Home loans for NRIs – Do’s and don’ts before applying for one

This authored article is written by Mr Pradeep Rangi, Chief Risk Officer, IIFL Home Finance.

Driven by strong emotional ties to their roots, the Indian diaspora now accounts for approximately 25 per cent of property sales in India. This global community, comprising non-resident Indians (NRIs), persons of Indian origin (PIOs), and overseas citizens of India (OCIs), has fuelled the demand for homes in the country, especially in the premium realty segment.

Confidence in India's growth story, evolving lifestyle choices, rapid infrastructure expansion, and accessible NRI home loans are the major factors contributing to this trend. Indian developers now attribute roughly one-quarter of their premium-segment sales to non-resident buyers—a share that continues to rise as the rupee weakens and India’s infrastructure and regulatory landscape improve.

However, it is imperative for NRIs considering housing loans in India to understand the key do's and don'ts before kickstarting the loan application process.

Regulatory landscape at a glance

Note: State-level stamp duty and TDS obligations (Section 195) apply in addition to the above central rules.

Do's
1. Verify Eligibility Early
NRI applicants must fulfil certain eligibility conditions to obtain a home loan in India.
a. 18–75 years; salaried or self-employed.

b. Valid Indian passport/OCI/PIO card with no “No Entry” endorsement.

c. Lender-specific approved-country list (typically covers North America, GCC, most of the EU, Australia/NZ and key Asian hubs).

2. Scrutinise Loan Terms
The eligible loan amount depends on various parameters such as the applicant's credit score, income, education, duration of overseas employment, etc. Generally, NRIs must possess a degree, diploma, or professional qualification with over 1-3 years of experience abroad. A high school, senior secondary, or equivalent certification is compulsory for self-employed NRIs.

The approved loan amount usually ranges from 80 per cent to 85 per cent of the property value, while the loan tenure is 10-20 years. Home loan interest rates are higher for NRIs compared to resident Indians.
a. Loan-to-Value (LTV): 80-85 per cent of property cost.

b. Tenure: 10-20 years (shorter than resident loans).

c. Pricing: 30-75 bps above domestic prime rates; spreads widen for self-employed profiles.

3. Assemble Complete Documentation
While applying for a housing loan, NRI applicants must furnish a valid identity, address, and income proof. They should also submit a copy of their PAN (Permanent Account Number) card and certificate validating non-resident status. Those with a PIO/OCI status must provide a copy of a valid PIO/OCI card and a foreign country passport.

Additionally, NRI borrowers are required to submit documents such as the latest utility bills, life insurance policies, rent agreements, etc., along with all the property-related paperwork.

4. Execute a Narrow-Scope Power of Attorney (PoA)
For NRI home loans, a resident power of attorney (PoA) registered and notarised as per Indian laws is mandatory. Except for the applicant's spouse, any trusted individual or relative living in India can be a PoA.

The PoA acts on behalf of the applicant, regardless of whether the NRI is physically present or absent, to sign documents or manage property-related transactions. A PoA can also be a co-borrower.

A resident PoA—registered and notarised in India—can sign disbursement papers, collect possession and pay statutory dues. Use a specific PoA limited to loan and property acts to minimise agency risk.

5. Assessing prepayment, foreclosure, and other loan-related charges
No prepayment or foreclosure charges are levied on floating-rate home loans sanctioned to individual borrowers. The charges may go up to 5 per cent of the prepaid amount plus taxes for fixed-rate housing loans if the borrower prepays or forecloses the loan within 12 months of first disbursement.

6. Seeking necessary approvals for buying agricultural land
NRIs must obtain approval from the Reserve Bank of India (RBI) to purchase agricultural land in India. The apex bank may sanction the purchase depending on the NRI's citizenship status, compliance with local land ownership laws, and planned agricultural activity.

Don'ts
1. Benami Transactions
Benami transactions are illegal dealings wherein the property is held or transferred in the name of one person, but another individual pays the purchase consideration. They conceal the true ownership of a property. NRIs engaging in such transactions can face dire legal consequences, including heavy penalties and property confiscation.

2. Skipping Title & RERA Checks
Applicants must ensure the property is verified, has a clear title, and is free of legal disputes or encumbrances. It should also comply with the latest RERA (Real Estate Regulatory Authority) guidelines. Besides, buyers must confirm that the property is pre-approved for housing loans by financial institutions.

3. Ignoring Tax Implications
Understanding the tax implications of property ownership in India is crucial. Rental income from the Indian property is 100 per cent taxable. Moreover, every homeowner is liable to pay property taxes annually.

When an NRI sells a house after holding it for over 2 years, he/she must pay a long-term capital gains tax at a flat rate of 12.5 per cent. If the property was sold within 2 years, the short-term capital gains will be taxed at the NRI's applicable income tax slab rate. No indexation benefits are available on property acquisition costs for non-residents.

4. Using Unauthorised Payment Modes
Whether NRIs avail of a home loan or make the full payment upfront, they must remit money through authorised banking channels only. They can also make payments from their non-resident external (NRE), non-resident ordinary (NRO), or Foreign Currency Non-Resident (FCNR) accounts. However, foreign currencies or travellers' cheques cannot be used as a means of payment.

In the case of joint home loans, the Equated Monthly Instalments (EMIs) must be paid from an NRO (Non-Resident Ordinary) account only. Prepayments must be made only through the borrower's current NRE/NRO account and via international remittances from abroad.

5. Not adhering to FEMA and RBI regulations
According to the Foreign Exchange Management Act (FEMA) and RBI guidelines, NRIs can purchase only under-construction or ready-to-move-in commercial and residential properties. They are prohibited from directly investing in agricultural land, farmhouses, or plantations.

Investing in Indian real estate not only renders emotional fulfilment to NRIs but also helps them enjoy tax advantages under sections 24, 54, 54EC, 54F, 80C, 80EE, etc., of the Income Tax Act. With a proper understanding of real estate regulations, taxation, loan eligibility, and remittance norms, NRIs can seamlessly harness the lucrative opportunity to build assets in their homeland. Making informed decisions also helps them maximise returns from property investments while staying legally compliant.