How can NRIs get home loans?

The Reserve Bank of India permits NRIs and persons of Indian origin (PIO) to buy residential and commercial property in India through a home loan. The costs are similar to that of regular home loans, but other criteria differ.

Utility:

A loan can be used to fund a plot, flat, house (ready as well as under construction) or use the money to construct a house as well. It can also be used for extension and renovation of an existing house. Since NRIs and PIOs cannot purchase agricultural land, plantation property or a farm house in India, there is no loan for these categories.

Location of property:

NRIs can buy a property anywhere in the country. Most banks that are public sector units (PSU) such as State Bank of India (SBI) offer a loan for a property anywhere in India whereas some private banks limit locations like, Citibank India offers NRI home loans only on properties in Delhi-National Capital Region, Chennai, Bangalore, Hyderabad, Mumbai, Pune and Kolkata.

Loan amount:

Based on eligibility, loan amount can be lakhs to crores. For instance, SBI offers a minimum of Rs. 3 lakh, while Standard Chartered Bank’s loan amount can go up to Rs. 10 crore, while HDFC Ltd has no specific upper limit. Also, just like normal home loans, most banks fund only 75-85% of the property’s cost even for NRIs.

Eligibility:

Basic criteria:

• Most banks require you to be at least 18 years old, but a few ask for 21 years.
• You need to be employed abroad for a certain number of years.
• Some banks even ask for a minimum educational qualification.

Income:

• The income limit may differ depending on the country of residence. For instance, if you want a loan from Citibank and you are based in the US, you need to have a minimum salary of $36,000 per annum; in Canada, you need to earn Canadian $48,000 per annum; while those based in the UK should earn £40,000 per annum.
• The minimum gross income may also vary as per the loan tenor you choose. For instance, Kotak Mahindra Bank Ltd’s requirement for a loan tenor up to five years for NRIs staying in the US, the UK and other countries, excluding the Gulf, is $30,000 per annum, while that for a loan tenor of 6-10 years, it is $42,000 per annum.
• In joint loans, some banks allow you to club incomes to increase eligibility. For instance, Union Bank of India allows you to do so, but Kotak Mahindra Bank considers the income of the principal borrower only.

Credit report:

Even if you are living abroad your credit history will be checked. Even your credit report in India can be pulled out if banks think it’s necessary.

Power of attorney:

Some lenders ask for a guarantor on the loan. Many banks insist you have a co-applicant, power of attorney (PoA) holder for the loan. A PoA is a document stating that you have given someone else (usually a relative or friend) the authority to make certain decisions and act on your behalf.

Location of loan application:

A PoA is required basically to make the loan process easier as you need not be present in person to make a loan application. However, in exceptional cases, the physical presence of the NRI customer may be required. Many lenders have set up branches in countries where a large number of NRIs are based where borrowers can walk in and make the loan application. You can also make an application using online and telephonic banking channels.

Loan tenure:

• Usually loan term is anywhere between 7 to 25 years but depends on the lender. However, NRI home loans have a short term since they (NRIs) have relatively higher incomes thus able to pay off the loan sooner.
• Some banks may decide the loan tenor according to your profession.
• Banks even look at your age. (In SBI, borrowers up to 35 years get a 25 years tenor, while those above 35 but below 45 years get 20 years and those who are 45 years and above get 15 years to pay off the loan).

Loan costs:

Interest rates: The interest rates are usually similar to regular home loans with fixed and floating rates of interest. Not all lenders offer all types for example; HDFC offers only fixed rate loans, while HSBC Ltd offers only floating rate loans to NRIs. While banks such as StanChart may permit you to move from a fixed to a floating regime or vice-versa, provided you pay 1.5% of the principal outstanding at the time of exercising the option.

Processing fees: Like most loans, you will need to pay a fee to get the loan processed. It is usually 0.5-1.50% of the loan amount. Some banks may charge a fixed sum, usually up to Rs. 15,000. If in case your loan does not get sanctioned, the bank may refund a part of the processing fee, usually Rs. 2,000.

Prepayment/pre-closure: You can prepay at a fee. For pre-closure, lenders usually charge up to 2.5 % on the principal outstanding amount. A few PSU banks such as SBI may not even charge a prepayment or pre-closure penalty as long as you use your own resources and prove so.

Mode of repayment:

Repayments are to be done through equated monthly installments (EMIs) through a non-resident ordinary account or non-resident external account.