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Benefits of living in a villa

Posted on by HomeCapital Team

Different people have different aspirations, and these aspirations dictate their choices. Whether it is about purchasing something for the house or the house itself, it’s no surprise then that while some prefer apartment living, others go for a villa.

For several homebuyers, villas project prosperity and luxury. They’re very popular as holiday homes and are often sought after for their unique benefits. Not only are they premium residential houses, but they can also provide the same experience as a holiday without stepping out of the house.

Advantages of living in a villa

Here are some benefits of villas that can drastically increase your living standards.

1. Villa offers complete privacy

In almost all residential projects and apartment buildings, there are multiple units on the same floor. This means that people will have their units sharing a wall with the neighboring flats. While this is not a concerning problem, it can often lead to a lack of privacy. On the other hand, villas are independent houses. Your private life remains private. You can relax without any interruptions, unlike in common apartments.

2. Beautiful environment

Villas are often marketed as luxurious houses. Builders pay a lot of attention to the aesthetics of both the residential complex as well as the surroundings. As such, they are built-in sprawling areas and often have relaxing landscapes and views. The space surrounding the villas gives an aura of luxury and helps rejuvenate the mind and body. The serene environment also improves mental well-being, and people can enjoy their free time with a fresh breeze.

3. Villa can get you high returns on rent

There is a massive market for villa renting. This makes villas beneficial for both the investor and the buyer. Renting out the villa can be an easy and reliable source of income. Tenants are always on the lookout to rent villas, and they are often ready to pay a very good price for them. Unlike other apartments, renting a villa brings very high returns due to its luxurious features and environment.

4. Customization

Builders often make villas with the option of customization. Buyers can demand the builder to include customizable features as per their requirements, such as private space for work, study, or meditation. Buyers also get a say in the interiors. They can set the interiors according to their taste and experiment with different themes. Since villas are often huge, they come with a lot of carpet space. Buyers get the choice to customize the design all they want and match their preferences.

5. A good neighborhood

Commercial villa projects are often built as residential areas. A villa allows you to enjoy the experience of a township in a well-maintained neighborhood. In a villa project, the buyers get to live with other like-minded individuals. As villas are mostly built-in sophisticated neighborhoods, the buyer will get to make acquaintances and live a comfortable life. Residing in a quiet and serene neighborhood also has a positive effect on work and mental health.

6. Good Amenities

Villas are built-in high-end communities. The builder always ensures that all the amenities and facilities that can improve the lifestyle of the residents are available in the area or in the neighborhood itself. Villas have tight security and 24/7 maintenance so that the residents can just relax and enjoy their homes. A lot of villas also come with facilities for recreational activities like swimming pools or golf courses. This adds a lot of value to the property. Further, the surrounding gardens and recreational spaces such as parks add another layer of charm to the life at a villa.

7. Independence

In apartment complexes, the homeowner needs to depend on the association for a lot of things. As such, they’re afforded a lot less freedom when compared to villa owners. In a villa, you are the ruler within your walls and can do anything you wish. There is no need to take approvals or sanctions from any association as your actions do not affect others. You can live a truly independent life in a villa.

8. Eco-Friendly

Sustainable living practices are on the rise, and a lot of homeowners are adopting measures to live an eco-friendly lifestyle. Having a lot of space for one person may seem counterintuitive when compared to shared spaces like apartments, but it’s not so. A villa allows you a lot more freedom in your choices for the house, unlike an apartment. You can set up solar panels, harvest rainwater, and use eco-friendly sources for your daily life without needing consent from another party.

Conclusion

In a luxurious and modern villa society, you get several features that make life delightful. These are just a few of the many advantages of living in a villa. The kind of flexibility and freedom afforded to a person in a villa is unmatched when compared to anything else. Before you decide to invest your life savings, make sure that you have studied the benefits that a standalone house provides when compared to an apartment. 

And if you are convinced that a villa is what you need, just head over to HomeCapital to get up to 50% of your down payment as a loan. HomeCapital does not charge any interest on down payment loans, and the whole process is digital and easy.

Which KYC documents should NRIs/OCIs submit to avail home loan?

Posted on by HomeCapital Team

The interest rate of home loans has rapidly declined post-COVID-19 pandemic. Moreover, property prices have also lowered in tier 1 cities. This has prompted India to become one of the leading investment and home buying hubs, especially among the NRI or OCIs.

Before proceeding further, let us first understand who comprises the Non-Resident Indians (NRI) or Overseas Citizens of India (OCI). A person can be granted the status of NRI if they:

  • Have stayed abroad for over 183 days in a year.
  • The second criterion is that the person has stayed in India for less than 365 days during the past four years and less than sixty days in the current year.

Most NRIs wish to buy houses in India for two major reasons – investment purposes and for their loved ones. Whichever the case may be, the application process requires certain documents. This includes KYC documents, income documents, Power of Attorney, and property documents. Thus, if you are an aspirant, you would need to provide all these documents in order to qualify for the home loan.

List of KYC documents required by NRIs/OCIs for home loans

The following are some of the usual KYC documents required for the home loan application process.

  • PAN Card: All home loan aspirants need to upload their PAN card during the application process. The document is required for the photo ID and age verification. This applies to all the co-borrowers as well.
  • Passport: All NRIs or OCIs need to also upload a valid copy of their passport to the financial institutions. Please make sure that the expiry date does not fall within the range of your application process, the failure of which might result in many issues.
  • Visa: You would also be required to submit a copy of your Visa to the financial institution. It could either be stamped on your passport or on paper (This applies to specific countries)
  • Proof of address: KYC verification also requires valid documents for residence proof. This can include your electricity bill, telephone bill, Ration card, employment letter, passbook, or bank statement containing your address.
  • Work permit: All NRIs need to show a valid work permit authorized by the country they are presently working in.
  • ID card or Labour card: Certain countries provide a labour or ID card to people who are not residing in their country. Thus, if this applies to you, you need to show your issued Labour or ID card as proof.
  • Highest educational qualification: All Non-Residential Indians need to provide their highest educational qualification proof as it is a mandatory document for KYC verification. Moneylenders need this in order to analyze and understand the applicant and their growth prospects.

These are all the KYC documents you need in order to apply for a home loan as an NRI. Besides this, you also need to submit your income and property documents.

Other documents required after the KYC documents

  • Income documents: You need to provide your income documents such as the latest three months payslip and six months bank statement. You also need to provide your income tax document and previous employment details in case your present job period is less than two years. Besides this, you need to submit investment details, credit bureau reports as well as existing obligation details.
  • Power of attorney: You need to provide a notarized power of attorney. It is basically an authorization letter that provides transaction rights in sectors of judicial, legal, property, banking, and so on.
  • Property documents: Lastly, you would need to submit property documents such as the Sale agreement, Society NOC, Property Chain, Property map, allotment letter by the developer, and Registration and stamp duty receipt.

Additional important information about the KYC documents

During the time of home loan application, if the NRI applicant is not present in India, the financial institution might share the application form copy. It will then be printed and sent to the applicant’s residing country so that they can fill and sign it themselves. Now in the post-pandemic era documentation can be done digitally by NRIs.

In case of the applicant’s absence in India, the financial institutions can also ask for an attested or notarized copy of KYC documents from the Indian Embassy and Consulate.

An English translation of all application documents is mandatory. If any document is written in a specific local language of the applicant’s residing country, they need to provide a translated document. Please note that in the case of income documents, you need to get the translated copies signed by the respective employer.

The Non-resident Indian needs to have a Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account. This is because the financial institute sets up the ECS (Electronic Clearing Service) in that account.

The income of the NRI applicant is converted into Indian Rupees before evaluation. The financial institutes follow a fortnight-weighted average conversion rate since it is tough to calculate daily conversion rates.

Conclusion

Please make sure to go through the list of all the KYC, income, and property documents before applying for a home loan in India. Additional documents might be required as it varies from applicant to applicant. In recent times, countless money lenders are offering competitive home loan interest rates for NRIs. Moreover, the application process is also simple, transparent, and fast if you fulfill all the criteria and have the required documents. Thus, there is no better time to buy a home than now.

Land Measurement Units Used Throughout India

Posted on by HomeCapital Team

Despite having standard land measurement units, a lot of places in India prefer to use local units when measuring land. They are more popular than the international standards, given their popularity and convenience.

Since India is a diverse country, different parts of the country use different land measurement units based on popularity. Some of the most popular units used in India are hectare, acre, square meter, etc. Officially, the land is measured in standardized units only, and the same is written in the official documents. To get a good idea of the size of each unit, continue reading the article.

Some standard units used throughout the country

  • Square foot/ sq ft: The most commonly used land measurement unit is used throughout India. One square foot is equal to 0.11 square yards. By law, all developers selling properties have to notify the area of their projects in terms of sq ft. It is an imperial unit used throughout the world. Some other countries using this unit include the US, UK, Canada, Liberia, etc.
  • Square yard: A larger unit that sq ft with one square yard measuring 9 sq ft. Widely used across the world to measure residential real estate, it is also fairly popular in India. Some local states like Haryana use the square yard as the measurement unit when fixing circle rates.
  • Square metre/ sq m: A square metre is the unit area equalling the area covered by a square with a side of one metre. 1 sq m equals 10.76 sq ft and is a common land measurement unit in India. As sq m is a unit that is chiefly used to measure areas, it is generally avoided when measuring length or distance.
  • Acre: One of the oldest existing units across the globe to measure large areas of land. It is a part of the imperial units and the US system. A modern acre is equal to 43,560 sq ft, 4,047 sq m, 4,840 square yards, and 0.4047 hectares. An acre is roughly one furlong long and 4 rods wide.
  • Hectare: A commonly used unit of the metric system is used to measure large plots of land such as farmland. It was made in the year 1795 and is equal to 1,07,639 sq ft. To put it simply, a hectare is roughly around the size of a football field.

Land measurement units used in East India

  • Dhur: Used mostly in UP, Bihar, Jharkhand, and West Bengal. One dhur in Bihar is 68 sq ft and 3.66 sq ft in Tripura.
  • Katta: It also has different values ranging from 600 to 2800 sq ft. States, where the unit is still used, are West Bengal, Bihar, and Assam.
  • Chatak: It is mostly used in West Bengal and the neighbouring country of Bangladesh. One chatak is equal to 45 sq ft.
  • Lecha: Lecha is a unit that is mostly only used in Assam. One Lecha is equal to 144 sq ft.

Land measurement units used in North and Western India

  • Bigha: There is no standard value, and its exact value differs from state to state from 8712 to 27225 sq ft. Despite its popularity, it is not used in any southern Indian states.
  • Gaj: Commonly used in northern India, one gaj is usually 9 sq ft. It used to be quite popular before falling out of favour.
  • Biswa: Used in Punjab, Haryana, Himachal, and Uttrakhand, one biswa is anywhere from 50 to 150 square yards.
  • Killa: A killa is traditionally equal to 1 acre. In the case of rectangular land measurement, it is equal to 220 ft multiplied by 198 ft.
  • Kanal: Used in rural parts of Jammu & Kashmir, Haryana, Himachal Pradesh, and Punjab. A kanal is equal to 5,455 sq ft or 1/8th of an acre.
  • Marla: One of the first measurement units used in India. One marla is equal to 272.25 sq ft.

Land measurement units used in South India

  • Ankanam: This unit is popularly used in the states of Karnataka and Andhra Pradesh. 1 ankanam is equal to 72 sq ft.
  • Guntha: Guntha is used to measure the land area in the states of Andhra Pradesh, Maharashtra, and Karnataka. One gunta is equal to 1,089 sq ft.
  • Cent: Cent is the measuring unit used in Tamil Nadu, Kerala, and Karnataka. A cent is equal to 435.6 sq ft.
  • Ground: This measuring unit is only popular in the southern state of Tamil Nadu. One ground is equal to 2,400 sq ft.

Conclusion

Land measurement is an integral part of transactions in real estate. Since the cost of the property depends on its land area, having a proper understanding of the units used is vital. To avoid confusion and to be on the same page, every party involved should know about the units used in the transaction.

The down payment of your house can largely depend on its cost. And the cost of a property is usually dependent on its area. So quickly figure out the area you want your house to have and start your home buying journey with down payment assistance from HomeCapital, the first down payment assistance loan provider in India.  

How infrastructural development has triggered a boom in the real estate sector

Posted on by HomeCapital Team

What is the role of infrastructural development in the growth of the real estate sector in the country? How are they interrelated?

Infrastructure development is a key driver of the economy in any country. During the Great Depression, it was massive infrastructural development that pulled the United States out of the economic abyss.

What is infrastructural development?

It is the construction of roads, railway lines, ports, airports, stadiums, bridges, electricity supply, water and sanitation, office buildings, schools and colleges, hospitals, and other construction-related work that symbolizes urbanization. Large-scale housing projects also come under infrastructural development. These are the basic foundational development services that improve quality of life and stimulate economic growth. They raise the efficiency and competitiveness of a city or region.

How does the real estate sector benefit from infrastructural development?

The real estate sector benefits from multiple angles when infrastructural development takes place. Buildings, office spaces, hospitals, schools and colleges, shopping malls, and residential buildings are all real estate construction works. When there is a boom in infrastructural development, the real estate sector automatically gets a boost.

The government of the day has committed to build 100 Smart cities all over India. This is a huge real estate boost. Better connectivity has made it easier for people to commute even to regions that were hard to reach until a decade ago. Cities are expanding into neighbouring regions. Satellite towns and cities are coming up. It has become easier to travel by metro and road. Streets are better maintained in the new cities and the roads are wider and less congested. For basic needs such as hospitals, schools, and colleges, people don’t need to travel to far-off places.

All these infrastructural amenities give a ripe ground to the real estate sector to invest in housing and shopping complexes. Real estate buyers no longer hesitate from buying houses and apartments even in remote cities because travel has become easy. Everything that a typical family needs – schools, hospitals, recreational centers, shopping, and livelihood facilities – is within reach.

Naturally, infrastructural development tends to push up the property prices indicating a growth in demand.

Infrastructural development doesn’t just directly impact the real estate sector (increasing demand for land and property), it also gives rise to ancillary industries and business opportunities. Many of those employed in the infrastructure industry need housing because these projects can go on for years. They need to be sustained. Offices are needed. Residential societies are needed. Roads are required. Schools are needed for their children. They don’t want to travel 50 km to reach the nearest hospital.

The government of India is spending Rs. 1 lakh crore on infrastructural development and real estate connectivity in peripheral and semi-urban areas. It is further spending Rs. 48,000 crores on affordable housing projects. This way, not just the housing sector, but even the logistics sector will get a boost, which will further give a push to the real estate sector.

Road and rail connectivity is always a big problem when new cities are coming up. Thousands of crores of rupees are being spent on laying all-weather roads and railway tracks for local and interstate trains. Waterways are also being constructed to connect various ports, and cities are coming up along these waterways.

Some big infrastructure projects going on

1.  The Golden Quadrilateral Project

It is a 5846 km long highway. It is a network of roads that connects four major metropolitan cities of the country – Delhi, Chennai, Kolkata, and Mumbai – forming a quadrilateral. The project was launched in 2001. Scheduled to be completed by 2006, it actually became available for public use in 2012. It provides a fast network of transport between major cities and ports. Along its path, major cities have come up, giving a massive boost to the real estate sector.

2.  100 Smart Cities

The project to construct 100 Smart cities across India was launched in June 2015. The purpose was to create cities that are eco-friendly, self-sustainable, and release minimum pollution into the atmosphere. The cities, when completed will be devoid of the problems most of the cities in India have come to be identified with such as lack of adequate water, intermittent power supply, and less than efficient sanitation. The cities are meant to foster a sustainable environment, assure 24 x 7 electricity, hassle-free transportation, tools, colleges and hospitals, world-class sanitation and solid waste management, and many other facilities.

Conclusion

There are many giant infrastructural projects going on such as Housing for All, Bharatmala Project, Metro and Monorail Project, and many more. As it becomes easier to reach far-flung places all these projects are creating opportunities for the real estate sector to expand its reach and explore more growth opportunities.

Token Money: Its Meaning, Importance, and Points to Note

Posted on by HomeCapital Team

The token money is not a mandate by the law but is a general practice irrespective of property type. In this blog, we will learn more about token money, its importance, and points to note while paying or receiving token money.

Once a buyer finalizes a home deal with the seller, the next step is to initiate a formal process to conclude it legally. This begins with the buyer transferring a small amount of the transaction value to the seller to show their genuine interest. This advance amount or part of a sale consideration amount given by the buyer as an assurance is known as token money.

What is Token Money?

Buying a house is often complicated and requires us to understand the legal procedures around house buying. If you are considering buying a house, there are chances that you will come across the word “Token money”. It is the part of the sales consideration amount paid in advance by the buyer to the seller as part of closing the deal. However, there is no mandate in the law regarding this but it is often demanded by the seller as an assurance of the buyer’s genuine interest. There are certain factors to be considered while paying token money.

When is the token money paid?

The token money is paid when the buyer and the seller reach a verbal agreement to finalize the deal. At this stage, the legal paperwork for purchasing the house is yet to begin. In order to get assurance, advance payment is demanded by the seller from the buyer. General practice is that if the buyer backs out from the deal, the entire amount is forfeited by the buyer unless there is a legal document suggesting otherwise. However, if the seller is unable to complete the transaction, they have to return the entire amount to the buyer.

How much money is to be paid as a token amount?

Since it is not a mandate by law, there are no fixed rules pertaining to the amount the buyer should transfer to the seller as token money. The amount paid as a token varies from case to case. An example of this would be if a buyer plans to purchase a property worth INR 1 Crore, and he would pay INR 16 Lakhs from his own pocket, then a sum of INR 2 Lakhs will be paid as token money to the buyer. Please note that this INR 2 Lakhs is a part of the buyer’s down payment and now the buyer has to pay only the remaining INR 14 Lakhs during the final transaction.

Points to note while paying token money

Let us take a look at the points that you must keep at the back of your head while making advance payment:

Keep evidence of the transaction

Always have proof of making the payment either in the form of a receipt or a Memorandum of Understanding (MOU) that states that the seller has received the money. While signing the MOU, check if the following details are present correctly – information about the buyer and seller, property details, payment details, timeline, and clause of termination.

Always pay token money in the presence of a witness

To reduce the risk of fraud, always pay it in the presence of a witness. If possible, sign the agreement papers in the presence of two witnesses. It helps in case there is a dispute between the buyer and the seller, the buyer will have someone who can vouch for the authenticity of the deal.

Avoid paying token money in cash

It is highly recommended to pay it through a bank and strictly avoid any cash payments as it involves a huge risk. Making payments using cash is considered to be a crime. Online transactions are often safer than offline transactions. Keep it as low as possible by negotiating with the seller and coming to an agreement.

Be aware of your rights while paying token money

The seller of the property is not allowed to sell the property to some other buyer after receiving the token money. In case of death of either party, the rights are passed on to their legal heir.

Conclusion

Token money is a general norm and cannot be avoided if you plan to purchase a house. Always remember, it should only be paid once you have the funds arranged for the entire transaction or have the clarity to do so. If the buyer fails to arrange the required funds, then they are at risk of losing the entire amount. Paying the amount is often mandatory as the seller will not share the documents required to initiate home loan processing unless they receive an advance amount. Since the token transaction happens without any legal formalities, buyers should be extremely cautious and do thorough research on the seller before making any commitments.

Co-signer Vs Co-applicant: Know the Difference When Applying for a Home Loan

Posted on by HomeCapital Team

When applying for a mortgage loan, you can either be a co-owner, co-borrower, co-signer, or co-applicant. It is important to understand the legal and financial implications of each role. This blog post will highlight the difference between a co-applicant and a co-signer and what both parties need to know.

A home loan, also called a mortgage, is used to purchase a home. The loan can be in the form of an equity loan, where the borrower owns a percentage of the property and pays off the debt as they live in it, or it can be in the form of a mortgage, where the borrower pays off the debt over time with fixed equated monthly payments (EMIs).

Co-signer Vs Co-applicant

A co-signer is a person who agrees to take the responsibility for the home loan if the borrower defaults in repayment. A co-applicant is someone who applies for a mortgage with the borrower and is jointly liable for the repayment of the loan. The co-signer can be an individual or an organization, such as a family member or a company.

A co-applicant is a person who is jointly applying for a home loan with the primary applicant. The co-applicant can be someone with good credit history who wants to share the responsibility of paying off the loan. The primary applicant can be someone who has average credit and needs help getting approved for the loan.

The co-applicant does not have to be the primary applicant’s spouse but can be related by blood or law.

The main difference between these two terms is that if the applicant defaults on their mortgage payments, the co-signer will be liable for repayment of the loan. In contrast, a co-applicant would not be responsible unless they were named in the mortgage agreement jointly liable.

In many cases, both parties are required to qualify for approval and must meet certain requirements. If one party does not meet these criteria, it may be necessary to find another applicant who does so that they can qualify together.

The lender may charge higher interest rates or fees to cover the increased risk of lending money to borrowers with low credit scores.

Benefits of applying for a home loan with a Co-signer

Various benefits come with applying for a home loan with a co-signer. One of them is that it can help you build your credit history and score. Another one is that it can help you qualify for a better interest rate than what you would qualify for on your own.

Your monthly payments will also be lower because your monthly income will not be solely considered for the mortgage.

Rights and responsibilities of the Co-signer

When taking out a loan for a home, it is common for one person to be the primary borrower and the other to be the co-signer. The co-signer provides additional security if the primary borrower defaults on their loan.

A co-signer usually has a good credit score and can make monthly payments if necessary but is not obligated. They may also be someone who has some assets that can help pay off the loan in case of default.

Pros and cons of using a Co-applicant

Following are the advantages and disadvantages of applying for a home loan with a co-applicant:

Pros

A co-applicant can help improve a borrower’s credit eligibility by taking on some or all of the responsibility for repaying the loan. The co-applicant with a good credit score will allow borrowers with average credit scores to qualify for lower interest rates and make it easier to qualify for a mortgage.

Having a co-applicant improves the chances of loan approval and can also help the applicant qualify for a larger loan amount.

Cons

A co-applicant is a person who is jointly responsible for the mortgage payment. Usually, a co-applicant will be a spouse or significant other. One major disadvantage of this arrangement is that if the borrower defaults on the loan, the co-applicant will also have to pay off some or all of it.

Defaulting on repayment can be risky for both the borrower and co-applicant. The other disadvantage of having a co-applicant in home loans is that they will have to agree on all aspects of the mortgage, including monthly payments, interest rates, and other fees. If they disagree on any aspect, then it can lead to problems down the line.

You can also damage the co-applicant’s or consigner’s credit score if you default or fall behind with monthly repayments.

Co-applicant versus joint applicant

A co-applicant is an individual who applies for a loan with one other person. They are jointly responsible for the loan, and both have to meet the qualifications. A joint applicant is an individual who applies for a loan with more than one other person. They are jointly responsible for the loan, and all of them need to meet qualifications.

When to opt for Co-signing and Co-borrowing

A few factors will determine whether or not you should opt for co-signing and co-borrowing in a home loan. One of the most important factors is your credit score. If you have a good credit score, it’s best to go solo on the mortgage. If your credit score is below average, you can get someone else to sign on to get better terms and increase the chances of approval.

Final thoughts

If you are looking for ways to buy the perfect home, many options are available. One of them is applying for a home loan with a co-signer and co-applicant. A co-applicant and consigner can help the person applying for a home loan. They can make up shortfalls in one’s income or credit score.

A person who has invested in their future by purchasing their own home will have peace of mind knowing that they have security for their family.

FAQs

Who is a co-signer?

A co-signer is someone who agrees to take responsibility for the loan if the main borrower cannot make the payments. A cosigner can be a family member, friend, or another individual.

Who is a co-applicant?

A co-applicant is a person who has a vested interest in the property and is willing to help the applicant with the down payment and monthly payments.

How do I find a co-signer or co-applicant?

You can ask your friends and family members if they would be interested in being your co-signer or co-applicant. You can also contact your bank or credit union and ask them if they offer any programs that may help you find someone who will agree to the loan terms.

Bank vs NBFC – Which one to opt for?

Posted on by HomeCapital Team

A ubiquitous question often heard from a common person is regarding the difference between a bank and a non-banking finance company. Both can lend money and charge interest on their loans. Despite these similarities, they are vastly different from one another. So, the question arises; which one should you opt for?

What is an NBFC?

A Non-Banking Financial Company (NBFC) is a registered company to carries out specific financial activities like funding various financial ventures and providing services from microfinance to insurance. The activities in which an NBFC can engage are determined by the Reserve Bank of India (RBI). They are registered under the Companies Act, 1956 and regulated by the Reserve Bank of India under RBI Act, 1934. Since 2015, the credit share of NBFCs is rising due to their popularity. In fact, NBFCs are actively outperforming banks as per a report by the RBI in a financial stability report, increasing customer satisfaction by 15%. Some key features of NBFCs are.

  • They cannot accept demand deposits.
  • They can accept or renew fixed deposits for a minimum of 12 months and a maximum of 5 years.
  • NBFC deposits are not insured.
  • Repayment of deposits in an NBFC is not guaranteed by the RBI.

What is the difference between NBFC and banks?

Most people associate loans with banks and approach them in case they need to borrow money. However, if you do a little research, you’ll surely come across NBFCs. There are several key differences between a bank and an NBFC which should be considered.

Interest Rates

Banks are strictly regulated by the RBI under the RBI-Banking Act, 1956 while NBFCs are operated under the Companies’ Act, 1956. This causes a large implication on the interest rates incurred on a loan and interest rates offered on deposits.

Interest rates of the banks are dependent on the conditions of the economy and are controlled by the RBI. The interest rates may change, but you will probably be notified beforehand to act accordingly.

NBFCs have interest rates linked with their internal benchmarks. Usually, they determine the interest rate on a case-by-case basis. Depending on your credit score, you can even negotiate with them for a lower or higher interest rate. The RBI states that “NBFCs have to be transparent and the rate of interest and manner of arriving at the rate of interest to different categories of borrowers should be disclosed to the borrower or customer in the application form and communicated explicitly in the sanction letter etc.”

Eligibility criteria

Banks generally have stringent eligibility criteria for lending out loans. Banks give loans based on the credit history, income, repayment capacity, city you stay in, valuation of the asset, and many more such factors of the applicant. If you have low credit trustworthiness, getting a loan may prove to be difficult.

NBFCs have a more relaxed criterion than banks for eligibility. Since they have their own benchmarks, they can use different methods to assess your creditworthiness and approve your loan. However, you may need to bear higher interest rates.

Stamp duty and registration costs

Banks do not include stamp duty and registration costs when giving out a home loan. NBFCs may do so and include these costs as a part of the market valuation of the property. Thus, the borrower can take a larger amount of funds as a loan from an NBFC.

Processing time

Banks do a thorough check of background, credit scores, and repayment capabilities before approving a loan. Loan requests in banks also have to go through layers of approvals before being sanctioned. This increases the processing time and disbursal of a loan.

NBFCs are faster when sanctioning a loan. Since they have their own criteria and benchmarks, they efficiently process the requests. They also have relaxed requirements when it comes to credit scores, saving time on background checks and documentation. Some NBFCs can even approve a loan in 3 days.

Security

Banks are directly under the RBI. Their processes and work are done as per the rules made by the RBI. RBI also guaranteed the safety of the deposits in a bank. Plus, their predictability provides a sense of security. On the other hand, NBFCs are not controlled by the RBI. They can change their parameters such as interest rates without any prior notice. This makes them a risky option for borrowing or deposits.

Conclusion

Choosing a financial institution involves more than a simple comparison of interest rates.  NBFCs and banks have their own unique advantages that need to be considered when making a decision. If a low and secure interest rate is your prime concern, then banks are the way to go. However, if you are confident in your credit score and want to have more flexibility then NBFCs are better. Plus, you can always make a shift to the bank later.

Take your first step on your journey towards your dream home with the HomeCapital down payment assistance program. Find out your eligibility, and get an in-principle sanction letter in under one minute.

How to avoid defaulting on home loan EMI?

Posted on by HomeCapital Team

Loan repayment is a long-term commitment. As a borrower, it is your moral and legal obligation to repay your loan. If your repayment tenure is long, your interest may exceed the principal, affecting your investible surplus towards your financial goals. Repaying your loan and ensuring that your monthly home loan EMI is paid on time can be quite strenuous. Proper planning is vital to avoid defaulting.

What happens if you default on your home loan EMI?

You can get an extension in time for payment from the bank. If you do not pay your home loan EMI for 90 days, then your loan will be classified as an NPA. After that, the lender has the right to initiate the process of recovery, where the lender is legalized to recover the dues one way or another.

Since home loans are secured loans, the collateral is used by the financial institution towards the security of the loan. In the case of home loans, the collateral is the home itself and may be auctioned off to recover the loan. Missing your home loan EMI will also result in a falling credit score. It can affect your future borrowing ability. Therefore, you must look for ways to avoid such a crisis by making timely home loan EMI payments.

Tips to avoid home loan EMI default

1.     Prepare a plan

If you’re applying for a home loan, you should work out your finances and come up with an investment plan. You can do it with a simple worksheet of income versus expenses. Whatever is left after you subtract your expenses will determine your ability to pay back your home loan EMI. This will give you an idea regarding your monthly finances and help understand how much loan you can afford.

2.     Make a contingency fund

Before you take out a loan, it would be wise to prepare a contingency fund for emergencies. You may face a situation where you are unable to earn any income for a while but will have to pay the home loan EMI. Therefore, it is advisable to make an emergency fund for EMIs before you take out a home loan. This fund should be anywhere from 3 to 6 months’ worth of EMIs. Your contingency fund can help you pay the EMI in times of low or no income, thus avoiding default.

3.     Choose a lender with affordable interest rates

Home loan interest rates vary from lender to lender. Take your financial situation into consideration and choose the interest rate you want. Explore and research all available options. To understand the burden of home loan EMIs, use a free EMI calculator to figure out the monthly EMI you can afford.

4.     Make prepayments

Prepayment is the settlement of your home loan EMI before the due date. Prepayments can go a long way to reduce the total interest and decrease the tenure of the loan. You can use extra funds as and when you receive them to bring down the EMI burden.

5.     Use home loan balance transfer

A home loan balance transfer allows you to change your lender in the middle of your repayment period. If the lender offers lower interest rates than your current one, you can opt for a transfer. Your remaining loan balance will then be transferred to the new lender.

On opting for a home loan balance transfer, the new lender will clear your balance. Your existing lender will release your documents and your loan will be shifted. Moving to a lower interest rate will bring down your monthly home loan EMI, thus easing your financial burden.

6.     Take home loan insurance

A home loan insurance is an insurance for your home loan repayment. Many loan insurance plans are available that cover monthly home loan EMI. A home loan insurance ensures that your home loan EMIs are paid in case you are unable to do so yourself. A lot of lenders mandate home loan insurance when giving out a home loan.

Conclusion

Not managing your home loan in a calculative way can put a lot of stress on your finances. You can avoid defaulting on your home loan EMI as long as you maintain fiscal discipline. You must exercise caution with your finances when you are repaying a home loan. Regular audit of your finances, monthly planning, regular saving, and budgeting should be a constant affair so that you avoid defaulting on your home loan EMI.

Begin your home journey now by availing HomeCapital’s down payment assistance program. With interest-free EMIs and no hidden charges, you won’t have to worry about an additional burden on top of your home loan EMIs.

Why should you go for home loan protection plans?

Posted on by HomeCapital Team

Home loan protection plans are extremely popular these days due to the increasing price of real estate. Purchasing a home is a good investment due to its appreciating nature. However, when you take out a loan, the house itself can be a liability that needs to be paid over time. In case of a crisis or accident of the borrower, the liability shifts towards the dependent. It can become difficult to manage finances during such times, especially if the borrower is the sole earner. It is wise to secure the future of your loved ones as well as your properties.

What is a home loan protection plan?

A home loan protection plan or a home loan insurance is a plan under which the insurer will pay the home loan amount if the borrower meets with an accident or disability. A few banks make it mandatory to have a home loan protection plan before approving a home loan. Some comprehensive plans even provide cover for the house, the applicant, and all its content for a higher premium. This premium is applicable for tax deductions.

Why is home loan insurance important?

A home loan protection plan is important for lenders and borrowers. Banks don’t like it when their loans become non-performing assets. In case the borrower meets their demise, the lender can lose out on a lot of money. This is especially the case in single-earner families. To avoid their loans from turning into NPAs, lenders usually demand home loan insurance when giving out home loans.

This plan is very useful for the borrowers too. Under it, the insurance company will cover the outstanding debt for the borrower, saving them from bankruptcy, in case of inability to pay back the loan.

How to insure a home loan?

There are two ways to insure your home loan:

1.     Term insurance

This is a complete home loan protection plan that covers all of the assets and liabilities.

  • As this cover in this plan is constant throughout the home loan, the dependent will get a constant amount instead of a reduced amount in case of the demise of the borrower.
  • Some term insurance plans also take fluctuations in interests and extensions in the repayment period of home loans into consideration. 
  • You can easily shift your term insurance from one provider to another without any effect on your home loan.
  • As long as you pay your premium, your insurance cover will remain consistent even if you foreclose your home loan.

2.     Separate home insurance

Separate home insurance is a protection plan that only covers the outstanding debt towards a home loan in case the borrower is unable to pay it.

Structure of home loan protection plan

The structure of a home loan protection plan is very similar to regular term insurance. The following mode of payment is available in protection plans.

  • EMI: These payments are to be made every month throughout the tenure of the home loan. The premium of the home loan is also added to the EMIs of the protection plan and paid as one.
  • Single premium: In this, a single premium is paid. The premium depends on the amount of home loan taken.
  • Limited pay: In this option, the premium for home loan insurance can only be paid for a limited duration.

Benefits of a home loan protection plan

Home loan protection plans have several benefits other than simply covering the outstanding debt. Some of their benefits are given below:

  • In case of the borrower’s demise, the outstanding amount of the home loan is by the insurer to the bank.
  • Tax benefits can be availed on home loan protection plans under Section 80C of the Income Tax Act.
  • There are options for add-ons to increase cover. For example, a clause for disability will ensure that the insurer will pay the outstanding during critical illness or disability and not only in case of demise.

Conclusion

A home loan is a long-term liability and can last anywhere between 25 to 30 years. There are no guarantees in life and the loans can last for decades. While it is not always mandatory, it is a very good method of protecting your interest. An insurance buyer must remember to conduct proper research before coming to a choice. Be sure to buy a policy that best meets your needs.

Before you start, go to HomeCapital and check your eligibility for the down payment assistance program. Through this program, you would need to arrange for only half of the required capital for your down payment. With no hidden charges, flexible tenure, and payment of possession, you can rest easy.

How is a home improvement loan different from a home extension loan?

Posted on by HomeCapital Team

Having your own house is a dream come true for many people. Even after you do get a house, it’d need continuous upgrades and renovations to maintain it. Whether it is to extend your home to accommodate your family or just simple improvements, any changes to your house will come at a substantial cost.

Understanding such needs of the people, many financial institutions provide loans for specific home purposes. Home improvement loans and home extension loans are examples of such loans.

What are home improvement loans?

Every house needs improvements to add value to the lifestyle of the family in it. With every passing year, new technologies are being introduced to make our life more comfortable. An old house will likely need to be upgraded to accommodate such modern tools. Home improvements can also include general maintenance, repairs, and remodeling.

To meet the massive costs of all upgrades, home improvement loans are offered. These loans are given based on the approximate value of the work you plan to do in your house. Before approving these loans, the lender will check the contract of the builder and properly appraise the bid to reflect a reasonable price. The lender will then loan out the amount to cover the price of the renovation. To ensure that actual work is being done, the lender may periodically check the construction before releasing payments.

Key advantages of home renovation loans

Following are the key advantages of availing a home improvement loan:

Low interest

Home improvement loans usually come with fixed and affordable interest rates. This puts a lower burden on the finances of the borrower, ensuring no struggle to pay back the loan.

Smooth and easy process

Only a few primary documents are needed to take out this loan. The entire process is smooth and easy. Many lenders offer these loans completely online in a hassle-free and quick manner.

No need for a collateral

There is no need to arrange a collateral or any kind of security for a home renovation loan. This makes it a low-risk option for borrowers.

One-stop solution

There are multiple loan options available for home renovations. Since they are all taken under the umbrella of renovation, it becomes very easy to get a loan for a specific requirement.

What are home extension loans?

Instead of going for a new house, you can add new rooms to your existing one if you have the space. It is an ideal option for increasing available space at a lower cost. Whether it is a need for office space, growing family, or study space, a home extension will help you eliminate the hunt for a new home.

While home extensions are certainly cheaper than buying a new house, they still involve a substantial cost. It is best to get a clear idea of the total cost involved in the construction before you go for a loan. This way you will borrow only the fund needed to extend the house.

Key advantages of home extension loan

Below are the key benefits of a home extension loan:

No need to change houses

If you are feeling a space crunch, a home extension can be a better idea than a new house. With a simple home extension loan, you can make new additions to your house without shifting.

Easy approval

Home extension loans are easy to apply to and receive. They only need minimal documentation and can even be completed online.

Long tenure

A great benefit of home extension loans is that they are treated as housing loans. They have long repayment periods and borrowers can pay in small EMIs to ease their financial burden.

Tax benefits

Home extension loans make the borrower eligible for tax deductions of up to Rs 30000 under section 24(b) on payable interest.

Home Improvement Vs Home Extension Loan

 Home Improvement LoanHome Extension Loan
PurposeFunding renovations and improvements to an existing homeFunding the expansion and extension of an existing home
Repayment periodTypically, up to 30 yearsTypically, up to 20 years
Interest ratesVaries with the financial institution and the borrower’s credit history. Usually ranges from 8.45% to 10.99% p.aVaries with the financial institution and the borrower’s credit history. Usually ranges from 7.80% p.a to 8.65%.
Eligibility requirementsResident Indians and non-resident Indians (NRIs) may be eligible to apply for a home improvement loan, which can be used for renovations or other home improvement projects. These loans are typically available to fresh loan applicants or existing borrowers who are 18 years or older and are typically required to be repaid by the time the borrower reaches the age of 70. Home improvement loans are available to both salaried workers and those who are self-employed. Borrowers may also improve their loan eligibility by adding co-borrowers, extending the loan tenure, or providing additional income documentation. A good credit score (750 or above) can increase the likelihood of loan approval and may result in a lower interest rate.Home extension loans are available to both resident Indians and non-resident Indians (NRIs). Both salaried and self-employed individuals can apply for these loans, which are typically offered to applicants aged 18 and above. Existing borrowers may also improve their home loan eligibility by adding co-borrowers, extending the loan tenure, or providing additional income documentation. A good credit score (750 or above) can increase the likelihood of loan approval and may result in a lower interest rate. Lenders generally require loan repayment by the time the borrower reaches the age of 70.
Documentation requirementsTo apply for a home renovation loan, you will need to provide several documents to the lender, including a completed loan application form and proof of age, income, employment or business, and address. You may also need to provide documentation related to the property, such as property ownership documents, as well as an estimated cost of the repairs or renovations.To apply for a home extension loan, you will need to provide several documents, including proof of identity, address, age, and income, as well as employment or business proof. You may also be required to provide documentation related to the property and the estimated cost of the home extension, as well as a completed loan application form.
Tax benefitsIn India, borrowers can claim tax deductions of up to ₹ 30,000 per financial year under Section 24(b) of the Income Tax Act.Under Indian tax laws, the principal repayment on a home extension loan may be eligible for a tax deduction of up to ₹ 1.5 lakh per year under Section 80C. Interest payments on the loan may also be tax-deductible, with a limit of ₹ 2 lakh per year for self-occupied homes or no limit for homes that are rented out.

Conclusion

Your house should always be a place of comfort and peace. Regular renovation and extension when necessary are vital to maintaining that tranquility. Home improvement and home extension loans are somewhat similar to each other. The key difference is that the former can only be used for the renovation while the latter can be used for additional construction.