Is it risky to lend to an Non-Resident Indian who lives
in a distant land? Indian banks certainly don't think
so. They offer home loans quite freely to NRIs -- but
they do insist on a lot more paperwork before parting
with cash. NRIs can -- much like residents who live
in India -- take loans at any stage before striking
a deal. They can buy houses that are under construction
or for sale. They can also take a loan to buy a plot
of land or to renovate/improve an existing property.
Firstly, it's important to determine who -- according
to the banks -- is an NRI.
 The
banks follow the RBI guidelines - "An Indian citizen
who holds a valid Indian passport and who stays abroad
for employment or for carrying on business or vocation
outside India or stays abroad under circumstances indicating
an intention for an uncertain duration of stay abroad
is an NRI." Some banks such as the State Bank of India
also offer loans to Persons of Indian Origin holding
a foreign passport. Interest rates for NRI loans aren't
very different from charges for Indians living in this
country. But the loan is for a much shorter period.
For instance, an NRI taking a loan from HDFC bank must
repay it in a maximum of seven years. On the other hand,
the SBI gives loans that have to be repaid in 10 years
to 12 years. Whereas banks usually offer home loans
for up to 15 years to 20 years, to people who live in
this country. Also, Indians living in this country can
take loans for up to 90 per cent of the cost of the
property. By comparison NRIs are offered loans for only
up to 85 per cent of the property's cost.
 The
size of the loan depends upon the borrower's repayment
capacity. However, there is a maximum limit. For instance,
HDFC offers loans for up to Rs 1 crore (Rs 10 million),
while SBI offers a maximum loan of up to 24 times the
borrower's net monthly income. The eligibility of an
NRI is calculated in the same way as it is calculated
for a resident Indian. However, banks have to take greater
care because NRIs live further away in regions where
the banks may not have an understanding of the situation
on the ground.
Therefore, for NRIs more emphasis is laid on their qualifications,
current job profile, probability of continuing abroad
for the loan tenure and the probability of servicing
the loan with an extended tenure in case the NRI has
to return to India. As a result, a large number of documents
must be submitted for a loan. These include a copy of
the person's passport and the visa, a copy of the appointment
letter and contract. Also, there must be a copy of the
labour card/identity card (translated in English and
countersigned by the consulate) if the person is employed
in the Middle East, and a salary certificate (in English)
specifying name, date of joining, designation and salary
details. Besides that, there must be bank statements
for the last six months -- both domestic (NRE/NRO/FCNR)
and international.
A borrower must also submit a general power of attorney
attested by the Indian consulate at the place of residence
if they are not available in India at the time of submitting
the application form. In case you are in India, the
power of attorney can be locally notarized.The NRI's
contribution towards the house has to be paid upfront.
Such payments have to be made by way of direct remittances
from abroad through normal banking channels or from
such accounts specified by the Reserve Bank of India.
Now-a-days, the payments can be made through Non-Resident
Ordinary (NRO) account or the Nonresident External (NRE)
account.
Once the loan comes through, it must be repaid as equated
monthly installments which too can either be remitted
to the bank from abroad through regular banking channels
or can be repaid through the NRE account or the NRO
account in India. For security, most banks insist that
the first mortgage of the property should be in their
name. If the property is under construction then adequate
additional security is required such as guarantee of
third party (either resident or non-resident).
The loan fees vary from bank to bank. For instance,
HDFC charges 1.25 per cent of the loan and SBI charges
1 per cent. NRI's can't claim tax benefits on home loans.
However, if they pay tax in India for income earned
in India, they can claim tax rebate for the home loan.
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