Mortgage Loans in India The concept of Mortgage Loans in India is growing day by day. The growth of the mortgage loans in India is boosted by the development of the real estate and increment in the activity pertaining to construction. The mortgage loans in India were previously supplied mainly by the financial institutions but now the commercial banks are also providing mortgage based loans to various types of customers. The commercial banks provide mortgage loans on nominal rates of interest. Objectives of mortgage loans in India:
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To provide the customer with the best possible services To put emphasize on the quality of the credit and advance in form of mortgage loan To focus on management of income and cost
The Mortgage Loans in India is provided against collateral security such as industrial property, urban commercial complex, residential house or apartment, possessed in the name of the receiver of the loan. The security such as rented house can be accepted if that same property is on a lease and the person should also have the authority to collect the rent under the power of attorney. Organizations offering Mortgage Loans in India:
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HDFC Bank Mortgage Service - Housing Development Finance Corporation (HDFC) Bank Mortgage Service is leader in the Indian mortgage market at present with the State Bank of India (SBI) following the lead Bank Of Baroda - Baroda Advance Against Property: Bank of Baroda Mortgage Scheme is one most important mortgage schemes in the mortgage market in India United Bank of India - United Mortgage Scheme: United Bank of India Mortgage Scheme is one of the most important part of the financial portfolio of the United Bank of India Bank of India - BIO Star Mortgage Scheme: Bank of India Mortgage Scheme provides high quality financial product to fulfill the various requirements of the customers Union Bank of India - Union Mortgage Scheme: Union Bank of India Mortgage Scheme offers a variety of financial products for the individual customers of various types State Bank of Mysore - Equitable Mortgage of Property: State Bank of Mysore Mortgage Loan is one of the primary financial products of the State Bank of Mysore
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The main functions of the mortgage loans in India:
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Loans are provided for the purchase of four wheeled vehicles and two wheelers Loans are provided for the purpose of repayment of the previous loans Loans are provided for meeting the expenses pertaining to medical, educational and marriage purposes Loans are provided for undertaking renovation and repair works of the residential property Loans are provided for the purpose of purchasing land plots, houses, construction of houses Loans are provided for meeting the needs for commercial, trade and other business activities Loans are provided for the requirements of the professionals for any kind of activities such as education, house construction or purchase
The services offered under the Mortgage loans in India:
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Home equity loans Mortgage refinancing Real estate lending New home loans Latest mortgage quotes Debt consolidation service
Banks provide loan against mortgage of property on an attractive rate of interest. Businessmen, self employed professionals, salaried customers are all eligible to apply for the loan. It enables the borrower to apply for loan against a fixed asset. Maximum Amount of Mortgage Loans Offered: The maximum amount of loan depends on a number of factors, like customer's profile, his financial standing and repayment capacity, tenure of the loan. The repayment tenure increases or decreases with the amount of loan. Repayment is done through Equated Monthly Installments or EMI. Interest Charged by Banks on Mortgage Loans: Interest can be paid either on fixed or floating basis. Banks charge prime lending rate as their interest. Interest rate can be discounted for existing clients or in special cases according to the policies of the bank. Process of Mortgage Loans Approval: Customers can apply for mortgage loans by filling an online form. They can also visit the nearest branch of a particular bank. Normally, banks charge 1-2% of the actual loan amount as processing fee.
Documents Required for Approval of Mortgage Loans: Salaried Individuals:
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Proof of Identity (Passport Copy/ Voters ID card/ Driving License). Address Proof (Ration card Tel/elect. Bill/ / Passport copy) Bank Statements(latest 6 months bank statement /passbook) Latest salary slip or current dated salary certificate with latest Form 16 Proof of ownership of fixed asset being mortgaged
Self Employed Professionals and Businessmen:
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Proof of Identity (Passport Copy/ Voters ID card/ Driving License). Address Proof (Ration card Tel/electricity Bill/ Passport ) Bank Statements(latest 6 months bank statement /passbook) Latest ITR along with computation of income, B/S & P&L a/c for the last 2 yrs. certified by a CA Qualification proof of the highest professional degree Proof of continuation (Trade license /Establishment /Sales Tax certificate) Other Mandatory Documents(Sole Proprietorship. Declaration. Or Certificate. Copy of Partnership Deed,Cert. Copy of MOA, AOA & Board resolution.) Proof of ownership of fixed asset being mortgaged
The Loan Lifecycle The process of making a mortgage loan has five distinct steps called the loan cycle. The loan cycle is comprised of the steps taken to make and maintain a loan. The mortgage loan cycle begins when a prospective Borrower inquires about a residential mortgage loan, and it ends when the Borrower pays off the loan. AHMCC will take you through the first four steps as we don't "service" the loans. The loan cycle involves five major stages: I. Application II. Processing III. Underwriting IV. Closing V. Servicing Each of these functions involves many activities. I. Application The application process has several purposes:
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Obtaining the basic information from the Applicant/Borrower that the lender needs to underwrite the loan according to its standards and to reach a decision on whether to grant the loan Assisting the applicant in selecting the appropriate loan programs Informing the applicant of the details of the mortgage loan program, including a full disclosure of all costs and expenses - (see Understanding Your Good Faith Estimate ) Pre-qualify applicant for ability to repay a loan Explain how a Purchase Contract works and how to fill in the appropriate information. You can fill-out the loan application by going to the bottom of this page and click on the appropriate hyperlink.
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II. Loan Processing Loan processing includes the collection and verification of detailed information on the Borrower and on the real estate transaction itself. The Lender is primarily interested in two things: the subject property, and your financial situation (which includes your credit history.) The process gathers the information to help determine your ability and your desire to replay the loan.
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Gather, organize and verify all the information the underwriter will need in order to underwrite the loan.
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Entering Information into computer from Loan Application Deposits (i.e. credit report fee, appraisal fee) Disclosure Forms sent to Borrower Verifications--Employment history, Credit history (the credit bureau will show how you have handled past debt and credit accounts. You may have to provide a written explanation of any problems that appear on your credit report., Assets Review Verification Responses Ratio Analysis Appraisal is performed and reviewed for accuracy and completeness (a service for which you may be charged). A professional appraiser will estimate the market value of the house. This information is required because the lender will loan you not more than a given percentage of the value of the property (LTV).
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Suitability of loan terms for which Borrower has applied is reviewed Pre-Underwriting Customer Communication via the Loan Tracker and or phone calls.
Submission to Underwriter
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Copying and Stacking Proofing Delivery/Courier Loan Locks
III . Loan Underwriting The mortgage loan file next enters the underwriting stage. Loan underwriting is a process that determines whether the loan is a good risk for the lender.
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The main task during the underwriting stage is to avoid as many undue risks as possible The loan application is evaluated in terms of the guidelines
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Borrower Review Property Review Conditions Follow-up Re-review of Conditions
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Deciding whether to grant a Borrower's request for a loan is perhaps the most difficult stage of making a loan.
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Approval Commitment Letter
IV . Loan Closing If the loan is approved, the final stage in creating the mortgage loan is the funding and loan closing. In loan closing, the final details of the loan transaction are completed and the loan funds are disbursed. Most frequently, closing is handled by a title company or closing attorney.
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Loan closer obtains a title company/attorney's opinion as the condition of the title to the property--its ownership. This opinion of title is reviewed very carefully to verify that the seller owns the property and that there are no unknown claims outstanding
against it. Also, the Borrower must provide adequate hazard (and in some cases flood) insurance for the property.
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Next the loan closer prepares the loan's legal documents and makes certain other legal requirements are met, such as up-to-date payments of real estate taxes. The mortgage loan file and legal documents are double-checked for completeness and accuracy. Some federally mandated disclosures are usually provided to the Borrower. Finally, the loan amount must be properly disbursed so the Borrower will be liable for repayment. The appropriate parties must receive the correct amounts in order for the legal conditions for the best to be met. The mortgage is recorded on the public record, and the lender makes a final review of the loan file for quality control purposes At this point, the closing of the loan is complete. Post-Funding Audit
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V. Loan Servicing Loan Servicing includes all activities that occur from the time a loan is closed until the time it is repaid. Servicing activities help ensure that the loan is repaid in a timely manner and that the lenders' legal claim to repayment of the funds is maintained.
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See that loans are paid as agreed Identifying and following up promptly on any delinquent payments by sending reminder notices, making telephone calls, or visiting the home of the delinquent Borrower If efforts fail, foreclosure is the legal action that bars a defaulted Borrower's right to reclaim the mortgaged property. This action is taken to satisfy the outstanding balance on the mortgage; usually results in property being sold at public or private sale. Paying taxes and insurance Servicer wants to make sure that these taxes are paid because government tax claims can take precedence over the lender's claim on a property If property is destroyed or damaged by fire, wind, etc. without insurance the loan is no longer adequately protected. When a Servicing company services loans for lenders, it collects a fee ranging from .25 to .50 percent. For example, when a loan is closed at an eight percent interest rate, the Servicer passes through principal and interest of approximately 7 5/8 percent to the Bank, Insurance Co., etc. The Servicer keeps the difference as a servicing fee. Advising Borrowers of changes in rate for ARMs
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Transferring the loan to a new owner or Servicer Payment Processing Pay-offs Recordings Ratios:
Loan-To-Value Ratio - LTV Ratio
What Does Loan-To-Value Ratio - LTV Ratio Mean? 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 accepted, the loan will generally cost the borrower more to borrow or he or she will need to purchase mortgage insurance. Calculated as:
Loan-To-Value Ratio - LTV Ratio For example, Jim needs to borrow $92,500 to purchase a $100,000 property. The LTV ratio yields a value of about 92.5%. Since bankers usually require a ratio at a maximum of 75% for a mortgage to be approved, it may prove difficult for Jim to get a mortgage. Similar to other lending risk assessment ratios, the LTV ratio is not comprehensive enough to be used as the only criteria in assessing mortgages. Property Appraisal and Market Value Appraised Value
What Does Appraised Value Mean? An evaluation of a property's value based on a given point in time that is performed by a professional appraiser during the mortgage origination process. The appraiser is usually chosen by the lender, but the appraisal is paid for by the borrower. Appraised Value The appraised value of a home is an important factor in the loan underwriting process and plays a role in determining how much money may be borrowed and under what terms. For example, the loan to value (LTV) ratio is based on the appraised value. In general, if the LTV is greater than 80%, the lender will require the borrower to buy private mortgage insurance. However, if the LTV drops to 78% upon a new appraisal, private mortgage insurance payments may be eliminated.
One of the most important things in association with real estate is determining the µtrue worth¶ or µvalue¶ of your property. The two main ways that one can determine this is through property appraisals and comparable market value analysis. Typically, these two methods are used in conjunction with one another in order to establish a sale price for the seller and/or offer proposal for the buyer. A common misconception for many people is their belief that the market value of your property is identical to the appraised value. Just like a home inspector is not the same as an appraiser, the same is true for market value and appraisal value. They are not the same. Property Appraisal An appraisal essentially gives value to your property. Qualified, experienced, and certified appraisers, who preferably are members of the National Association of Real Estate Appraisers, should conduct property appraisals. Members of this association follow the same professional code of ethics. Becoming an appraiser is not as easy as you would think since federal laws require states to establish minimum standards and licensing practices for real estate appraisers. Appraisals can be carried out for a number of reasons, but normally they are performed at the request of a buyer who is seeking to secure a loan from a bank or loan company, to purchase the property. All banks and loan companies require a certified valuation of a property before they can process a loan application. Thus an appraisal provides valuable information for either the buyer and/or seller, however the appraisers primary assignment is to guard the lender. The appraiser will then conduct a comprehensive and thorough examination of your property and they use their own expert opinion, judgment, and experience to determine its value in monetary terms. The appraised value of a property can vary based on the appraiser¶s own sense of value, so it is of paramount importance to use an appraiser with considerable insider know-how and extensive experience in determining a µtrue value¶. This can become a philosophical discussion as to what is µtrue¶ though. To arrive at their valuation the appraiser will use a multitude of methods that are available to them. These methods include some of the following items: Property size - The size (height, width) and the square footage of the property are important considerations. Obviously, the larger the house, the more it is worth, however size and value are not directly proportional to one another. Property size is also an important determinant when used in comparing your property to others that are on sale on the real estate market. Condition of the home - The condition of the property is important factor in determining its value. If the property is a dwelling unit (house, townhouse, condominium, cottage, etc.), many aspects including the water systems, electrical systems, insulation, sewage system, and any other items are also assessed. A home that is run down will logically not produce a large value compared to a home in good condition. The appraiser, during the valuation, will note all faults and repairs that need carrying out. A home inspector can also assess the property for a more detailed analysis on the condition of the property. Should your house have
undergone any renovations or repairs these will influence the appraisers decision on the overall value of your house. Neighborhood environment - Where your property is situated is important. Location often will be one of the most influential factors in determining the property¶s value. No one wants to live in a run down area of a city or town, or one filled with a high crime rate. Because of this, properties that are in µpoor¶ neighborhoods will have lower value compared to similar houses in µgood¶ neighborhoods. Comparable local sales - Comparing sales of properties in the area, i.e. ones similar in size and look to your own, can provide an accurate guide to the market value of your own property. This can influence the overall price that the appraiser sets to your property. Sales performance and indices that forecast future value - By having a better idea of sales performance of properties in the area and indices that forecast the potential value of properties in the future in the area, the appraiser will gain a better understanding of the current market conditions. This information will assist the appraiser in generating an accurate valuation of your property, so that it will sell for the right price, at the right time. Location proximity to desirable schools and services ± It is well known that properties in close proximity to schools are more valuable since most buyers are families, these people would probably wish for a property that will be as close to a good school as possible, for that children¶s sake. The appraiser will look at the location of your property and decide how the local schools and infrastructure will affect your property valuation. Appraiser¶s Experience - The appraisers own experience can play a huge factor in the final valuation of your property. Their track record and knowledge of the industry is vital to coming to the right price for your home to list at. The appraised value that you are left with will be contained in the appraisers report, which is essentially is a certified appraiser¶s opinion of the worth of a home at that particular point in time. For most people, this report is essential in obtaining a loan from a lender since lenders are more likely to offer a loan to a person who can produce a document showing the value of their prospective property. Because an appraisal is a professional estimate the service is not free. The cost of an appraisal is dependent on the value of the home. Generally, you can expect to pay around $300 for a house that is valued at $250,000. Market Value Market value is similar to an appraisal, but it differs because a certified property appraiser does not carry it out. In most cases, market value is determined by a real estate professional ± be it an agent, realtor, or broker. The market value refers to how much your house is worth, compared to similar houses of similar specifications, in and around the area the property¶s location. Essentially, the market value is the price that the house would fetch if it were sold at that given point in time. Market value can be a tricky concept to explain regarding any products particularly when applied to real estate. In real estate, market value is the price in which a particular property
will sell within 30 to 90 days (the general timeframe of how long it takes to sell a property) based on its current condition. The market value of a property is highly influenced not only on the property¶s condition, but also the current real estate market climate, the location of the property, the time of year that the property is on sale, and how urgently the owner wants to sell their home. Determining a house¶s market value is an inexact science, as the only true way to determine a house¶s market value is to look at the figure in which that house is sold for. There are many ways to decide the market value of your house, but the most common approach is by comparing your property to other similar properties in and around the same area in the Multiple Listing Service (MLS). This is known as Comparative Market Analysis (CMA). Performing a comparable market analysis can help you to get a better perspective of the market value of your property. A real estate agent, realtor, or broker usually performs a comparative market analysis. They will evaluate sales of equivalent properties to generate an informal estimate of your property¶s market value. A good estimate of the market value of your home is important when you are selling your home as it will produce a figure that you can work with when setting the initial sale price of your property. Using the market value in conjunction with appraised value, the value that is determined by a certified appraiser will provide an accurate value for an initial sale price, since both the market and appraised value have usually considered the same factors (location, property condition, current real estate trends, and seller¶s urgency) when determining value.
Combined Loan To Value Ratio - CLTV Ratio
What Does Combined Loan To Value Ratio - CLTV Ratio Mean? A ratio used by lenders to determine the risk of default by prospective homebuyers when more than one loan is used. In general, lenders are willing to lend at CLTV ratios of 80% and above to borrowers with a high credit rating.
Combined Loan To Value Ratio - CLTV Ratio For example, let's assume that an individual is purchasing property valued at $200,000. This individual takes out two loans for the property, one for $100,000 and another for $50,000. The combined loan to value ratio would be 75%, (($100,000 + $50,000) / $200,000). Loan-To-Cost Ratio - LTC
What Does Loan-To-Cost Ratio - LTC Mean? A ratio used in commercial real estate construction to compare the amount of the loan used to finance a project to the cost to build the project. If the project cost $1 million to complete and
the borrower was asking for $800,000, the loan-to-cost (LTC) ratio would be 80%. The costs included in the $1 million cost figure would be land, construction materials, construction labor, professional fees, permits and so on. Loan-To-Cost Ratio - LTC The LTC ratio helps commercial real estate lenders assess the risk of making a construction loan. The higher the LTC ratio, the higher the risk. A similar, commonly used metric, the loan-to-value ratio, compares the amount of the loan to the fair-market value of the project.