It is commonly observed in sale/purchase of residential plots, homes and flats that the sellers ask the buyers to deposit earnest money as booking amount. In other words, earnest money, on one hand, is a deposit made to a seller that represents a buyer’s good faith to buy a plot, home or a flat. On the other hand, this money also paves way for the buyer to get some more time to explore the possibilities of getting a loan facility for the project. The buyer gets time on his side to cross check the title and other aspects of the property before closing the deal. The earnest money culminates into a contract between both parties when a buyer decides to purchase a plot, home or a flat from a seller. In a way, the earnest money, also referred to as good faith money, keeps both the seller and the buyer on track with their commitments and responsibilities.
It is worth mentioning, the buyer can get the earnest money back if something goes wrong during the appraisal predetermined in the contract. But, earnest money may not be returned if the buyer fails to stick to the contract at any point of the time. The earnest money is used for the cost of the property if the deal goes through. A real estate agency, law firm, or title company holds the earnest money in an escrow account until the closing.
Typically, there are agencies in private as well as the government sector selling residential plots and built-up houses. For one plot or a flat, there will be various buyers. It is here the seller asks all the applicants to deposit an earnest money amount to be considered a buyer. Then it is through a bidding process the applicant is chosen to buy a plot or a flat. The remaining applicants get their deposit back.
However, it has been observed that many lose the opportunity to bid for a flat or a plot for want of earnest money. Though most of them have consistent income and are eligible to obtain a home loan. Notably, a typical home loan scheme doesn’t accommodate earnest money as a component of finance.
In this backdrop, J & K Bank has customized a special scheme to provide loans for earnest money specifically for flats to be sold by Jammu Development Authority JDA, Srinagar Development Authority SDA and JK Housing Board projects.
What are the eligibility parameters of the J&K Bank Earnest Money Deposit Scheme?
The scheme is exclusively for the allotment of plot/ flat/ dwelling unit to be sold by the Jammu Development Authority, Srinagar Development Authority and for the JK Housing Board projects. Permanent employees of State/Central Government, Public Sector Undertakings and autonomous bodies & institutions of State/ Central Government are eligible to take route of the scheme. Besides, businessmen/businesswomen and professionals having minimum three years of satisfactory dealings with the bank are also eligible to take loan for depositing the earnest money.
Notably, the loan shall be granted only to those persons who fulfil the eligibility conditions of the housing loan scheme of the bank.
What is the amount of loan granted under the scheme?
The applicant can get up to Rs. 5.00 lakh. However, no margin is required and the loan is to be liquidated in 12 months with the repayment commencing from next month of disbursement. Notably, there are no loan processing charges under the scheme, except documentation charges of Rs.500. The value of stamp duty, notary attestation charges, and registration fee is to be borne by the borrowers on actual basis as per applicable rates as notified by the government.
It is pertinent to mention that in case of non-allotment of flat/ dwelling unit, the refund proceeds by the government agency will be used to liquidate the loan instantly.
What kind of security borrowers have to submit?
Employees whose salary accounts are maintained with the bank don’t have to submit any security. However, others have to submit a third party guarantee of one person having sufficient net worth to withstand the liability and acceptable to the bank.
What are the documents to be submitted as income proof for businessman / businesswoman and professional?
This segment of borrowers have to submit Form 16 or ITR returns of the last 2 years (average to be considered), supported by the Bank Statement of account.
Or, they should submit the balance sheet/PL statement of their businesses duly signed by a certified chartered accountant. Net profit declared in the balance sheet shall be considered as income.
However, all the deductions (compulsory/ optional) shall be factored in while computing the quantum of eligible loan.
Besides, it is mandatory under the scheme to review the credit reports and scores for all individuals who are party in the loan proposal (including all Primary borrower(s), joint borrower(s) / co-applicant(s), guarantor(s) and any other party associated with the loan).
Can a borrower under Earnest Money Deposit (EMD) Scheme obtain a housing loan once he/she is allotted the plot/ flat/ dwelling unit?
Yes, the allottee is eligible for obtaining the housing loan. The allottee would be required to make the balance payment either in full or in instalments. The EMD facility that has been granted will be adjusted by the borrower from his margin contribution that is otherwise required in the Housing Loan.
What are the things a borrower needs to keep in mind while applying for a housing loan?
There are certain things which borrowers should consider before shopping for a housing loan. First of all the borrowers have to decide about the quantum of finance required. They can do it by considering their monthly income, their age, other debts and financial commitments. They should even take their job stability into account before taking a housing loan. Precisely, they need to ensure that their loan amount is not going to make their repayment challenging that may lead to debt trap.
After deciding the loan amount, they should look at repayment options of the loan. When loan tenure is for a short period, equated monthly installment (EMI) will be very high. Longer tenure is generally chosen to enhance the loan eligibility of the borrower but remember longer the tenure greater is the cost of borrowing. If EMI for a short term is not affordable and you want to pay off your loan as soon as possible, consider a middle path for the period of 10 to 15 years.
Besides, borrowers need to know the rate of interest. There are two options as far as interest rates are concerned. One can obtain a loan at a fixed rate. In this case, the bank gives a loan on a fixed interest rate for a particular period. Then, there is a floating rate option, which means, the interest rate of the loan will change depending on the interest rate cycle in the market as the loans are now linked to the repo rate announced by the RBI from time to time. Here it is worth mentioning that banks can change interest rate options without informing the borrower.
Meanwhile, after availing the loan facility, it’s important to go for insurance of your home loan (Home Loan Protection Plan) as well as the property which you have purchased or constructed out of the bank loan.