Applying for a home loan in India? Here is what NRIs need to know

When it comes to availing NRI home loans, an applicant needs to fulfil certain criteria including educational qualifications.

For Indians living abroad, owning a property in India symbolises a deep connection to their roots and a sense of belonging to their homeland.

Little surprise then that many non-resident Indians (NRIs) are keen to invest in residential properties in India. Although a favourable exchange rate typically enhances their purchasing power, NRIs can also consider home loans to cover potential funding gaps.

In the recent past, NRI investments in the Indian real-estate sector have seen a significant boost. According to a research conducted by real-estate site NoBroker, NRIs made up for 10 percent of the total real estate investment in India, which rose to 15 percent in 2023 and is expected to surge to 20 percent by 2025.

Another survey conducted last year showed that 53 percent  NRIs planned to purchase a house in India for residential purposes, while 47 percent intended to do so as an investment. Regardless of the intent, the Indian real-estate sector is definitely an attractive option among NRIs, driving up demand for NRI home loans.

Given  the requirements for cross-border remittances, the process should ensure compliance with the provisions of the Foreign Exchange Management Act, 1999 (FEMA) and RBI regulations.

Indians living abroad must keep the following points in mind, while applying for an NRI home loan in India.

Rate of interest and loan amount

While opting for NRI home loans in India, it is important to understand that the interest rates will be slightly higher. This is because NRIs are viewed as high-risk borrowers by most lenders as they reside outside India.

Properties eligible for an NRI home loan

NRIs, like resident Indians, can avail loans for all types of residential properties – whether they are under construction or ready-to-move in. NRIs  can also apply for loans to purchase a plot, as well as for home renovation and home improvement activities. However, under current  FEMA regulations, NRIs cannot buy plantations, agricultural lands and farmhouses.

Eligibility criteria

When it comes to availing NRI home loans, an applicant needs to fulfil certain criteria, including educational qualifications. For example, if one is 25 years old and residing in the United States, he or she is eligible to apply for a home loan in India.

Moreover, NRIs need to have a degree or a diploma, and at least three years of work experience in a foreign land or at least one year of overseas work experience with a professional degree. For NRIs who are self-employed, a high school, senior secondary or an equivalent certification is mandatory.

Also read | How banks evaluate your home loan proposals

Repayment proceeds should flow only from overseas or NRI accounts

RBI regulations state that an NRI home loan repayment is possible only through the balances in NRI accounts, including both NRO and NRE accounts. Other than debits from NRI accounts, the home loan amount can also be directly credited with an international money transfer from a different country.

Loan pre-payment

NRI home loans also offer pre-payment options. However, any pre-payment must be made from the borrower's existing NRI account or through international remittances from abroad. .

Documents required

Obtaining an NRI home loan involves additional documentation, compared to regular home loans in India. Applicants must provide copies of passports and visas, along with their loan application form. Other documents include a cancelled cheque, a valid work visa permit, salary slip, work experience certificate, bank statements from NRE and NRO accounts, and a property allotment letter. Additionally, the applicant will need to execute a general power of attorney in favour of a resident Indian who will serve as the point of contact with the bank in India.

Also read | Use NRO account for family expenses and NRE account for investments

Eligible loan amount

While the NRI loan amount is generally driven depending upon the value of the property, certain other aspects, like educational qualification, existing income and permanency of income, are taken into consideration while determining the loan amount that can be sanctioned.

Final thoughts

Before applying for an NRI home loan, it is essential to comprehend the intricacies involved in the overall process. Understanding the eligibility criteria, documentation, tenure and interest rates are key elements involved in the process. Collaborating with co-applicants and exploring diverse repayment avenues need to be thoroughly taken into consideration. With proper planning and careful consideration, NRIs can navigate the process effectively and achieve their dream of owning a home in India.