People who are employed or have a regular business can face difficulties when it comes to the issue of building a house from their own savings only. In such situations, therefore, banks and financial institutions provide home loans for the purpose of assisting individuals in constructing or buying houses or real-estate.
A home loan is type of loan that an individual obtains from banks or financial institutions to purchase or construct a house or real-estate. In Nepal, various banking procedures to be adopted to obtain a home loan exist, which are generally systematic and transparent. Awareness of the process enables the borrowers to save time and money. Obtaining a home loan is a complex yet methodical procedure, including assessment of one’s finance, bank selection, document preparation, conformity to the conditions of the bank, and loan repayment. Assuming all these phases are properly implemented, the desire to purchase or construct a house becomes an easy goal to achieve. Before this process is initiated, it would be advisable to shop around for quotations from multiple banks and consult a financial planner.
Assessing Needs and Eligibility for Home Loan
One must evaluate their requirement and financial capability prior to seeking a home loan. Determine the amount of loan one requires, the duration for which it is going to be required, and what EMI will be feasible for you.
Typically, Nepali banks set EMI at the rate of 50 to 70 percent of a person’s monthly income. Apart from that, age, job stability, credit worthiness (if available), and other expenses are also considered.
For example, if your per month income is NPR 50,000, the bank will consider EMI of NPR 25,000 to NPR 35,000. At this stage, it’s also important to remember your budget and cost of the house. You can also refer to Eligibility Calculator for calculating the amount of loan you can take.
Building or Buying a Ready-Made House?
While applying for a home loan, it is essential to mention the type of home loan. Whether one wants to build a house on land that has been purchased or buy a pre-built house or flat or apartment, this needs to be specified. Loans can also be obtained for repairing or renovating construction or building new structure on existing house or flat.
Selecting the Appropriate Bank for Home Loan
Different banks have different interest rates, loan terms, processing fees, and other conditions. Generally, the interest rate for home loans in Nepal ranges from 7 percent to 12 percent, which can be floating (variable) or fixed – depending on what the customer choose for. Global IME Bank offer home loan as per your requirement with flexible terms and affordable interest rates.
Collecting Necessary Documents
For apply a home loan, prepare the necessary documents. These documents verify identity, income, and property legality. Generally, the following documents are required:
- Identification: National ID, Citizenship certificate, passport-sized photo.
- Income Documents: For salaried individuals, salary certificate, bank statement (last 6 months), and income tax details (if applicable). For business owners, business registration certificate, income details, and bank statement.
- Property Documents: Land ownership certificate, survey map, land revenue and tax receipt, boundary certificate, construction approval (if building a house).
- Others: Loan application form, and guarantee details if required.
These documents may vary by bank, so it is advisable to request a list from the selected bank.
Home Loan Application Process
Once you have collected the documents, fill up the home loan application form of the bank and submit your application. The application form includes personal details, income, property details, and loan amount required. There is a processing fee (usually 0.5-0.75 percent of the loan amount) to be paid while applying. The fee is non-refundable, and hence one should have a clear understanding service fees and loan administration charges.
Property Valuation for Home Loan and Approval
The property valuation is carried out be engineering firm appointed by the bank after registering the application. In this, the bank’s engineering team identifies the market value, location, and legal status of the house or land.
In Nepal, this valuation plays a crucial role in determining the loan amount. For example, if the property value is NPR 5 million, the bank may approve a loan of NPR 3.5-4 million. The bank also checks credit history, existing liabilities and financial status. If everything is fine, the bank issues a loan approval letter.
Loan Agreement and Signing
After approval, the loan agreement, mortgage deed needs to be signed. The agreement holds interest rate, loan tenure, EMI amount, penal charges for late payment, and other conditions.
The agreement is usually attested by a notary public. Additionally, the process of mortgaging the property needs to be done, where the land ownership certificate is held by the bank. This process is done at the land revenue office and includes some fee.
Loan Disbursement
Upon completion of all documents, the loan amount is released by the bank. The amount is transferred to the bank account of the individual or directly to the seller’s account (in case of purchase).
In case of construction of home, the amount is disbursed in phases. The bank may also request property insurance prior to disbursement, which is accepted for security of the loan.
Loan Repayment and Foreclosure
After getting the loan, one must repay monthly EMIs. The Nepalese banks usually offer a tenure ranging upto 30 years. Failure to pay on time may result in penalties and affect the credit score. The customer may also choose to foreclose (repay fully) the loan before the end of tenure, but some banks impose certain charge for doing this.
