PMAY Home Loan – Pradhan Mantri Awas Yojana

With a view to help people own a roof over their head government has announced ‘Housing for All by 2022’ mission, under which it is partly financing the interest cost to the borrowers. The same is done under Pradhan Mantri Awas Yojana (PMAY) in urban areas as well as in rural area.

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Eligibility Criteria for Home Loans under PMAY

This scheme is available for acquiring or constructing residential units in the 4,041 statutory towns as per the 2011 census and 274 additional towns, which have separately been notified by the state government.

For qualifying under the scheme the individual should own any pucca house either in his/her name or in the name of any unmarried child anywhere in India. The home loan under this scheme can also be availed for the purpose of extension of the existing residential house, either self-acquired or inherited, in addition to for acquiring or constructing a new house. In case the borrower wants to avail home loan under PMAY for extension of his existing house then the condition of owning a pucca house does not apply.

The eligibility for availing the home loans under the Pradhan Mantri Awas Yojana is based on the income for the family as a whole and not only of the head of the family. In order to avail the subsidy offer under PMAY home loans the borrower has to submit a self-declaration for income of the family and about the title of the property to be purchased.

In case the home loan is disbursed for construction of property or self construction, the lender has to monitor the construction progress and legal compliance of the dwelling units financed under the PMAY scheme, like approvals for the building design, infrastructure facilities, quality of construction, etc. The lender is also required to verify the costs incurred up to different stages of construction, through site visits, photographs of the site certificates of architect, engineers etc. The government provides subsidy only for home loans under PMAY but the lender has to take all the necessary precautions, which it takes for any other home loans.

The house which qualifies for the interest subsidy, can either be a single unit or a unit under any multi story building. The eligible unit under Pradhan Mantri Awas Yojana needs to have basic facilities and infrastructure like toilet, water, sewerage, road, electricity, etc. For the purpose of ascertaining eligibility only area on which a carpet can be laid shall be considered and therefore it will not include the walls in the house or the outer wall of the house.

The house to be constructed or acquired under PMAY has be purchased either in the name of the female head of the family or alternatively, in the joint name of the male head of the household and his wife. The dwelling unit can be acquired in the name of the male member of the family only if there is no adult female member in the family.

The income eligibility and rate of interest subsidy available and the exact quantum of benefits is tabulated as under:

The maximum subsidy under PMAY can be Rs 2,67,280. The eligible amount of subsidy will come down proportionately in case the home loan is lower than Rs 6 lakhs. The subsidy benefit is only available for loans that are disbursed on or after June 17, 2015.

Methodology of giving the subsidy under PMAY

The subsidy under PMAY granted in the form of upfront credit for the present value of the amount of subsidy from the amount of loan disbursed. The amount of loan to be serviced comes down to the extent of present value of the subsidy of 6.50% is discounted at 6.50%, for a maximum tenure period of 20 years, on the maximum loan amount of Rs 6 lakhs. The EMI thus is computed on the reduced home loan liability based on the agreed rate of interest.

Though the lender gives the credit for subsidy to the borrower immediately, the lender gets it only the its claim is processed by the nodal agency. This is the main reason why lenders are not keen to promote this beneficial scheme.

PMAY Home Loan Processing fee for loan applications

Under PMAY home loan the lender is not allowed to charge any processing fee from the borrower in lieu of which it is given a a lump sum of three thousands rupees to cover cost of processing the home loan application for an amount upto Rs 6 lakhs. For additional loan beyond Rs 6 lakhs, the lenders are allowed to recover normal processing fees.

Balance transfer on PMAY Home Loan

Although the borrower is allowed to shift the home loan taken under Prime Minister Awas Yojana he cannot claim the subsidy again on such balance transfer. Moreover, benefits under PMAY cannot be claimed by transferring your existing home loan after the notified date, as the subsidy is only available to the borrower when he acquires or constructs his house whether new one or second hand.

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NRIs, In Whose Care Is Your Property?

That real estate investments are a double-edged sword is no secret. You buy property with a view to make gains. However, you also run the risk of losing if you own an asset. Because India's real estate provides great investment opportunity, non-residents are often willing to put more and more of their money here. At the same time, they have to make sure their investments in the country of their birth remains safe. All the instances of relatives snatching properties of their NRI kith are sure to make them apprehensive. Purely for this reason, many of them take the help of professionals to take care their properties. Even in such a scenario, an NRI investor will have to exercise caution.

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Do I leave it to relatives?

Our first thoughts go to our relatives when we start thinking about who could take care of our property in our absence. These are the people we trust, who would take care of the business without charging any money. However, this can be a tricky situation. In case your relatives decide to snatch from you what is legally yours, you could fight a legal battle against them.

Under Section 5 of the Specific Relief Act, 1963, a victim of a fraud can claim his property back. Section 6 of the Act says that the recovery will take place if you are able to prove your previous possession and the subsequent dispossession. Additionally, you could initiate actions against the offenders under Section 145 of the Criminal Procedure Code.

However, there would be much bad blood in the entire process. You run the risk of losing your dear asset and even dearer kith and kin. This move of protecting your property is best avoided.

A tenant is a safe bet, then?

Renting out your property could be one way of guarding your property without involving your relatives. However, this safe route is not without flaws. According to the provisions the Limitation Act, 1963, a squatter – who could be a tenant – can acquire legal rights over the property in case an owner does not stake his claim over his property for 12 years. To claim his ownership, this squatter has to prove that his occupancy of the property has been uninterrupted for the entire period.

A tenant is a safe bet, then?

Renting out your property could be one way of guarding your property without involving your relatives. However, this safe route is not without flaws. According to the provisions the Limitation Act, 1963, a squatter – who could be a tenant – can acquire legal rights over the property in case an owner does not stake his claim over his property for 12 years. To claim his ownership, this squatter has to prove that his occupancy of the property has been uninterrupted for the entire period.

Now, in case the property is rented out:

*It would be great if you could visit your property from time to time and keep a tab on things. However, this is easier said than done. It is here you could seek a little assistance from your friends and relatives who happen to be living in the city. They could occasionally visit the site and report to you any untoward occurrences, if there are any.

*Do not keep the same tenant for a long period for your own safety, even if this good tenant has been regular with his monthly payments and has been taking good care of your property.

What about caretakers?

In case you have been finding it difficult to get a tenant, you could also hire a caretaker to maintain the property. If things go bad and this caretaker turns into a squatter, he would find it quite hard to claim ownership. Giving its verdict in the Maria Margadia Sequeria versus Erasmo Jack De Sequeria case in 2012, the Supreme Court held that “a caretaker, watchman or servant can never acquire an interest in the property irrespective of his long possession”. “The caretaker or servant has to give possession forthwith on demand,” the apex court ruled.

Then there are also service providers that take care of your property for you and charge you accordingly. This happens to be one the most hassle-free ways to manage your estate. However, do create a legal caretaker agreement in case you are going for this option.

In any adverse circumstance, the documents that prove your ownership of the property will help you. However, you would rather prevent than cure, would you not

Also read: How your Home Loan Eligibility is Decided?

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How your Home Loan Eligibility is Decided?

While giving home loans the lenders want to ensure that the home loan being given is serviced back.  Primarily the banks and housing finance companies use the credit score and credit history to determine whether you should be given home loan or not.  However in order to determine how much home loan can be given to you, the home loan providers consider many factors like your income as well as income of the co borrowers, tenure of the home loan, your age, amount of any existing home loan outstanding and value of the house being financed. Let us discuss how these factors affect your home loan eligibility

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Factors Affect Your Home Loan Eligibility:

Income criteria

Your income will be the starting point for processing your home loan application. Lenders consider around 40% to 50% of your monthly income being used for your consumption and the balance available for servicing your any loan.  The proportion of your income which is considered available for servicing your home loan eligibility is not static and goes up as the income levels go up. So for example for a person with monthly income of one lakhs rupees the lender may consider 50% but if the monthly income is five lakhs rupees the lender may consider 70% or even higher as available for servicing the loan, as the expenses do not go up in the same ratio as the income goes up.

Even the percentage of income considered for servicing home loan varies from one lender to another lender.  Moreover,  the criteria of disposable income considered for a salaried person is different from that a self-employed borrowers. The lenders consider a higher proportion of income being available for self-employed professionals, like doctors, chartered accountants as  they are presumed to be having higher actual income than the one reported for income tax purposes. Some lenders take into account the gross receipts of the professional instead of the taxable income as the expenses in case of professionals are generally inflated and thus  suppressing the income reported.

Loan being serviced presently

Since the amount available for servicing of any loan will be dependent on the income, the lenders will take into account the amount of EMI (Equated Monthly Instalment) being presently paid  for any existing loan.  So your home loan eligibility comes down to the extent of the EMI being paid. So in case you have a running loan on which a small amount is outstanding, it makes sense for you to clear off the outstanding loan amount to enhance the home loan eligibility. Since the home loan is generally for a longer duration the incremental home loan eligibility, will be significantly higher than the outstanding amount being cleared.

Your age and remaining years of service

Home loans are generally available for 20 years tenure. As the lender wants the home loan to be serviced properly and which can happen only while you are earning, the home loan lender gives you the home loan which does not stretch beyond your earning life. So your age will determine the tenure of the home loan and reduction in home loan tenure bring down your home loan eligibility consequently. For example, if your age is 50 years and your age of retirement is 60 years, your loan tenure will be of only 10 years and the home loan eligibility shall accordingly get reduced. For a salaried person 60 years is considered as retirement age while for self-employed borrowers, the lenders consider 65 years as retirement age, for determining the home loan tenure.

Availability of co-borrowers

In case you are able to make any of your close relatives like children or parents to join the home loan application, the lender will take into account the combined income for determining the amount available for paying the EMIs. The co borrower may or may not be a co owner of the property being purchased but each of the joint owners of the property has to be a co-borrowers, irrespective of whether they have any separate income or not.

It is not necessary for the co-borrower to regularly contribute for payment of the EMI but in case of any default in servicing the home loan, the home loan lender can take action against all the co borrowers for recovery of the home loan amount outstanding.

Tenure of the home loan

The amount of home loan eligibility is directly linked to the period for which you are taking the home loan. Longer the tenure of the home loan, higher will be your home loan eligibility. Since arranging funds for purchase of a houses is a problem for almost all the home loan buyers, it makes sense for you to go for longer tenure home loan.

Moreover as there is no prepayment penalty floating home loans and majority of home loan lender mostly offering home loans under the floating rate of interest, I strongly advise you to go for longer home loan tenure. This gives you higher flexibility as you can always prepay your home loan partly or fully at any time, in case you have surplus funds without incurring any cost for such prepayment of the home loan, while having the flexibility of higher home loan eligibility at the initial stage.

Value of the property being financed

In addition to the above income based reasons, the amount of home loan will also be decided by the market value of the property being financed. The lenders normally allow you home loan upto 80 % of the value of the property. So even if you are eligible for home loan upto or even more then the value of the property based on your income, the ultimate amount of home loan will be restricted to value of the property being financed . However if your income based eligibility is lower than 80% of the value of the property, your loan amount eligibility will get restricted based on your repayment capacity as determined by the above factors.

Also read: Home Warranty Under RERA: All You Need To Know

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Home Warranty Under RERA: All You Need To Know

The defect liability period better known as home warranty of five years under Clause 14 (3) of the Real Estate Act (RERA) could prove to be a market differentiator that will assure homebuyers of the construction quality of their prospective homes.

The excitement of moving into a new home could sometimes take a toll with the discovery of some construction defects in your new home. Until the Real Estate (Regulation and Development) Act 2016 came into existence, there was no way for buyers to persuade developers to fix these damages. Not only has the RERA changed the way real estate operates in India, it has also addressed certain issues that needed extensive deliberation in the past. One such issue is the builders’ accountability to offer workmanship for structural defects for a tenure of five years. According to Clause 14 (3) of the Real Estate Act, a builder or developer will be liable to fix/repair any defects brought to his notice by a homebuyer within a period of five years from the date of possession, without further charge. Moreover, the problem is to be fixed within 30 days of being brought into the notice of the developer.

In case the developer fails to rectify such defects within the specified time, a home buyer shall be entitled to receive compensation under the Act. Earlier, most developers in their agreements used to keep the period for repairs to as low as two years. However, the new rule intends to bridge this gap. According to Aditya Kedia, Managing Director, Transcon Developers, “In a business like real estate where fly-by-night operators are known to outnumber reputed developers, a 5 year defect liability period is definitely an optimistic step as far as customers are concerned.” Such constructive provisions assure them of the product’s excellence.

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Clean everything above your head

In case the developer fails to rectify such defects within the specified time, a home buyer shall be entitled to receive compensation under the Act. Earlier, most developers in their agreements used to keep the period for repairs to as low as two years. However, the new rule intends to bridge this gap. According to Aditya Kedia, Managing Director, Transcon Developers, “In a business like real estate where fly-by-night operators are known to outnumber reputed developers, a 5 year defect liability period is definitely an optimistic step as far as customers are concerned.” Such constructive provisions assure them of the product’s excellence.

What does home warranty cover?

Structural defects: Structural defects are caused due to deficiency in a building where the structure does not perform in a way as intended by the homebuyer. It generally arises due to a flaw in design, construction quality or material. Deficiency in the quality of raw material causes leakage and dampness while fault in construction results in cracks in foundation, plumbing issues and electrical and mechanical problems. Under RERA’s home warranty clause, all these issues will be covered. Moreover, to ensure that everything goes smooth, a developer will have to keep an eye on contractors who sub-contract the work in order to avoid any difficulty at a later stage.

How will home warranty protect the interest of homebuyers?

Industry experts have welcomed the move and are feeling positive about it. In the international property market, such warranties have enhanced developers’ reputation for transparency and following best practices. Kedia is hopeful of it being equally successful in India. As far as safeguarding the interest of homebuyers is concerned, warranties are sure to offer a secure environment to buyers and investors as it makes it compulsory for developers to correct any building and construction flaws that may be detected, even post the property ownership has been handed over. Such warranties will surely enhance the developers reputation for adhering to transparent, best and credible practices.

Impact on real estate prices

hile the defect liability period in international real estate market varies across countries, it is as high as 10 years in some countries where the builder liability and legal dispute redressals are systematic and strong. With a five year warranty clause under RERA and in order to evade additional cost occurring from repairs at a later stage, developers will certainly look to enhance their construction quality.

However, it is yet to be seen whether buyers will be keen to pay a premium on properties that come with stronger warranties. If experts are to be believed, homebuyers would not mind paying a premium for properties that come attached with warranties especially, once the system to enhance homebuyers’ trust is put in place. In case of lack of warranties, buyers will be forced to undertake upkeeps and repairs of any damage occurring due to construction fault at their own cost.

Also read: Top 5 Home Preparation Tips Before Unpacking

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