Research on HOME LOAN

8/18/2019 Research on HOME LOAN

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INTRODUCTION TO HOME LOAN

The sun at home warms better than sun elsewhere.

True isn’t it, where else do you find that comfort that makes you feel so special everyday.

Undoubtedly owning a house is the most important phase in ones life. Not long ago, turning

this dream into a reality was a daunting task for the common man with property rates going

north all the time. But now, thanks to the proliferation of home loans and housing finance

companies, one can aspire to own a roof over one's head. any think it is an e!pensive affair

and beyond reach. "ell, that’s not always true. #t takes a little planning and awareness to get

to that home you want to call your own.

Buying a home for the first time can be daunting to any person but in today’s time various

banks are lending a helping hand to the people to purchase their dream house. Thus people

look forward towards choosing a home loan. The primary concern of a housing finance

company is to determine the loan amount that the borrower is comfortably able to repay. The

most popular method of financing a home purchase is with a mortgage. This is a loan that is

secured over the home. There are a number of different mortgage suppliers and people will

have to shop around in order to get the best deal.

$ome %oan is one of the fastest growing retail and mass banking area. #t forms an important

part of the country’s priority in & year plans. lmost all public and private sector banks are

offering home loans at attractive rates for purchasing their dream home. $ome loan usually

cover a variety of types. ll Banks have come out with home loan products studded with

features and value additions that make the schemes not only attractive but also serve as a

substantial source to the borrowers for owning their dream home.

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Significant of study

Research Design

The research design of this pro)ect is e!ploratory. Though each research studyhas its own specific purpose but the research design of this pro)ect on #*#*# ise!ploratory in nature as the ob)ective is the development of the hypothesisrather than their testing.

Methodoogy

+esearch methodology is a strategy that guides a research in providing answersto research uestions and for this, research survey is being done. -ccuracy of

the study depends on the systematic application of the method. The researcher has to decide the method to be used that helps him to get a desired direction asystematic way. This study in the following manner.

!uestionnaire Design

The uestions were designed in an easily understandable way. That therespondents may not have any difficulty in answering them. The uestionnairealso contained a comments section. This section was included so as to getopinion of the people regarding the /B# $01 %0N.

Rando" Sa"#ing

/ampling can be defined as a part of population. This random sampling may bedefined as the selection of the portion from the whole population in which eachelements of the population has eual chance of being selected. more pleasedefinition is that each element in the population has a non23ero and known

probability of selection a randomly drawn sample is an unbiased sample. #n thisresearch survey &4 people were surveyed at random to get the relevant

information.

Sa"#e Si$e

The sampling techniues used in this pro)ect are probability samplingtechniues and the methods used in cluster sampling.

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T671/ 08 $01 %0N/

%ending institutions like banks offer different types of home loans for a wide gamut of

housing activities. /ome of the popular home loans are9

Ho"e %urchase Loans& There are the basic home loans for the purchase of a new home.

Ho"e I"#ro'e"ent Loans& These loans are given for implementing repair works and

renovations in a home that has already been purchased by the borrower.

Ho"e Construction Loans& These loans are available for the construction of a new home.

Ho"e E(tension Loans& These are given for e!panding or e!tending an e!isting home. 8or

e!ample addition of an e!tra room, etc.

Land %urchase Loans& These loans are available for purchase of land for both home

construction or investment purposes.

)ridge Loans& Bridge %oans are designed for people who wish to sell the e!isting home and

purchase another. The bridge loan helps finance the new home, until a buyer is found for the

old home.

)aance Transfer& Balance Transfer loans help the borrower to pay off an e!isting home loan

and avail the option of a loan with a lower rate of interest.

Refinance Loans& These loans helps to pay off the debt the borrower have incurred from

private sources such as relatives and friends, for the purchase of your present home.

Ho"e Con'ersion Loans& These loans are for those people who have financed the present

home with a home loan and wishes to purchase:move to another home for which some e!tra

finances are reuired. #n $ome *onversion %oan, the e!isting loan is transferred to new home

including the e!tra amount reuired, eliminating need for pre2payment of the previous loan.

Sta"# Duty Loans& These loans are sanctioned to pay the stamp duty amount that needs to

be paid on the purchase of property.

Loans to NRIs& These loans are given to the N+#’s to build:buy a home in #ndia. 1# is

payable till the loan is paid back in full. #t consists of a portion of the interest as well as the

principal.

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Re'ie*s of Literature

literature review is an account of what has been published on a topic byaccredited scholars and researches. 0ccasionally you will be asked to write oneas a separate assignment, but more often it is part of the introduction to an essay,

research report, or thesis. #n writing the literature review, your purpose is toconvey to your reader what knowledge and ideas have been established on topic,and what their strengths and weaknesses are. s a piece of writing, the literaturereview must be defined by a guiding concept .? million urban middle2class households in the country, but

the latter had a better purchasing power because they do not incur anye!penditure on rent, transport and school fees, compared to their urbancounterparts, who spend a si3able portion of their income on these items.

literature review is a te!t of a scholarly paper, which includes the currentknowledge including substantive findings, as well as theoretical or methodological contributions to a particular topic. %iterature reviews usesecondary sources, and do not report new or original e!perimental work. ost

associated with academic oriented literature, such as a thesis, dissertation or a peer2reviewed )ournal article, a literature review generally precedes themethodology and results section although this is not always the case. %iteraturereviews are also common in a research proposal or prospectus


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O)+ECTI,ES

Broad ob)ectives of the /B# are9

• To assist in the creation, e!pansion and modernisation of $01 loans@

• To encourage the participation of internal and e!ternal capital

• To encourage private ownership of industrial investment.

• To create an awareness about loan and policies.

• To identify the potential policy holders among end users and to create a

relationship between the companies and potential customers:

• To find out the awareness of the people about home loan

• To offer suggestions based on findings.

H-%OTHESIS

The hypothesis being put forth for this study about home loans is that the awareness of home

loans is (44A but after the survey the conclusion can be put that there are still many peoplewho do not know about home loans. Banks are coming up with new innovative home loans

schemes for increasing their customer base.

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RESEARCH METHODOLO-

The research methodology is data collection through

• 7rimary /ources

• /econdary /ources

%ri"ary Sources& /urvey by distributing uestionnaire to the people taking sample si3e of

(44. #nterviews conducted with bankers.Secondary Sources& ata collection through books, maga3ines, websites, )ournals, etc.

E/%ECTED CONTRI)UTION

1!pectations from the study are that it may contribute to the real scenario of home loans

demand and accordingly the banks can go for new innovative schemes. #t will also specify

some recommendations and based on that banks can make suitable arrangements in a

particular sector. #t will also make people aware about the various home loan schemes and itsvarious procedures and formalities.

%ROCEDURE O0 HOME LOAN

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Submission of application form

Personal Discussion with customer

Field Investigation by the bank/FI

Credit Appraisal and loan sanction

Issue of oer letter to the customer

Submission of property / legal documents

!egal check on the property by the bank

"echnical check on the property by the bank

Disbursement

#epayment

Interest ta$ certi%cate

Prepayment by the customer

$ome loan procedure caters to processes right from the time the customer walks into the

bank with a reuest for home loan till the time the loan is finally repaid by the customer. The

three ma)or phases in the home loan procedure are the information acuisition, credit

appraisal and sanction, and disbursement. Tracking the performance of the process is an

underlying phase that runs across the application processing cycle and is critical for

monitoring and profitability for the Bank: 8inancial #nstitution.

The procedure for availing a home loan can be e!plained with the help of the following flow

chart9

A. Su1"ission of a##ication for"& The application is submitted along with photographs,

credit documents and a cheue for processing, documentation and administration fees by the

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customer. The credit documents comprise documents to establish income, age, residence,

employment, investments, etc. uring this stage, the bank:financial institution checks the

repayment capacity of the customer. The repayment capacity is determined by taking into

consideration factors such as income, age, ualifications, number of dependants, spouse's

income, assets, liabilities, stability and continuity of occupation and savings history.

). %ersona Discussion *ith custo"er& /ome banks:8#s reuire the customer be present at

the time of the credit appraisal. /ome banks:8#s may insist on a personal interview with the

customer and perform a reference check on the references provided by the customer on the

application form. 8or the personal discussion the customer needs to take with him all

documents pertaining to the information provided by him on the application form.

C. 0ied In'estigation 1y the 1an230I& The bank:8# validates information provided by the

customer on the application form. This stage revolves around two key aspects. *ritically

appraising the credit worthiness of the customer and analy3ing the risk in lending. #t is

necessary to capture all the information reuired to cater to these aspects. #t is important to

verify that the information supplied by the customer is correct and authentic. Banks achieve

this mostly through e!ternal agencies. lso the validity and authenticity of information can be

done through conducting checks on the residential address of the customer, the place of

employment of the customer, and credentials of the employer, verification of documentary

proofs of income, age and other information. To minimi3e the risk, it is necessary to check

that the customer is not a fraud or black listed within the bank or other institutions.

D. Credit A##raisa and oan sanction& The ne!t phase in the home loan process is the

credit appraisal and loan sanction. fter checking the customer's repayment capacity, the

bank:8# sets norms that define the customer's eligibility for a loan amount. The loan then getssanctioned along with certain terms and conditions. "hen evaluating the measurable aspects

of home loan reuests, an analyst addresses the following issues9 the character of the

borrower, the use of loan proceeds, the amount needed, and the primary and secondary

sources of repayment. Therefore, the bank has to base its decisions more on ualitative

parameters rather than uantitative aspects. *redit analysis therefore is distinct for each type

of home loan scheme. *redit analysis is the most popular methods of evaluating home loans.

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. Lega chec2 on the #ro#erty 1y the 1an2 9 The bank:8# sends all the documents to their

empanelled lawyer for a thorough scrutiny. 0n receiving the lawyer's report that the

documents are clear, the bank:8# decides to disburse the loan to the customer. #f the

documents sent to the lawyer are not enough to arrive at a )udgment, the bank:8# reuests the

customer to furnish additional documents.

H. Technica chec2 on the #ro#erty 1y the 1an23financia institution& 7rior to

disbursement, the bank:8# conduct a site visit to the customer's property to verify the

following9

In case of under construction #ro#erty&

• Euality of construction

• /tage of construction9 "hether it is the same as mentioned in the payment notice given to

the customer by the builder

• 7rogress of work

•

%ayout of flats and area of property is within permission granted by the governingauthority

• +euisite certificates have been received by the builder to start construction at the site

In case of ready construction3 resae&

•

ge of the structure

• Euality of construction

• "hether the structure will last the tenure of the loan

• 1!ternal maintenance of the property

•#nternal maintenance of the property

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• /urrounding area


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finance companies


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!uaification& The N+# loan seeker has to be a graduate.

Inco"e& The loan applicant has to have a minimum monthly income of H 5,444 4 times of his Net onthly #ncome


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credit facility has been sanctioned. ocuments should be properly drafted, stamped and

e!ecuted with necessary legal formalities, if any. n effective loan approval process

establishes minimum reuirements for the information and analysis upon which a credit

decision is based.

There are certain sets of documents that need to be submitted at the time of application for a

home loan. The document sets will vary according to the individual status 2 either resident or

non resident in #ndia, as also the type of loan that the borrower may want to avail of.

Resident Indians Non : Resident Indians

• #ncome documents

• 7roperty documents

• 7ersonal documents

• #ncome documents

• 7roperty documents

• 7ersonal documents

56 0or Resident Indians

ocumentation refers to the specific documents to be submitted by +esident #ndians as they

apply for home loan. These documents are very much necessary for the banks to avoid any

dispute and uncertainty. The documents to be provided by the resident #ndians include

income proof, property documents and personal identification documents, etc. which of

course varies based on the borrowers financial status and the type of loan he want to avail.

nd of course every resident #ndian should follow some eligibility criteria before applying

for $ome %oans in #ndia.

$owever, there are some standard documents made mandatory for a loan applicant to

produce such as the loan applicant's profile, earning life of the applicant and present financial

status proof etc.

• The pplicant's 7rofile refers to the bio2data of the applicant, mentioning his address,

age, family background and detail information.

• The 1arning %ife of the pplicants' proof clarifies the capability of the loan payment.

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• The 7resent 8inancial status gives the present capability of handling the own contribution

and other e!penditures. This includes the mortgage to be deposited against the loan

amount.

56 Inco"e docu"ents

If you are e"#oyed

• Ierification of 1mployment form

• %atest salary slip:salary certificate showing all deductions for at least the past > months

• 8orm (> from your employer for the past ; years.

• #f your )ob is transferable, permanent address where correspondence relating to the

application can be mailed.

• #f you have been in your present employment : business or profession for less than a year,

mention details of occupation for previous & years, giving position held reasons for

change and period of the same

If you are sef e"#oyed

• Balance sheet and profit and loss account of the business:profession along with copies of

individual income ta! returns for the past ; years as certified by a chartered accountant.

• note giving information on the nature of the business:profession, year of establishment,

present bankers, form of organisation, clients, suppliers etc.

• 6our net worth as an applicant:co2applicant.

86 %ro#erty docu"ents

%urchase of a fat or a#art"ent fro" a 1uider3#ro"oter

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• Title deeds of the builder:land owner for a period of at least (; years.

• evelopment agreement between the builder and land owner if applicable.

• 7ower of ttorney e!ecuted in favour of the builder, if applicable.

• n encumbrance certificate for the past (; years.

• The khata certificate.


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• ( copy of your passport:7N card:riving %icense::/chool %eaving *ertificate:Birth

*ertificate:%#* 7olicy:Bankers sign verification,

• ( copy of last month's telephone bill:electricity bill: ration card


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56 Interest rates for Resident Indians

• )uying a ne* house fro" a 1uider3#ro"oter

Banks and 8#s offer resident #ndians loans upto +s (4,444,444 for upto ;4 years for buying a

new flat from a builder. The flat may be under construction at the time of application.

The table below offers a comparison of loan ranges and corresponding interest rates

applicable under this scheme.

Co"#any Loan a"ount 7Rs.6 0oating rate 7=6 0i(ed rate 7=6

$8*


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$ome improvement schemes allow the borrower to finance internal and e!ternal repairs and

other structural improvements in your home. /ome of the home improvements one can

finance under this scheme are9

• 1!ternal repairs

• "aterproofing and roofing

• #nternal and e!ternal painting

• 7lumbing and electrical works

• Tiling and flooring

• Grills and aluminium windows

The table below offers a comparison of loan ranges and corresponding interest rates

applicable under this scheme.

Co"#any Loan a"ount 7Rs.6 0oating rate 7=6 0i(ed rate 7=6

$8*


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essential and necessary fees for the purchase of the house. #n most of the cases, the margin

amount of 5&A of the purchase consideration has to be borne by the borrower in the case of

purchase of old houses:approved plots and (&A of the pro)ect cost in the case of loans for

construction:purchase of new house:flat.

SECURIT- 0OR HOME LOANS

#n most cases, the property to be purchased itself becomes the security and is mortgaged to

the lending institution till the entire loan is repaid. #nterim security may be additionally

reuired, if the property is under construction /ome companies may also reuire additional

securities which are called collateral securities like the assignment of life insurance policies,

pledge of shares, N/*s, units of mutual funds, bank deposits or other investments.

UARANTOR 0OR HOME LOANS

Guarantors are essential for sanctioning of loans. Usually, a guarantor is reuired so that if

the applicant fails or becomes incapable of repaying, the guarantor will be responsible for

clearing the debt. Generally most banks do not insist on a guarantor when giving home loans but some might insist for ( or 5 guarantors in certain cases. guarantor is eually liable to

pay up the loan in case the borrower misses out on repayments. By seeking a guarantor, the

lender tries to enforce a moral check that prevents the borrower from defaulting.

RE%A-MENT O%TIONS

56 0or Resident Indians

1very bank: 8# have customi3ed repayment options to suit every individual's reuirement and

also repaying capacity with some ta! benefits. They have thereby come up with more fle!ible

and ultiple +epayment 0ption. few among them are9

Ste#9u# Re#ay"ent 0aciity& The ob)ective of step2up repayment is to provide the borrower

with a repayment schedule, which is linked to e!pected growth in income. #t not only helps a

customer get a larger amount of loan as compared to the loan under the normal housing loan@

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but the customer can avail of a higher amount of loan and pay lower 1#s in the initial years,

which is subseuently accelerated proportionately with the assumed increase in his income.

0e(i1e Loan Insta"ents %an& This repayment option offers a customi3ed solution to suit

the needs of customers whose repayment capacity is likely to alter during the term of the

loan. #n cases when a borrower is nearing retirement, the loan is structured in such a way that

the 1# is higher during the initial years and subseuently decreases in the latter part

proportionate to the reduced income of the customer

REPAYMENT TENURE

56 0or Resident Indians$ome loan tenures fi!ed by +B# are available up to a term of (& years. /ome financial

institutions have home loan tenures in the range e!tending up to 54, 5& and ;4 years if the

applicant fulfills certain criteria. $owever, one cannot opt for a term that e!tends beyond

attaining retirement age or >4 years of age ITH INSURANCE CO,ER

$ome loan insurance plans, also known as mortgage redemption plans are policies that cover

the home loan liability. This insurance is much like the term plan or pure risk cover plan that

is available from various insurance companies. There are e!ceptions like #*#*# Bank


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• %ow premiums, high cover

• No maturity amount on survival of the term

• *hoice of one time premium or regular premiums

$owever, the cover in term plans available in #ndia are level term plans where the cover

remains the same whereas in the case of home loan covers, the amount keeps falling as the

home loan liability decreases. lso it is important to know that while most term plans can be

bought till the age of &&, home loan insurance plans can be bought till the age of >4.

$owever, the medical

Age of the ife insured& The premium increases with age. edical tests increase with ageand are mandatory above ?4 years. Below this age, a simple declaration is good enough

though this depends on each insurance company.

Medica record& #f the borrower of the loan is in a good health, the premiums will be regular

but if the insurance company's prognosis about the life assured is at higher risk, then the

premiums will be higher. past family history of early death or critical illness will also

increase the premiums.

Loan tenure& The premium will increase with the duration of the loan. cover of +s &4 lakh

for five years and a cover of +s &4 lakh for 54 years will attract different premiums, with the

latter being more e!pensive.

The #oicies that one "ay consider other than a ho"e insurance are asfoo*s&

56 0ire #oicy for a househoder

Suita1iity

householder can cover his movable and immovable properties against fire and allied perils.

part from persons owning a house, people staying in a +ented:%eased house can take this

policy, if they are responsible for its safety by any covenant. n individual can also insure

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household contents not belonging to him, but held in trust or belonging to relatives

permanently staying with him.

Saient 0eatures

The 8ire 7olicy can be taken to cover any property within the country. The policy offers

cover on loss and:or damage on account of9

• ccidental fires

• %ightning

• 1!plosion L implosion 'due' to pressure vessels


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#t covers valuables like )ewelry, work of art and similar artifacts of sentimental values. The

scope of the cover is limited to loss or damage due to fire, riot L strike, terrorist act, burglary,

larceny or theft and accidental loss or damages

)enefits

The policy pays for any loss to the property insured against by insured perils. The amount of

claim payable is limited to the sum insured or the market value at the time of loss, whichever

is lower.

;6 Househoder?s %ac2age %oicy

Suita1iity

This is a single package policy offered at economical rates of premium through which all of

the householder's needs are addressed.

Saient 0eatures

The package includes the following policies9

• 8ire #nsurance

• Burglary

• ll +isks #nsurance

• 7late Glass #nsurance

• Break down of omestic ppliances EEN HOME LOAN

SCHEMES %RO,IDED )- R)I )AN4 < ICICI )AN4

5. ELII)ILIT-Sche"e Min Age Ma( Age Min Inco"e Ma( Inco"e

5;


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7years6 7years6 7Rs3"th6 7Rs3"th6

RBI Optima Additional Home Loans:RBI

Housing Loan-RI:RBI Freedom Home

Loans& ( @

ICICI Home Loans (or "RIs! 5( >& M @

8. 0EES

Sche"e %rocessing 0ees 7=6 Administrative Fees

&'(

RBI Freedom Home Loans


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compared to +B# bank because it provides home loan to ma!imum age limit of >& years as

compared to the ma!imum age limit of ?& years offered by +B# bank. "ith respect to the fees

+B# stands ahead of #**# because it has less processing fees and administrative charges.

#nterest rates offered by #*#*# are up to ((A whereas in case of +B# the loans are offered

below (4A. +B# has an upper hand over #*#*# because the ma!imum limit is Rs. B B

B. By analy3ing the home loan schemes offered by both the banks +B# can be placed at

a better position as compared to #*#*# because of the advantages stated above.

SUR,E-

# had conducted a survey taking the sample si3e of 54 people including all groups of people. #

had done the survey at different places considering all income groups of people. The

uestionnaire of the survey in enclosed in the anne!ure.#t was a very good e!perience while conducting this survey. #t developed a sense of

confidence and augmented the data collection skills within me. #t enabled me to develop a

skill of getting primary data from the common people and then analy3ing it and presenting it

in a systemic manner. ost importantly it made me think logically and practically and

thereby improved my research ability. The information collected is analy3ed and represented

below with all possible diagrams.

ANA-LSIS

A>ARENESS O0 HOME LOAN

95%

5%

Aware Not aware

The survey indicates that nearly F&A of the people are aware about the $ome loan facilities

offered by different banks. But there are still &A of people who are not much educated and

are unaware about the different types of home loan facility. 8or this banks should also target

their lower income group while making the publicity of their home loan products and their should also be a direct selling concept of marketing their product and by this banks can

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increase their customer base by providing loan to this particular section of people by making

them aware of it. /ecurity and comfort in life is a top priority for everyone. /o everyone

should be made aware of this facility and enable them to take advantage of it for which banks

and financial institutions should take care of.

DEMAND 0OR HOME LOANS

70%

30%

Want to Pursue Don’t want to Pursue

The survey conducted by me shows that C4A of the people want to pursue home loan facility

in the future if reuired. This shows there is an increase in the demand for home loans. The

reason behind this could be the boom in the home loan sector in #ndia. The real estate boom

has added new dimensions to the housing finance sector. The new class of young buyers,

whose affordability are high, is spending a little more on paying 1uated onthly

#nstallments


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%RE0ERENCE 0OR T-%E O0 HOME LOAN

Home purchaseLand PurchaseHome Extenson !thers

0%

"0%

#0%

30%

$0%

50%

Ty#e of oan #referred

No. of #eo#e

ccording to the survey ?5A of the people would prefer to take loan for home purchase, ;;A

for purchasing land, (?A for home e!tension:improvement:renovation, while only ((A for

other type of loan. ue to the hike in the property rates the demand for loan for home

purchase is increasing and the same is so for the purchase of land property. ue to

affordability factor and less amount of money reuired for home e!tension or improvement

or renovation people prefer less to opt for loan for these purposes. The other type of loans

such as Bridge %oans,

Balance Transfer, +efinance %oans, $ome *onversion %oans, /tamp uty %oans and %oans

to N+#s, are not much in demand

HOME LOAN %ROCESS

ccording to the survey 5&A of the people feel that home loan process is convenient.

a!imum number of people i.e. C&A says that the process is lengthy as banks reuires time

for processing the loan application, verification of various documents, appraising the credit

and other formalities takes a longer time in sanctioning of the loan.

CONCLUSION

#n view of its backward and forward linkages with other sectors of the economy,

housing finance in developing countries is seen as a social good. #n #ndia, growth of housing

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finance segment has accelerated in recent years. /everal supporting policy measures


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• 7rofessional Banker

Documents

Research on HOME LOAN