NRI and Home Loans in India
To attract a continuous flow of remittances, India has been supporting its offshore population, including Non-Resident Indians (NRI) and Persons of Indian Origin (PIO), to make property purchases in India. To ensure this flow of funds/investment, the RBI has been promoting few leading Indian banks, such as HDFC, Axis, ICICI, Kotak and SBI, to provide various home loan schemes for Non-resident Indians (NRIs) and Persons of Indian Origin (PIO).
Even for these banks, such loans are a safe proposition considering that the offshore Indian are generally wealthy customers, and these loans, usually, come with a great number of checks and scrutiny. Before discussing this further, let's explore who all are eligible for such loans?
Who is an NRI/PIO? NRIs and PIOs, who are eligible for these loans, are people of Indian birth, descent or origin who are settled out of India. By definition, NRIs are Indian citizens who reside in India for less than 182 days during the course of the preceding financial year or citizens who have gone/stays outside India for the purpose of employment, for carrying on business or vocation, or for any other purpose indicating his intention to stay outside India for an uncertain period. On the contrary, a PIO is a citizen of a foreign country (except Bangladesh or Pakistan) who has held an Indian passport at any time, or had Indian parents or grandparents, or has a spouse who is a citizen of India.
Home loan eligibility for NRIs/PIOs (may vary as per banks) Home Loan eligibility, as the name suggests, refers to the eligibility of an NRI/PIO, in receiving financial assistance for his/her home purchase, construction of house/flat(s), purchase of house/flat(s), addition/ alteration to an existing house, and repairs/renovation etc. As only select banks are allowed to offer home loans for NRI/PIO in India, we provide you with a basic list of requirements which you need to fulfill to avails NRI home loan from these banks:
Age requirement: Most of the banks insist on the applicant being at least 21 years of age (or higher). The upper limit may vary from 60-65 Years (or retirement age), whichever is earlier at the time of maturity of loan.
Educational qualifications: The NRI loan seeker has to be a graduate.
Experience required: Generally the minimum 1 year of employment overseas (for salaried) and minimum 3 years in current business overseas (for self-employed) is the basic requirement for issuance of loan amount, with may banks insisting on few years of experience in India (if foreign experience in on the lower end of the spectrum).
Minimum Income required: The income requirement varies for different countries of residence. While most banks list out minimum income requirements for Gulf countries and major Western countries like the US, UK and Germany on their website, any NRI/PIO can get in touch with a bank representative to get a minimum income requirement document for the rest of the counties. The minimum income is also impacted by the nature of employment of the applicant.
Repayment tenure: While a few banks offer a repayment tenure of up to 30 Years for a home loan, 15 years for home improvement loan and 20 years for land loan, it varies from bank to bank and is also dependent on various other factors including country of residence and salary bracket. Many banks offer much lower repayment tenure to their NRI customers, ranging from 5-15 years.
Documents required: While requirements of documents may vary from bank to bank. Below is a list of key documents which are required by banks to issue a home loan to NRIs/PIOs:
Passport size photographs
Employer Identity Card
KYC documents (Identity Proof such as PAN/ Passport/ Driver’s License/ Voter ID card, and an Overseas Address Proof)
Signature proof (PAN Card, Form 60, Passport), Resident Proof in India (Recent copy of Telephone Bill/ Electricity Bill/Water Bill/ Piped Gas Bill or copy of Passport/ Driving License/ Aadhar Card)
Valid Passport and Visa copy
PIO or OCI Card (or ration card/passport of parents/grandparents/spouse of PIO establishing their Indian citizenship)
Processing fee cheque from NRE/NRO/overseas salary account
Power of attorney document
Various other declarations (varying from bank to bank)
Income and other documents:
Salary Slip for 3 months
Appointment Letter/employment contract
Incorporation certificate, latest 3 years audited financials with CA certification, IT Returns
Credit Report (from Transunion / Equifax), Experian or Transunion
Office Address Proof & Business Profile
Additional Documents required for Balance Transfer
Latest 12 months Statement from loan account
Outstanding principal statement on existing lender’s letterhead
Original list of documents
Declaration cum Undertaking of legal documents submitted to the existing lender
Home loan procedure for NRIs: An NRI or PIO can apply for a home loan in India before, during or after selecting a property to purchase. The banks usually sanction loan amounts based on the repayment capacity of the customer. While a personal guarantor is required in case, there is no co-applicant, in case of a co-applicant (who can be a resident Indian or an NRI) the need for a guarantor is waived off. Applicant’s son, daughter, sister, brother, parent, spouse or co-owner can be made a co-applicant.
The loan can be disbursed after the selection of property, submission of all the required documents, technical and legal clearance of property and after payment of property owner’s own contribution.
The bank issues a loan in the favour of the builder/seller through a cheque. In case of ready to move property, the bank issues the entire amount in one go, whereas in under-construction projects the amount is disbursed in phases according to the level of completion.
Scope of the Loan Home loans for an NRI applicant range from INR 5 lakhs - INR 1 crore, and is based on the cost of the property and the repayment capacity of the borrower. An applicant is generally eligible for a maximum home loan of 85% of the property cost/construction cost, or 75% of the land cost, based on the repayment capacity of the borrower.
Conditions for payments and Interest rates for NRIs: NRI Home loans application ranges between INR 5 Lakh to INR 1 Crore, with the applicant eligible to apply for a maximum loan of 85% (LTV) of the cost of property/construction or 75% (LTV) of the cost of land purchase. However, the lenders in India fund around 70-80% of the agreement value of the property, with the exact Loan-to-Value (LTV) ratio differing from lender to lender in accordance with the priorities of the home loan provider.
The applicable home loan as of August 2020 is 7.75% - 8.40% p.a. (for Salaried NRIs) and 7.95-8.55% p.a. (for self-employed NRIs). The interest rate offered usually depends on credit assessment of the applicant, as well as the product variant.
The banks may offer other features as well such as minimal processing fees, flexible tenures and an option to prepay part of the loan at no cost
Additionally, while government charges such as stamp duty, registration, surcharges are not included in the loan amount, the applicant can include amenity cost, including the cost of parking, infrastructure and floor rise to the agreement amount to get additional funds.
As an NRI investor who wish to buy a property in India and seeking to avail of a home loan to facilitate this purchase, you should either contact the seller (or developer) to understand the financing options which are available in the market or conduct a thorough research on terms and interest offered by banks like HDFC, Axis, ICICI, Kotak, SBI, other financial corporations and NBFCs before going for the financing option for their purchase.