a. Banks ensures that in the unlikely event

a. Repayment
ability: Customer’s ability to repay is based on income and expenditure
pattern, The larger customer’s repayment capability, the higher will be
customer’s loan eligibility.

HDFC Bank ask for
last 6 months bank statements showing salary credentials to determine the
repayment ability.1

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b.
Determination of Income: Banks need to be sure about income stability of
customer. Which is why, they may not consider the following categories of
income while calculating loan eligibility: Performance bonus, Medical
reimbursements, any allowances, overtime income, in some cases the interest
income, earnings from non-verifiable resources such as tuition, tailoring and
also agricultural income as this is a non-taxable income.21

c. Cost of the
property: Based on the cost of property, loan value is determined, For example
HDFC banks lends 90% of property cost which is valued up to ?30 lakhs($ 47,010) and 80% of property
cost which is valued up to ?
75lakhs ($117,525) (HDFC Bank
Home Loans Salaried individuals)21

Loan-to-value ratio
(LTV ratio) is
a lending risk assessment ratio that financial institutions and others lenders
examine before approving a mortgage. Typically, assessments with high LTV
ratios are generally seen as higher risk and, therefore, if the mortgage is
approved, the loan generally costs the borrower more to borrow. Additionally, a
loan with a high LTV ratio may require the borrower to purchase mortgage
insurance to offset the risk to the lender 2 (Investopedia LTV)

d. Age of
building and borrower: The tenure of the loan is also dependent on the
customer’s profile, age of customer at maturity of loan, age of property at
loan maturity, depending upon the specific repayment scheme as may be opted and
any other terms which may be applicable based on prevalent norms of HDFC (HDFC Bank
Home Loans Salaried individuals)21

e. Resale value Banks
ensures that in the unlikely event of a default, they need to dispose the
property to recover its dues.19

 

2. Application form

It includes customer’s
personal and professional information, details of financial assets and
liabilities and the details of the property (if finalized) including the
estimated cost and the means of financing the same.

With the
application form, HDFC also ask for the documents to establish customer income.
This will need to be backed up by proofs such as copies of last three years
income tax returns, Form 16/Form 16A, last 3 months salary slips and last 6
months of all customer active bank accounts in which customer salary/ business
income details are reflected.21

 

3. Personal discussion

HDFC insist on
meeting customer after receiving the application form, during this visit they
also expect customer to carry the original documents pertaining to the
information provided on the application form.21

 

4. Bank Field investigation

HDFC validates
customer information, including customer existing residential address,
customer’s place of employment, CIBIL report, employer credentials (if customer’s
work for a small organization) and residence and office telephone numbers This
is normally done by sending representatives to customer workplace or residence.21

 

5. Credit Appraisal and Loan Sanction

HDFC establishes
customer repayment capacity based on customer’s income, age, qualification,
experience, employer and nature of business (if self-employed). Based on these
parameters, customer maximum loan eligibility is worked out and the final loan
amount communicated to customer, then issues a sanction letter.21

 

6. Offer letter

Once the loan is
sanctioned, an offer letter is sent mentioning details like loan amount, rate
of interest, whether fixed or variable rate of interest is linked to a
reference rate, tenure of the loan, mode of repayment, if the loan is under
some special scheme, the details would be mentioned, general terms and
conditions of the loan and special conditions, if any.19

 

7. Submission of Legal documents

HDFC requires
customer to hand over the entire set of original documents pertaining to
customer property so that it can keep them as security for the loan amount
given to customer. Legal check is carried by forwarding it to the in-house
lawyers21

 

8. Valuation of property

Valuation has
become a key parameter in determining the loan amount that can be sanctioned by
the bank. The valuation process is quite subjective and dependent on the
quality and ability of the person sent by the HDFC for valuation.21

 

9. Registration of Property Documents

After the legal
and technical / valuation check, the draft documents as cleared by the lawyer
need to be finalized and signed, later the stamping and registration of the
documents to be done.19

 

10. Disbursement

Once the bank
has ensured that the property is legally and technically clear and after
customer has handed over all the original documents pertaining to the transfer
of ownership of property in customer favor, having executed the necessary loan
agreements with the bank. At this stage, customer should also provide documents
to prove that customer have paid customer personal contribution towards the
property, since banks normally fund only up to 85-90 per cent of the total cost
of the house.

In case customers
are expecting money from other sources to fund customer own contribution,
customers need to provide sufficient evidence for the same. It is only after
submitting this proof that the bank will release part disbursement of the loan.

The cheque will be in the
name of the reseller (for resale flats), builder, society or the development
authority. It is only in exceptional circumstances, that is, if customer
provides documents to supp

1 HDFC Home loan process,
July 2017

2 Investopedia “Loan to
Value ratio”, July 2017

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