Buying a home? Not so easy anymore

Updated on November 19, 20183 mins read

You’ve probably found your dream home and are putting together every last penny to make it yours. But it turns out that it just got a little bit more difficult.

Prasenjit Gupta asked us a question on twitter about HDFC not being clear with their home loan scheme. His dilemma was that their site said that you can include stamp duty amount in the home loan, but the bank branch said you can’t.

False HDFC Site Claim - Twitter

Now, Stamp duty is a significant percentage of the total amount and varies from state to state. We’ve listed out some states and their stamp duty amount on a price of 1 crore rupees.

Stamp duty in various states

Stamp duty in various states

(Although these are the state duty rates, the duty may vary from place to place within the state.)

SOURCE: The numbers given are from the READY RECKONER.

As the table shows, stamp duty is a big amount. So, Prasenjit’s question really boils down to:

Do I have to pay this large amount of stamp duty from my pocket or can the lender finance this as well?

The answer has so far depended on who you ask. Housing Finance Companies (HFC) earlier added the stamp duty and other processing charges to the price of the house and charged interest on that amount. On the other hand, Banks such as SBI, ICICI etc could not include these charges in the loan amount as per a RBI directive. In fact, a lot of customers preferred the HFCs because of this.

We were as baffled as Prasenjit on this question – has HDFC changed it’s practice or is it yet another example of poorly trained branch staff? We found out that the NHB has changed the rules of the game. Here is how.

THE CHANGE

National Housing Bank (NHB) regulates and sets standards for all Housing finance companies ie  HDFC, LIC HFL, DHFL etc. NHB released a circular on 8th of April that said:

“Some HFCs include stamp duty, registration and other documentation charges in the cost of the house. This overstates the realizable value of the property as stamp duty, registration and other documentation charges are not realizable and, consequently, the margin stipulated gets diluted”

The same circular goes on to say that Housing Finance Companies are henceforth barred from including stamp duty and processing charges in the loan amount.

NHB has also said that if the property costs less than 10 lac, you could borrow the stamp duty and other processing charges. This makes it easier for low income and financially weaker sections of the society to buy their home.

THE MATH

To understand this change better let us take the example of a person who is trying to buy a house of say, 1 crore and 11% stamp duty.

BEFORE AFTER
Amount                      1 cr + 11 lac=1.11 cr
Borrow-able amount 91 lac 80 lac
You pay 20 lac 31 lac

There is a significant difference of 11 lac between the two amounts. It is probably worth saving of several more months. Thus, for many people the dream purchase just got postponed by several months; maybe well over a year.

While this answers the question for Prasenjit and many others like him, the answer itself is quite disappointing.


Aditya Mishra

Aditya Mishra

Aditya has a Post Graduate Diploma in Finance and strategy from IIM Bangalore. He comes with rich experience in the field of strategic investments, venture capital and technology. During his nearly 7 year stint at TCS, Aditya gained deep experience in start ups and exploring new technologies and business models. As director innovation partner Network, Aditya identified start ups with innovative technologies and incubated them to maturity. Aditya's deep understanding of upcoming ubiqutous computing trends helped TCS make strategic investment decisions in this area. As head of sales West India, Aditya spear headed new collaborations for TCS in the banking and financial services space. With a zest for start ups and new innovations, Aditya co-founded Headstart Netwrok Foundation in the year 2007. This is a non profit organisation that promotes entrepreneurship. Aditya founded SwitchME in the year 2012. SwitchME was a pioneer in the field of specialised home loan advisory, conveniently based on an online platform. Today SwitchME has helped over 1000 customers with new home loans and balance transfers right at their doorsteps.
2 COMMENTS

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  1. vaibhav
    Oct 04 2015 at 10:39 pm
    Reply

    dear sir
    greetings of the day
    I am purchasing property in mumbai worth 2cr which is having outstanding loan of other bank of 1.5cr. I have agreement to sell with vendor by paying 20 % amount. Now my bank have did disbursement process and cheques for vendor and vendors banks are ready with my bank and they have given zerox copies of the same to me. But my bank is asking me to carry on sale deed with the vendor by showing him the cheques and also surrender and lease deed with the bungalow society which vendor anD his society is not agreed. Vendor is asking to pay his outstanding amount from the vendors banks first and then he is ready for the sale deed please let me know who is correct in this situation my bank? or vendor?

    • Tarini
      Tarini
      Oct 09 2015 at 2:17 pm

      Hey Vaibhav

      Its not possible for your bank to process the loan payment to the vendor’s bank without completing the documentation process. Your vendor will have to fulfill all the demands both banks made, that’s teh only way you will be able to go through with this deal. Once your bank has all the necessary documents, they will close the loan in vendor’s bank and your EMIs will begin. I hope this helps 🙂