Common Mistakes to Avoid When Applying For NRI Home Loans

Vishal Pathak, Content Writer | Thursday, 12 September 2024, 11:21 IST

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Common Mistakes to Avoid When Applying For NRI Home LoansDeciding to buy a property in your home- town in India while residing abroad can be a meaningful and exhilarating experience. To fund your property purchase, you can secure an NRI home loan after carefully weighing the pros and cons of the various NRI home loan exclusive offers at your disposal.

However, the process might not be as simple as applying for a home loan as a resident of India. Non-resident Indians (NRIs) have to meet the cross-border remittance requirements and adhere to the provisions of the Foreign Exchange Act, 1999 and relevant RBI regulations.

Therefore, being mindful of potential mistakes during the home loan process is paramount to enjoy a smoother and hassle-free property purchase experience in your beloved hometown. Below are the key mistakes to watch out for when applying for NRI home loans.

Inadequate knowledge & comprehension of eligibility criteria

One of the common mistakes NRIs make is not fully comprehending the specific eligibility criteria for NRI home loans.

Indian banks and other financial institutions have slightly different requirements for NRIs than resident Indians. These include:

  1. Employment tenure abroad - Banks usually require an NRI to work overseas for at least one to two years.
  2. Income proof - Some banks prefer NRIs with a consistent and steady income stream.
  3. Age - Most banks have age limits that range from 21 to 60 years.

Before applying for the loan, NRIs must ensure they meet these conditions to avoid rejections and delays.

Not submitting all the necessary documents

Incorrect or incomplete documentation is another reason why NRI home loan applications get rejected or delayed. The necessary documents you must prepare before applying for the loan are:

  1. Proof of residence and identity - Visa, passport, and overseas residential proof.
  2. Bank account statements - Both Indian and foreign account statements.
  3. Income proof - Employment contracts, salary slips, and tax returns.
  4. Power of attorney - A designated person in India who can act on your behalf.

Don’t underestimate the importance of providing these documents in the correct format. Not preparing in advance will lead to unnecessary delays.

Ignoring the requirement of PoA (power of attorney)

  • One of the major differences between NRI and resident home loans is the PoA requirement. Since you are based abroad, most banks or financial institutions need a PoA to act on your behalf in India.
  • Failure to get a proper PoA in place will cause delays when signing essential documents, handling property matters, or dealing with banks.
  • Ensure the bank requirements prepare the PoA and has clear, legally sound authority to handle real estate and loan-related activities on your behalf in India.

Being unaware of the foreign exchange risks

  • NRI home loans involve currency exchange and fluctuations in foreign exchange ranges, which can significantly impact the overall cost of the loan.
  • Since the loan is disbursed in INR but repaid in foreign currency, any major depreciation in the home country’s currency can increase the overall repayment cost.
  • Many NRIs overlook this risk when calculating their budgets. You don’t follow suit!

Choosing the wrong loan tenure

  • This is another common mistake NRIs are guilty of making. Some opt for a shorter loan tenure to pay off the loan quickly, leading to high monthly EMIs. Others choose an extended tenure, resulting in higher interest payments over time.
  • It is critical to strike a balance between EMI and tenure. A shorter tenure means quicker repayment but high monthly obligations, while a longer tenure spreads out payments but increases the overall interest paid.
  • Before choosing the loan tenure, you must evaluate your financial situation and long-term goals. Also, you can study the market conditions to gauge whether there will be any major financial changes in your home country that might impact your home loan cost.

Not taking into account additional costs

  • A common oversight does not account for the additional expenses of purchasing a property. These include registration fees and stamp duty, loan processing fees, legal fees for verification and documentation, and insurance costs to cover the property and home loan.
  • These extra expenses can significantly increase the cost of property ownership in your hometown, and not budgeting for them may cause financial strain.

Not using NRO/NRE accounts for repayments

  • Banks in India typically require NRIs to repay their loans through NRO (non-resident ordinary) or NRE (non-resident external) accounts.
  • However, some NRIs make the mistake of using international bank accounts for payments, which results in currency conversion fees, compliance issues, and delays.
  • Setting up an NRO/NRE account is essential to simplify the repayment process.

Ignoring tax implications

  • Most NRIs know they have to repay their loans in INR, but many are unaware of the potential tax benefits they can avail themselves of.
  • Under Section 80C of the Income Tax Act, NRIs can claim deductions on the principal and interest paid on the home loan.However, you can only enjoy these benefits if you have taxable income in India.

Not consulting with expert financial advisors

  • Many NRIs do not seek professional financial advice before applying for a loan.
  • Securing NRI home loans in India can be complicated, especially if you are living abroad. Consulting with an experienced financial advisor specializing in NRI home loans can clarify taxation, eligibility criteria, long-term planning, and documentation.

Furthermore, the financial expert can even help you analyze your borrowing capacity and calculate the true cost of the loan. They can prepare you for the potential risks of owning a property in India and may offer tips on mitigating financial strain.

Summing up

In summation, applying for NRI home loans requires great attention to detail, careful planning, and a thorough comprehension of the process. You can save time and money by avoiding common mistakes such as overlooking foreign exchange risks, failing to meet eligibility criteria, and not securing a PoA.

Through careful planning and consideration, as well as consulting with financial advisors, you can streamline your NRI home loan process and achieve your dream of owning a property in India.

So, what are you waiting for? Start organizing your documents and preparing to apply for a loan.

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