaction of the property. Bridge Loans: Bridge Loans are offered for selling the existing home and purchasing of another. The bridge loan assists in the finance of new home, until a buyer is found for the old home. Balance-Transfer Loans: Balance Transfer of the loan is the transfer of the balance of an existing home loan at a higher rate of interest (ROI) to either the same company or another.
- 12. Re-finance Loans: Refinance loans are availed when a loan from an organization at a particular ROI is dropping leading to a loss. Then the option of swap of the loan can be availed. One can avail this from either the same HFI or other at the current rates of interest. NRI Home Loans: NRI Home Loans are meant for Non-Resident Indians who wish to build or buy a home or property in India.
- 39. Institutions offering housing finance Housing and urban development corporation of India (HUDCO) LIC housing finance limited (LICHFL) General Insurance Corporation Housing Finance limited Diwan housing finance corporation limited Can fin homes limited.
- 40. Banks offering housing finance Scheduled commercial banks Scheduled cooperative banks Regional rural banks Agriculture and rural development banks Housing development Finance corporation State bank of India Home finance
- 41. Income tax implication Under the income tax act 1961, the indian residents are eligible for the tax benefits and on principal and interest components of the loan. Tax on principal portion of home loan: under section 80c of the income tax act, principal on home loan is treated as an investment. People can get an exemption upto Rs 1lac across all their investment , in case their housing loan principal repayment is more than a Lac they do not require to save under any other category in order to avail tax deduction. Tax savings on home loan interest: tax benefits on home loan interest are independent and are covered under section 24l of the income tax act. The interest component on home loan is treated as an expense under the head of income from house property in the income tax return. Reference: Financial Markets and service- Shashi K.Gupta.
- 42. Reverse Mortgage A reverse mortgage or a lifetime mortgage is a loan available to senior citizens. Reverse Mortgage is a home loan product designed for the senior citizens by converting their fixed asset their home or in banking terms their equity in any house property into an income channel without having to liquidate his equity in case of any requirement. Applicant needs to have 100% equity in his property . He should be more than 60 years and his wife is a co applicant and she should be more than 58 years of the age. In return of the house property pledged , the borrower gets a lump sum amount or periodic
- 43. Procedure for housing finance Application form Personal discussion with concerned person Bank’s filed investigation Credit appraisal by the bank and loan sanction Offer letter -loan amount, rate of interest, mode of repayment Submission of legal documents and legal check Technical/valuation check Registration of property documents Signing of agreements and submitting postdated cheques. Disbursement of the home loan.
- 58. RBI guidelines and prudential norms The below are some of the norms applicable to NBFC’s : Capital adequacy ratio: the prescribed minimum capital ratio consisting of Tier 1 and Tier 2 capital is 10% compared to 12% for NBFC’S by March 13,2009 and 15% by March 31,2010 Concentration of credit /investment: while the stipulations relating to the concentration of the credit /investment are substantially the same, a NBFC is permitted to seek an appropriate dispensation consistent with the spirit of the exposure limit in the prescribed ceiling