Banks provide assistance to finance the residential property through various loans, schemes, and mortgage facilities. While applying for a loan it is important that you consider various factors like the interest rate, the term, and even the property for which the loan is to be acquired. Banks provide certain specifications for each loan. Land loans can be acquired only for residential property which is not under any construction activities at present. The banks provide housing loans to properties which are constructed, under construction or to be constructed soon properties. Banks also provide home construction loans for constructing homes through simple documentation, affordable and attractive interest rates with other flexible payment schemes.

How do banks verify owner occupancy?

The banks do not issue loans until occupancy certificates have been submitted. The local municipal authority issues this certificate within 30 days of application. The various documents that need to be submitted are:

  • The certificate showing commencement of the construction. 
  • Certificate showing completion of the home. 
  • No objection letter for fire and pollution
  • Building and sessions plan
  • Tax paid receipt along with sheets showing tax assessment
  • Photographs of the completed apartment along with photos of solar panel and rainwater harvesting facilities if necessary
  • A copy of the sanctioned plan
  • Calculation of the floor area which is to be duly signed by the architect. 

The verifying duties are carried out by compliance auditors that are hired by the bank. The occupancy certificate is not the same as a possession certificate and is important as it is necessary to avail facilities like electricity and water as well. 

Is it harder to get a mortgage for a residential property for investment purposes?

Answering the question, difficulty in obtaining a mortgage to invest in residential properties varies from one property to another. It is comparatively difficult to obtain a mortgage for rental properties than for single-family houses and other investment property. This mortgage is a kind of loan which is provided by private individuals such as a bank, private money-lenders, credit unions, and mortgage companies. 

Conventional mortgages have a fixed rate of interest and do not increase during the term of the loan. Since they are provided by private bodies, the procedures are stricter in nature.  Only 10% down payment is enough in case of owner-occupancy properties and 20 – 25% down payment for other properties like the multi-family property. 

How do I finance my first rental property?

Investments in rental property is a significant and profitable investment. Thus it is important to take some necessary steps while financing your first rental property. They are:

  • Knowing what your end goal based on your investment capabilities and investment strategies. This step also includes taking advice from other landlords that are experienced.
  • Saving up for your down payment. You will have to save a minimum of 20% as a down payment as mortgage facilities are not easily available for the rental properties. You should also select your rental properties best suited to your preferences within your budget.
  • The next step is to evaluate the expenses that you may incur in the process. This can be inclusive of property tax, repair and maintenance, and other operational charges. Calculate your margins as well. 
  • The next step is to consider other financing activities along with cash. Investing through cash can enable you to attain a positive monthly cash flow while financing can give you better returns. 
  • In cases of financing your rental property, then it is important that you check for lower mortgage rates in order to eliminate extreme deductions from your monthly income. 

One important way of financing your rental property is through seller financing wherein you obtain the ownership of the property and mortgage. The payment of the mortgage is given over to the seller of the property as the purchase amount of the property. You can also gather a group of investors willing to invest, thus reducing your risk. 

What credit score do you need to finance land?

The loan for the purchase of land is called a plot loan. It is the loan provided by the bank to finance the purchase of land. A land loan is granted only for the purchase of land on which construction is planned to take place.  

For any loan to be granted for the purchase of land, the credit score plays an important facet. It is the responsibility of the person to maintain good credit health to avail medium to high amount as loan. The eligibility criteria of a plot loan is a minimum of 650 CIBIL scores or the Credit Information report. For people having a CIBIL score below 650 might find it difficult to get their plot loan sanctioned. 

How is EMI calculated for a Real Estate property?

The equated monthly installment or EMI is a percentage amount that is payable depending on a person’s income. It is a fixed amount that is payable by the borrower to the lender on a monthly basis on a fixed date. The factors considered while calculating EMI is your occupation and the number of dependents. Then the bank calculates EMI based on:

  • The Interest of the bank
  • The time period within which you want the loan 
  • The amount that you apply as the principal amount.

The mathematical formula for calculating EMI is 

  • EMI = [P x R x (1+R)^N]/[(1+R)^N-1],
  • P stands for the loan amount or principal, 
  • R is the interest rate per month
  • N is the number of monthly installments.

 

Summing up, the banks provide various financing facilities for residential property. They offer loans, mortgages, and certain schemes which will aid the borrower. Before providing loan facilities, the bank checks the buyer’s occupancy through the appointment of an auditor who is responsible for the same. It is only after the occupancy is cleared the investor is made eligible for the loan. The article also deals with some point in relation to financing your first rental property. EMI or the equated monthly installment is a fixed amount charged by the bank after considering factors such as the income of the individual and the number of people dependent on him.