NRI Home Loans
Who is an NRI?
An NRI is an Indian citizen, holding a valid Indian passport and is staying abroad for employment, business or vocational purposes.
By the Reserve Bank of India and the Income Tax Act definition of this term, it also includes Indian citizens staying abroad for an uncertain duration due to certain circumstances.
As per the Foreign Exchange Management Act (FEMA), two categories of people can qualify to be NRIs:
Indian citizens (who have valid Indian passports), who are residents in a foreign country.
They could also be Persons of Indian Origin (PIOs) who are residing outside India. To qualify as a PIO either you or your parents/grandparents should have been citizens of independent India.
Citizens of a neighbouring countries such as Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Maldives, Iran, China or Afghanistan do not qualify to be termed as a PIO.
NRIs can buy properties in India and avail housing loans in respect of residential properties from banks.
NRIs cannot buy agricultural land/farm house/plantation property in India.
NRIs can avail home loans:
- To purchase a residential house either under-construction or on resale.
- For self-construction of a residential property on a plot of land in India.
- To finance the purchase of a plot of land allotted by a society / development authority.
- To renovate / improve an existing residential property in India.
NRIs can avail up to 85 percent of the cost of residential property as a home loan.
An NRI can get a loan of up to 36 times the gross monthly earnings. Calculation of eligibility is same as that of Indians living in the country. You can also calculate the amount of loan you are eligible for, here.
However, in case of an NRI, there is a stress on certain pre-requisite for the loan sanction like:
- Current job profile
- Past experience
- Probability of continuing abroad for the loan tenure
- Probability of servicing the loan with an extended tenure in case of return to India
- The Loan To Value (LTV) ratio for NRI customers varies from one bank to another, though the manner of calculation is the same in case of a regular home loan
- The down-payment for the home loan is permitted through direct remittances from abroad through normal banking channels or from deposit accounts in India including NRO account.
- The income taken into account for calculating the home loan eligibility is the repatriable income plus any income in India. For NRIs working in countries that restrict repatriation such as African countries, only the repatriable portion of the income is considered for calculating loan eligibility.
Though the regular home loan tenures can exceed up to 25 years (as in case of current times due to increase in interest rates), loan tenure for NRIs is 10 to 15 years.
Along with documents required for a home loan, some additional documents are required to be submitted along with the application form for a NRI home loan. The list of additional documents is:
- A copy of your passport and visa.
- General Power of Attorney (POA) in favour of a local person as per the draft of the Bank (Specimen POA-link) duly attested by the Indian consulate at the place of your residence. In case the loan borrower is in India, the POA can be locally notarised. Most banks require the POA to ease the process of dealing with you. The POA holder only gets the powers that you give and does not have the power of dealing with the property.
- A copy of the appointment letter and contract.
- A copy of the labour card/identity card (translated in English duly countersigned by the consulate) if employed in the Middle East.
- Salary certificate (in English) specifying name, date of joining, designation and salary details.
- Bank statements for the last six months-both domestic (NRE/NRO/FCNR) and international
- Contract slip with income details in case you are employed in the merchant navy.
- Copy of local income tax returns filed in the country of residence
Loan eligibility can be enhanced by taking a joint loan with relatives. However, for credit reasons banks allow only a select list of relatives to be joint owners of the property.
Repayment of home loans for NRIs is permissible through specific sources:
By remittance from abroad through recognized banking channels
From any deposit accounts maintained validly in India including Non-resident (Ordinary accounts)
From rental income derived from the property
By specified close relatives
If the housing loan is pre-closed due to availability of surplus funds or due to switching lenders, loan pre-payment penalty will be charged by the bank.
Usually, the pre-payment penalty is around 2 per cent of the outstanding house loan.
Tax deduction benefits on home loan repayments cannot be availed unless the returns are filed in India. Tax deduction benefits and implications on property owned in India, under-construction or ready; remains the same for NRIs as in case of Indians.