House Building Advance (HBA): Everything you need to know

[ecis2016.org] Central government employees are eligible for HBA or House Building Advance for building their dream homes. Here is a complete guide.

When building your home, the investment is massive. However, it is an immense comfort if you can obtain financial assistance. Central government employees are eligible for house building advance for constructing a house. Here is all you need to know about house building advance or HBA, essential points, critical purposes, rules and regulations, and how they can benefit you. 

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What is House Building Advance?

House Building Advance is sometimes abbreviated as HBA among builders and lenders. If you work for the central government, you can use this house building advance to build your homes and flats. In this way, you may significantly minimise your financial load. The plan was initially implemented as a welfare measure in 1956. The Ministry of Urban Development is in charge of carrying it out. The Ministry is also developing the guidelines for house building advance.

This house building advance is available to any central government employees who have been in the services for at least ten consecutive years. They might be either permanent or temporary employees. Based on the current norms, the individual departments are granted the authority to discipline house building advances to workers.

What is the interest rate of House Building Advance?

The house building advance has the best advantage in that the interest associated with it is the simple interest rate and starts from the date for payment of the advance amount. The amount of interest that the workers must pay to the lender is calculated by considering the final outstanding sum on the last day of the month. The interest rate on HBA loans is typically between 6% and 9.5 % and is determined by the entire loan amount.

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The sanctions included a higher interest rate of 2.5% above the permitted rates. If the employee meets the following criteria, they will earn a refund on interest rates:

• A 2.5% refund is available on HBA loans provided all requirements connected to the advance’s authorisation and recovery of the total amount are met entirely.
• An individual who undergoes elective sterilisation receives a 0.5% interest rate. If an employee’s spouse undergoes sterilisation, the same rate is provided to them.

This provision of adding a higher interest rate at 2.5% above the stipulated rate has been withdrawn.

Primary purposes of borrowing House Building Advance

You can borrow house building advance only for a few specified purposes. 

• In building a house or flat, the HBA can be borrowed either by the central government or by the spouse, either jointly or individually.
• You can borrow HBA when purchasing any piece of land meant for the eventual construction of houses.
• You can take the help of HBA in acquiring a plot of land under the cooperative scheme and subsequently constructing a home or flat on that plot of land.
• Borrowers can also take advantage of house building advance if the house was purchased through the membership of cooperative group housing societies.
• HBA can be borrowed for the purchase/construction of a house through self-financing initiatives in Delhi, Bangalore, Uttar Pradesh, and Lucknow, among other places.
• Another purpose of borrowing HBA is to extend living space in an existing residence owned by the employee or jointly with their spouse. Under those same standards, the overall cost of the existing building (excluding the price of land) and the anticipated additions should not surpass the authorised cost limitation.
• It also applies for reimbursing a loan or advances acquired from the government, HUDCO, or a private source, even if the building construction has already begun. However, in these exceptional cases, it is subject to specific criteria.
• If you intend to make an outright purchase of a particular ready-built apartment from the Housing Boards, Development Authorities, and other statutorily defined or semi-government entities, as well as enrolled builders, such as registered private builders, architects, housing construction societies, and so on, but not from private individuals, you can take the help of the HBA.
• Employees of the central government who have previously obtained home loans from other banks or financial institutions may also use this plan for the objectives mentioned above.
• HBA can be borrowed for building any shop-cum residential plot, or residential colony while bearing in mind that it should not exceed the upper-cost limit.

Points to consider before filling out the HBA application form

Before filling up the form, go through these points to avoid making any serious mistakes.

• You should have adequate documentation to ensure that the land or house belongs to you, i.e., the central government employee or spouse. At the very least, there should be no issues with this clause.
• While submitting the application for the HBA, the applicant’s spouse should not own any other land/house/flat. If they have a minor child, there should not be any house/land/flat registered even under his/her name.
• When applying for the HBA, a 12-page application form must be completed and submitted. This form is available both online and offline.
• Whether permanent or temporary, employees should have a minimum of 10 years of continuous employment.
• The advance can be used to build a home or purchase land on which the house will be constructed.

Rules for the repayment of the House Building Advance

Following the rules of house building advances, the employee must repay the advance and interest thereon in full before superannuation or separation from service. The payments must be made in instalments within a period that does not exceed 25 years.

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You should complete the entire repayment of the principal amount of the loan in 15 years (180 instalments) and the interest in 10 years (120 instalments). 

It would be best if you kept in mind that the monthly instalment amount, even under the sanction under sub-rule 5.1.6 in the legal documentation, shall not be less than the instalment amount at which the employee repaid the advance while in service in the parent sterilisation/department. 

You are also free to repay the entire loaned amount in a shorter period if you so desire. In the case of the last instalment, where the remainder, including any fraction of a rupee, shall be collected from the employee, the advance amount and interest thereon shall be fixed in whole rupees.

House building allowance adjustments during the 7th pay commission

During the 7th Pay Commission, some adjustments were made to the provisions of the house building advance to encourage the housing industry in the country:

• For 34 months, a central government employee may borrow up to the amount of their basic pay. This is limited to a high limit of Rs 25 lakh, the worth of the home, or a sum assessed by their repayment capacity. The smallest of these sums will be considered. Initially, this limit was established at Rs 7.50 lakh.
• The maximum budget level of the home that a worker may build/purchase has been raised to Rs 1.00 crore, with only a provision for a 25% increase in worthy situations. The previous price ceiling was set at Rs 30 lakh.
• When both spouses work for the central government, they can now take the HBA concurrently or separately. Previously, only one spouse could get a house building advance or HBA.
• The HBA sum for house extension has been reduced to a fixed capacity of Rs 10 lakhs or 34 months of basic income or the cost of house addition, whichever is smaller. This sum was formerly Rs 1.80 lakh.
• HBA recovery is based on the current guidelines. The principle recovered first in 180 monthly payments over the first 15 years, followed by interest recovered in 60 monthly payments over the next five years.
• Every three years, the interest rate on HBA will be altered. If the interest rate changes, all future tranches/instalments of HBA accepted by the employee in different fiscal years will be governed by the applicable interest rate in the year the HBA was sanctioned.
• Employees are only eligible for an HBA once throughout their lifetime.
• Employees can move from home loans offered by banking institutions to HBA if they want. The provision for getting a second charge on the properties to secure loans from financial institutions to cover the remaining sum has been significantly increased. A ‘No Objection Certificate’ will be issued with the HBA penalty order based on the employee’s declaration.
• The interest rate on Housing Building Advance will be at a single rate of 8.50% at simple interest (instead of the previous four slabs carrying interest rates ranging from 6% to 9.50% for different slabs of HBA ranging from Rs 50,000 to Rs 7.5 lakh).

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