How is a normal home loan is different in case of Non- Resident Indians (NRI)? Is it equally easy for them to obtain a home loan and own the property of their choice?
The home loan for NRI citizens are available easily by most of the banks and financial institutions. The prompt repayment by NRI’s helps them in getting loans when required. The repayment is done through banking channel using inward remittances. If there is already any source of income in India then NRI’s can directly repay the loan. RBI has also laid down norms for NRI’s seeking loan to buy any property:
• A margin of 15 to 20 % is required i.e. 80-85% of purchase value is allowed as loan. Rest is required to be contributed by the NRI himself.
• The remittance of the amount for down payment can be done by normal banking channels, i.e., NRO/NRE account in India.
• It is important here that NRI use the same channel for repayment in future as well.
• The minimum educational qualification for such loan is graduation.
• The ceiling amount under such loan may vary from Rs 1 Cr to Rs 5 Cr, depending on the banks.
• Documents required for NRI’s home loan are : Work experience certificate, Salary slip, Latest NRE or NRO account statement, permanent address proof in India, POA holder in India where banks can contact in absence of NRI.
The main difference in normal home loan and NRI home loan are:
- Payment channel is important in case of NRI’s staying abroad for long duration. In normal home loan the payment can be done directly
- The loan tenure allowed for NRI home loan is normally 7 to 15 years whereas in normal cases it can go beyond such ceiling
- The document proof is different in case of NRI home loan
The interest rate offered by a debt instrument depends on the following factors:
- Risk: Higher the risk, higher will be return and vice-verse. You have to make a selection of debt product depending on how much risk you can take at an offered rate of return on a specific investment product.
- Tenure: Normally a product with longer duration offers higher return over short duration debt products.
- Operation cost: If the operational cost of the debt product is high then the return offered by such product is lower.
- Flexibility: The flexibility offered by the debt product comes with an additional cost. Higher flexibility in a debt product means chances of early withdrawal, In that case, either the rates offered in such product is lower or there is penalty on early withdrawal.
If I assume here that the higher return required here is anything above 9-10% Pa then the investment instrument available are:
- Non convertible debentures (NCD) by publicly listed companies (9-12% Pa).
- Fixed deposit schemes by corporate (9 to 12.5% Pa).
- Bonds issued by government and non government companies (9-10% Pa).
Investors must check the credit rating and past records of the companies before investing in such instruments. Higher return should not be the sole criteria while opting for an investment.
NRI Home Loans are available for the following purposes:
Self-construction of a property on a plot of land
Purchase of a plot of land allotted by a society/development authority
Renovate/improve an existing property in India
Purchase of a house either under construction or on resale
Loans are also offered to NRIs against their NRE deposits. These loans can be repaid out of NRE funds but the interest would be charged at a commercial rate. Loans to Non-Resident Indians are also provided against FCNR deposits.
NRI Home Loans can be availed by any NRI. However, they might differ from a normal Home Loan given to resident Indians in terms of tenure, documents required and repayment. Interest rates might also be slightly higher than those offered to resident Indians. Most of times it is 0.25% to 0.50% higher for NRIs. The NRI can usually get funding for only 85% of the cost of the property. The tenure of loan may also be short and could range from 7 years to 15 years. The size of the loan depends upon the borrower’s repayment capacity. Home Loan eligibility calculations will be the same as that of resident Indians. The EMI can be scheduled using their Non-Resident Ordinary (NRO) account or the Non-Resident External (NRE) account.
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