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Home Loans In India Simplified

Updated on Nov 19, 2020
Home loans

The United States of America is a popular destination for Indians who are looking for better employment opportunities or to start a new life.

Non-Resident Indians (NRIs) sent close to $83 billion in remittances to India. The remittances are largely for family maintenance and investment purposes. Real Estate is one of the most popular investment options for many Indians residing abroad. Reasons vary from wanting to stay connected to the roots to retirement planning. After all, home is where the heart is.

The real estate industry in India is generally considered a lucrative market and has seen an influx of investment in recent years due to its high returns. 

Non-Resident Indians (NRIs) are allowed to invest in various Indian properties and most importantly are eligible to take home loans in India to fund their investment needs, provided they fulfill the necessary criteria.

The home or house loans can be applied for the following purposes:

  • Buying a new home
  • Buying a new plot
  • Constructing or renovating an old property 
  • Refinancing an existing home loan taken from another bank/financial institution in India.

Definition of NRI for Home Loan Eligibility

The residential status of an individual is important to understand the implications of buying Indian properties.

As the name suggests, an NRI is an individual living outside India who is a citizen of India by birth or a person of Indian origin (PIO). Technically, to be considered a resident Indian, as per the Income Tax Act, he/she would have to stay in India for at least 182 days in a financial year or at least 365 days in four consecutive years (or at least 60 days in a financial year).

Additionally, the Foreign Exchange Management Act (FEMA) defines an NRI as an individual staying outside India for employment or carrying on business or vocation indicating the intention to stay out of India for an indefinite period. Also, if he/she is in India for less than 182 days in the previous financial year.

Another category is the Overseas Citizen of India (OCI). OCI is a person who is not an Indian citizen but has been a citizen in the past or at least the parents/grandparents was a citizen, or the spouse is an Indian citizen.

Change in Residential Status

Since the residential status is determined by the duration of stay in India, the NRI status can be converted into Resident Indian. In such cases, NRI need to inform their lender to work on the loan eligibility, rework the repayment capacity, and schedule of the loan.

Applying for Home Loans in India From the U.S.

NRIs can easily avail of home loans in India even without being physically present in the country. Though there are certain rules that one needs to familiarize themselves with to acquire the loans. The rules and requirements may vary depending on the banks or financial institutions for NRI home loans. Here are some of the popular NRI home loans in India:

Compare Home Loans in India

Interest Rates

NRI can opt for either floating rate home loans interest rates or a fixed-rate loan (the rate of interest is fixed for 2-3 years after which it is automatically converted to a floating rate, till it adds up to the total term of the loan).

The interest rate on NRI home loans is similar to that for a resident Indian. Typically, it starts at 6.90% onwards.

loans

Do bear in mind that the interest rate may vary depending on the risk score of the customer and their Loan to value (LTV) ratio (amount of loan borrowed to the actual value of the home).

Loan Amount

It varies from bank to bank. The loan amount is largely determined by income and educational qualifications, work experience, credit history, even age of the applicant. The loan amount can range from 5 lakh to 15 crores rupees depending on the banks. Typically, 75-90% of the property cost is given as a loan and the remaining would have to be contributed by the applicant. The loan is disbursed in Indian Rupees only.

Loan Tenure

For resident Indians, the maximum tenure of home loans can go up to 30 years. Since the repayment capacity for NRI is considered to be more than resident Indians, the maximum tenure for NRI home loans is within the range of 5-15 years. It can be available for up to 20-30 years in some banks.

Here is a comparison of home loans offered by top Indian Banks by loan amount, tenure range, and Equated Monthly Installment (EMI) per lakh.

home loans

Repayment of Loan

The Equated monthly installment (EMI) payments/ repayment of the loan should be done only through NRE or NRO accounts and should be paid only in Indian Rupees. NRI can deposit their foreign earnings into the NRE account and use the money to repay the loan. There is no prepayment penalty. There can be prepayment charges in case of refinancing the loan to another financial institution in India.

Power of Attorney

NRI can appoint a relative/family member/ resident Indian as the Power of Attorney (POA) to act on their behalf to complete the processing of the loan formalities and other requirements. This way, NRIs need not be physically present in India during the loan application process. 

Additional Benefits to Look for While Shopping for Home Loans

  • Low Processing fees
  • Transparent charges
  • Flexible Tenure 
  • Interest concession for Women Borrowers
  • Easy and Convenient Online Application process

Home Loan Eligibility

  • Any person with a residential status prescribed as a Non-Resident Indian (NRI), Person of Indian origin (PIO), Overseas Citizen of India (OCI), except Citizens of Pakistan, Bangladesh, Sri Lanka, Afghanistan, China, Iran, Nepal, or Bhutan
  • The applicant should be of a minimum age of 24 years and a maximum age of 60 years or retirement age, whichever is earlier, at the time of loan maturity
  • Applicant should have a minimum overseas work experience of 6 months with total work experience of 2 years
  • The minimum income for the US and other countries is $3000 per month or equivalent

Documents Required for Home Loans in India

documents

Following are key documents for applying for home loans:

  • Duly filled home loan application form
  • Passport size photographs of all applicants
  • Proof of Identity (Valid Passport/Visa/PIO card/PAN card/Employee ID)
  • Valid work permit
  • Proof of Address (current overseas address: e.g Utility bills)
  • Proof of income
  • Copy of employment contract
  • Employment continuity proof
  • Last 3 months salary certificate
  • Last 6 months bank statements showing salary credit
  • Income Tax returns
  • Property papers
  • Non-Resident External (NRE) or Non-Resident Ordinary (NRO) account statements
  • Notarized Power of Attorney (if applicable)
  • Cheque towards processing fees

Submission of Documents

Many Indian banks have a physical presence in the U.S. which allows NRI to visit the branches and do the necessary steps to get the loan. Most of the banks such as ICICI Bank, Axis, and HDFC do offer the facility to submit all the documents online. So, there is no need to even come to India to apply for home loans. The POA can be of help when needed.

Tax Implications of NRI Home Loans

According to the Section 80C of the Income Tax Act, NRIs are eligible for a tax deduction on interest paid and the principal amount of the home loans if they file income tax returns in India.

If the home is lying unoccupied, the tax benefits include a deduction of up to Rs 2 lakh on the interest amount and a deduction of up to Rs 1.5 lakh on the principal repayment.

In case the home is rented out, the entire interest payable can be claimed as a tax deduction.

Read more on new NRI tax rules.

Final thoughts

If you have been looking for an investment opportunity in India, it is a favorable time to send money, especially for investment purposes. The value of the U.S. dollar against the Indian rupee (USD to INR) has been strengthening and the interest on home loans in India has dropped.

Real estate is a safer option that yields substantial return is a smart choice. As long as the necessary paperwork is submitted, getting home loans in India should be a walk in the park for an NRI. We do recommend researching the various loan options available and choose the one as per the investment goals.

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