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.
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
(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.
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.
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.
1 cr + 11 lac=1.11 cr
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.
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