The legal framework for NRI Home Loans in India
Most individuals residing abroad might be curious about obtaining an NRI home loan in India. The lending of money between individuals residing in India and Non-Resident Indians(NRI)/Persons of Indian Origin (PIO) is regulated by the Foreign Exchange Management Act, 1999, in conjunction with the Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000.
As per these regulations, an authorised housing finance institution in India, duly approved by the National Housing Bank (NHB), is permitted to extend a housing loan to an NRI or a PIO, subject to specific terms and conditions.
(A list of Authorised Housing Finance Companies for NRI home loans can be found here!)
The terms and conditions
According to the T&Cs, the quantum of the loans, the margin money and the period of repayment should be at par with housing loans given to residents in India. However, the loan amount shall not be credited to the NRE, FCNR(B) or the NRNR account of the borrower.
The instalments shall be paid by any of the following:
- Remittances from outside India
- Out of the funds in the borrower’s NRE, FCNR(B) or the NRNR account
- Rental Income from renting out the property
- Any relative of the borrower residing in India by crediting the borrower’s loan account
The rate of interest will be issued by directives issued by the RBI or by the National Housing Bank. One can opt to apply for a Home Loan with floating or fixed interest rates.
The loan amount is to be repaid in Indian Rupees only!
Steps to Apply for a Home Loan
- Filling an Application Form:
The initial step involves filling out a loan application form. NRIs must ensure that the form is duly filled, and all applicants’ photographs are attached with their signatures. Additionally, a legitimate Power of Attorney (POA) document is required to authorize an Indian resident to sign the application form and correspond with the bank on the NRI’s behalf.
- Power of Attorney (POA):
A Power of Attorney is a critical document that empowers another person residing in India to complete the property transaction on the NRI’s behalf. The NRI must sign the POA in the presence of a consulate officer or a notary in their country of residence. The document needs to be attested by these authorities and adjudicated in a sub- registrar’s office in India to be considered valid.
3. Income Documents:
To ascertain the repayment capability, the NRI applicant needs to provide various income-related documents, including a copy of Indian passport and visa. If an Indian passport is unavailable, the applicant can use a PIO card (for those holding a foreign passport) or an OCI card (for individuals with Indian parentage).
Work permit/Job contract/appointment letter from the country of residence, latest salary certificate or payslips for the last six months, latest income tax returns, bank statements of NRE and NRO accounts for the past year.
4. Title Documents:
Proper documentation related to the property’s title is essential to ensure its legality and authenticity. Title documents must be provided such as- a title deed in the seller’s name, approved plan/building permit, occupation certificate (for ready buildings), older title deeds, if any, updated encumbrance certificate, RERA registration certificate if applicable etc.
It’s essential to note that different states in India might have specific requirements or additional paperwork for property transactions, so it’s prudent to be aware of local regulations, especially when purchasing property in specific cities.