Are Home Loan Rates Different For NRIs?

Data available with Makaan.com show non-resident Indians (NRIs) are back looking for property in the country of their origin at a time when the domestic currency is seen weakening against the dollar amid the coronavirus pandemic making severe dents in the world economy, including that of India. Since interest rates on home loans are at a record low level, hovering below 7%, and property value has undergone significant correction in the past five years, this might be the appropriate time for NRI investors to make their move. The fact that property markets in India are currently flush with a huge ready-to-move-in housing stock also makes the purchase way more convenient — data show there are over 7.38 lakh unsold housing units spread across India's eight prime residential markets. 

However, banks have certain additional conditions when it comes to lending home loans to NRIs as compared to a local borrower. This is because of one factor — the borrower is living in another country. As is usual in each case of lending, banks like to ensure they are providing a debt on which they would earn a return without having to face any troubles. While doing so, they have to take additional care in terms of NRI borrowers.

How do banks ensure that?

The criteria: Banks use the same yardstick to establish an applicant’s eligibility, irrespective of their nationality, by and large. For instance, they must be at least 18 years of age and not more than 60 years; they must be financially capable of repaying the loan; they must have a good credit score, etc. NRIs, however, need to meet certain other conditions, too.

Apart from demanding that typical set of documents that provide residence and employment-related information in India as well as abroad, banks demand NRI borrowers to present documents proving they have been working in the country of their current residence for at least two years. They also prefer keeping the tenure shorter i.e. between 15 and 20 years.  However, you can use your age, your future income prospects and your negotiation skills to dazzle the bank and get the tenure stretched till 30 years, also.

Documents NRI home loan seekers need

• Copies of passport and visa
• Proof of work permit
• Copy of work contract
• Employer ID
• Salary slips of past 3 months
• Salary account statement for the past 6 months
• ITR of the past financial year
• NRE/NRO account details
• Proof of address in the country of residence
• Proof of address in India
• 3 passport size pictures
• Notarised general power of attorney

The start: You live outside India. Naturally, an Indian bank would want a point person here who could be held accountable in case of any issues in the future. This is precisely why banks insist on NRIs having a co-borrower or a co-applicant or a co-owner who resides here. If that is not a likely scenario, you will have to appoint a family member as the power of attorney (PoA). This person would take care of every business there is as your representative here.

The application: There is absolutely no need for an NRI to be present in India to apply for a home loan. The entire process can take place online. After considering all aspects, the borrowers must check the official site of the banks from which he wants to take the loan. Most banks have dedicated pages catering to NRI customers. These pages provide direct phone numbers/email IDs of the officials you can get in touch with, to know all about the product. After you are satisfied with the product, you would have to appoint the PoA for the process to get started. For this purpose, you will have to visit the Indian embassy in the country of your current residence where the bank would send certain papers for signing purposes.

The rate: Typically, home loans are costlier for NRI applicants when compared to a borrower who lives in India. For instance, public lender State Bank of India (SBI) currently charges local borrower 6.95 per cent interest for a loan of up to Rs 30 lakh. For the same loan amount, an NRI will have to pay 7 per cent interest. In case the NRI is not a salaried individual, he will have to pay an additional 15 basis points on the interest. That way, the cost of borrowing would be 7.15% per annum. Rates will continue to increase in case of low loan-to-value ratio.  The same yardstick is used by almost all banks in India while lending to NRI borrowers. 

Additionally, the NRI borrower has to pay the processing free, legal-technical valuation fee, document registration fee, etc., to the bank. At SBI for example, NRIs have to pay 0.40 per cent of the loan amount as the processing fee, along with the applicable GST.

The repayment: The loan has to be re-paid in rupee terms, in an NRO/NRE account.