The last two decades have witnessed a significant rise in real estate. Millions of Indians dream of purchasing a property in their preferred location. For the affluent, buying one or more homes is a status symbol.

While many aspire to own their dream house, for the majority it can only become a reality with the help of home loans. Customer demand for purchasing homes is no doubt on the rise. Therefore, a number of banks, both public and private and NBFCs offer a range of home loan products.

Having said that all of these products are subject to the home loan rules and regulations of the Reserve Bank of India.

What are the Eligibility Conditions for a Home Loan?

Not everyone is qualified to apply for a home loan. Every lender has a list of eligibility requirements that the applicant must fulfill in order to place the home loan request for sanction. RBI Guidelines help lenders to formulate the edibility criteria to ensure that the first level applicant evaluation and assessment is a fair one.

Most lenders including SMFG Grihashakti by the following eligibility parameters:

• Be a citizen of India
• Be a minimum of 21 years and at the time of loan application a maximum of 60 years if salaried and 65 years if self-employed at the time of loan maturity
• Be salaried or self-employed

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For Salaried:

• Multinational cos / listed public ltd cos / govt.
• Organizations private ltd cos / closely held or unlisted companies / partnerships /proprietorship firms

For Self-Employed:

• Self-employed individual businessmen/ sole proprietorship
• Self-employed professionals - doctors /architect's / CA’s
• Partnership firms
• Private limited companies/ closely held/ unlisted companies

What Are the Mandatory Rules and Regulations to Apply for A Home Loan?

Other than meeting the eligibility criteria, the RBI guidelines state that lenders must perform due diligence to assess the applicant’s credibility as well as creditworthiness. For the latter purpose, most lenders require a minimum CIBIL score of 700 for home loan applicants. A higher credit score helps increase your chances of getting a home loan approved from your preferred lender. It also proves your creditworthiness to the lender. In other words, the lender ascertains that there is a lower risk of the applicant defaulting on the home loan.

Must Read :What is CIBIL Score - How Does it Impact Your Home Loan Application

In addition to meeting the eligibility requirements, applicants must submit the necessary paperwork in order to process the home loan application. This list is also valid in case you want to transfer the remaining balance of your home loan to a different lender. According to the RBI rules and regulations, the list of documents are as follows:

• Proof of Identity – PAN Card, Voter’s Card, Driving License, Employee Card
• Proof of Residence – Aadhar Card, Latest Electricity Bill/Piped Gas Bill, Ration Card, Property Tax/Water Bill
• Co-applicant Guarantor – KYC documents
• Proof of Income for Salaried Individuals – 6 Months Bank Statements with Salary Credit, Last 3 months Pay Slips, Form 16 for 2 years
• Proof of Income for Self-Employed Individuals – 6 Months Bank Statements for Primary Account, IT Returns for the last 2 years, CA Audited Financials (if applicable)
• All property related documents

Note: In case of a home loan balance transfer, you will also have to submit a no dues and NOC certificate from your existing lender.

What are the Major RBI Rules and Guidelines on Home Loans?

You cannot just walk into a bank and buy a home loan. Upon meeting eligibility requirements and submitting the necessary documents, your chosen lender will follow their outlined protocols in adherence to RBI guidelines for home loan disbursement. Some of the key rules and regulations that you must take note of are:

RBI Guideline for LTV Ratio:

The Reserve Bank of India introduced a number of amendments to this guideline way back in 2015. According to the new set of rules and regulations, applicants can avail up to 90% of the actual value of the property as a home loan. However, the property must be valued at Rs. 30 lakhs or less. If the value of the property is between Rs. 30 lakhs and 75 lakhs, the cap on the LTV ratio stands at upto 80%. For properties valued at over Rs. 75 lakhs, the maximum LTV has been capped at upto 75% of the property value. Please note that these are only the maximum LTV values. Actual LTV provided will also depend on the applicant’s eligibility and the lender’s policy.

Prepayment Charges

The RBI also has set guidelines for prepayment charges. Prepayment is when you manage to arrange for funds enough to repay the entire loan amount well before the tenure gets over. In this case, you can save the interest charges and clear out your financial obligations early.

Typically, home loan tenures can stretch up to 30 years and principal amounts up to INR 1 crore. To help borrowers prepay the loan in a healthy manner, the RBI has restricted all fixed interest rate home loan prepayment charges to only 3% of the loan amount (down from 5%) and has completely eliminated prepayment charges in the case of floating interest rates.

RBI Circular on Foreclosure Charges:

There is no charge on foreclosing the home loan availed for non-business purposes on floating interest rates prior to the completion of its repayment tenure according to the new RBI guidelines on home loan prepayment. Previously, the prepayment rate charged by lenders hovered between 2% to 5%.

Balance Transfer Guidelines on Home Loan by the RBI:

The Reserve Bank of India introduced several home loan balance transfer guidelines that will enable the borrower to shift an expensive home loan to another lender offering a more affordable rate of interest. In such cases, the borrower forecloses the existing loan that is no longer subjected to any prepayment penalty in case of floating rates of interest. For loans on fixed interest rates, the home loan balance transfer charges can be anywhere between 1% to 3%.

Are Home Loans More Affordable than Personal Loans?

Interest rates on home loans are much lower when compared to those of personal loans, making them cheaper. This is mostly due to their secured nature, while personal loans are unsecured and must be repaid within a maximum of 5 years.

RBI guidelines on home loan interest rates have been a real game changer here from the perspective of the borrower. Keeping the rate of interest economical ensures that the monthly installments are not a great burden on the pocket.

Moreover, with affordable EMIs on the home loan, the borrower can choose to go with a shorter repayment period. This works in their favor as reduced repayment tenures help lenders offer borrowers more competitive home loan rates. This significantly minimizes the debt burden on the borrower in the long run.

However, if the borrower does not wish to add to existing financial obligations, then a longer 30 year repayment tenure is the ideal option. This keeps the monthly installments low ensuring there is a limited risk of defaulting on a payment.

Additionally, the RBI guidelines keep the GST component on low interest home loans manageable. This also brings down the overall monthly installment amount for the borrower making the home loan a very attractive investment product.

Are there any RBI Guidelines for Loan Against Property?

A home loan is not the same as a loan against property . For a LAP, the applicant places a loan application by pledging a residential or commercial fixed asset that he or she already owns in order to raise funds from the lender. However, the principle is similar, meaning that the applicant has to pledge the property to the lender in order to avail of the loan. The property deeds are returned to the applicant when the LAP is fully repaid. In case of default, the lender has the right to repossess the pledged property. LAP loans have tenures upto a maximum of 15 years.

In order to ensure a uniform code of loan processing, there are specific RBI guidelines for loans against property that all financial institutions are required to abide by. For instance, just like for home loans, part-payment or prepayment for LAP loans taken on floating interest rates for non business purposes do not incur any charges as per the latest RBI guidelines.

Must Read : Beginners Guide To Loan Against Property

Taking a home loan is a huge decision for anyone. It is a significant financial commitment that has to be repaid over a long tenure. Therefore, it makes sense to be fully aware of all home loan rules and regulations of the Reserve Bank of India so that your lender does overcharge you in any way.

To know more about specific policies, terms and conditions, fees and charges, speak to a SMFG Grihashakti representative today. Call on the toll free number 1800 102 1003 between 9.30 a.m. to 6.30 p.m.Monday to Saturday.