Buying a new home is nothing short of a dream come true for many. You must have heard stories of people who saved every penny throughout their life to achieve the goal of buying a home. In the current scenario, the COVID-19 pandemic has made more people realize the importance of their homes.
However, considering the exorbitant real estate prices in India, many people have to seek financial assistance to buy their dream home.
Taking the home loan route is a smart option to buy your dream home, as saving for the full cost of the house can take a long time. And a home loan provides you an opportunity to fulfill your dream without compromising on other goals.
So, if you are eyeing a suitable home of your choice, keep these five important things in mind while applying for a home loan:
Do not submit loan applications to multiple banks at once
The following example will help you better understand the need for intelligent submission of home loan application –
Mr. Mehra has been living with his family in a rented house for the last ten years. He has secured a stable job in his career and wants to buy a house that he can call his own. For this he visited Bank A, applied for home loan and submitted all the required documents. After experiencing delay in receiving the expected response from Bank, he submitted another loan application to Bank B and did not hear back in time. His eagerness prompted him to do the same with Bank C, but there was no favorable response.
Many people make this mistake, not knowing what the impact of such frequent hits by lenders is on their credit scores. Whenever you submit a home loan application, the bank checks your CIBIL score to know your creditworthiness. Frequent inquiries from multiple banks hurt your credit score.
As a home loan applicant, the last thing you want to do is get your application rejected, followed by a drop in your credit score. Therefore, you are advised not to submit multiple applications in different banks at once or within a short period.
A better way to ensure that your home loan application is accepted is to research online and check your creditworthiness. Once you know the loan amount you can expect to get, you can submit the application to the bank accordingly.
Check Home Loan Processing and Other Charges
Home loan interest rate is the first thing that home buyers look for while considering a home loan.
However, this is not the only type of charge associated with the home loan. As a borrower, you should be aware of processing fees, foreclosure fees, or late payment penalties. While the overall processing fee between 0.5% – 2% may not seem like much, but if you consider the actual amount, it is a considerable amount. For example, if you take a home loan of Rs 50 lakh, 0.5% of Rs 50 lakh is Rs 25,000.
In some cases, you may incur various other costs such as GST and documentation charges associated with the loan amount. Also, some insurers try to sell various insurance policies along with the loan, which further increases the overall cost of getting a home loan.
All these charges will add up to increase the total amount payable to the lender. Hence, you must be aware of all these charges like processing fee, lawyer fee to get better clarity on the home loan offer.
Also, it is important that you sort out the total charges initially and potentially negotiate with your bank before accepting a home loan offer. You can do this by keeping a close eye on the details provided in your loan document.
Compare Home Loan Offers from Different Lenders
Comparing home loan offers from two different lenders can seem a daunting task. The lender that offers the loan at a lower interest rate may ask for a higher processing fee and other associated fees. This is where you need to dig deeper and work hard to find the most suitable home loan offer.
Begin the home loan comparison process by comparing the interest rates payable and the respective EMIs for the chosen tenor. Consider this example –
Mr. Shah is looking for a home loan of Rs.25,00,000. He wants to repay the loan in the next 15 years and checks the EMIs payable to different banks based on different interest rates. Here are some of their findings:
|Bank||Rate of interest||Monthly EMI (INR)||Amount Payable in 15 Years (INR)||Processing fee (as % of loan amount other than EMI)||Total Amount Due (Rs.)|
In terms of processing fees, they realized that Bank C charges relatively higher processing fees than the other two banks. This makes Bank B’s loan offer better than the other two.
Like Mr Shah, you can also create a comparison table for monthly EMIs from different lenders using an online home loan calculator.
read the fine print
Have you encountered situations in which you suffered financial loss due to signing documents without knowing what was inside? This can be avoided completely. Most of the trusted home loan providers, including banks and NBFCs, follow a transparent process for sanctioning the loan amount.
Like any other case, it is a good practice to read the home loan application carefully before signing on in a frenzy to save time. For example, on reading the physical application form, you may incur documentation charges which are mistakenly charged twice. If it seems vague and unnecessary, you can seek clarification from the bank officials before ‘proceed’ on the loan proposal.
Similarly, you can ask for clarity on the given detailed EMI schedule for the entire tenure that you have chosen to repay the amount. If you are asked to sign any unnecessary documents, you are advised to seek help from a colleague or professional.
Keep in mind that careful consideration of home loan offers will not only help you save money but will also give you a complete understanding of how to do it the right way.
Choosing Between Banks and NBFCs for Home Loans
Apart from banks, non-banking financial companies (NBFCs) also offer home loans. Banks generally have stringent eligibility criteria, and the processing/disbursement of loans may take longer than expected. On the other hand, getting a home loan from an NBFC can be easy, but you need to look at the interest rate as well.
NBFCs generally charge higher interest rates than banks. Since home loan repayments can take up to 30 years, even a slight difference in interest rate means that a considerable amount will have to be repaid apart from the principal amount.
To avail a home loan to buy your dream home, you need to do due diligence on your part. Here, we have noted down five important points that you should keep in mind and analyze before applying for a home loan. Choose a home loan offer that best suits your needs as well as your financial health.