Looking for home loan? Here’s how to select your lender

By: | Published: February 22, 2017 3:23 PM

Buying a home is a big decision for any individual. The decision is critical not only in terms of the amount of loan and thereby the percentage of disposable income which goes towards paying the EMI obligation, but also in terms of how easy it will be to manage this loan as a typical home loan tenure will be in excess of 10 years.

Things like eligibility criteria, interest, processing fee and others will be the key to decide your home loan lender.

Buying a home is a big decision for any individual. The decision is critical not only in terms of the amount of loan and thereby the percentage of disposable income which goes towards paying the EMI obligation, but also in terms of how easy it will be to manage this loan as a typical home loan tenure will be in excess of 10 years.

But even more important is selecting the lender who can provide you the finance to get the home in your name. That is because choosing the right home loan lender from a series of banks and other financial institutions can be a challenging task in India. Things like eligibility criteria, interest, processing fee and others will be the key to decide your home loan lender.

However, before discussing that, it would be helpful to know that the decision of selection of the lender can be taken at any time during the search of your property. There are broadly three occasions when the decision can be taken:

Getting an In-Principle home loan approved before the property has been finalised: This is for people who want to plan their home purchase very precisely. “This helps the buyer know his exact budget well in advance as he becomes aware of the maximum amount that can be funded to him by the lender, thereby avoiding the time being spent on shortlisting property which may be outside one’s budget,” says Manish Chaudhari, Co-founder of CoinTribe, an online loan disbursement platform.

Getting a home loan approved while property is being shortlisted: This is similar to the previous option. However, here the property is not completely finalised but fairly well agreed on.

Getting a home loan approved once property has been finalised & the owners’ contribution or booking amount paid to the seller: This is a decision which is taken once the property has been finalised and there is almost nil flexibility on property being changed as there is already a financial commitment made. The seller in this kind of a scenario can direct you to the lenders who have already approved the project, especially in cases of builder property and first time sale.

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As is obvious, depending on the individual’s planning and preference, he may choose any of these options. However, the earlier he zeroes in on his lender the better it is as it opens up various information points which could be very useful for a buyer. These points cover aspects like:

Approved Projects: All lenders typically pre-approve projects by doing their due diligence. This information opens doors for possible property where the buyer can be sure of the various compliances, specially related to legal and technical.
Current Stage of development of the project: For a project under construction, the buyer can get insights into the speed of progress of the project.
Price Point check: The lender can give an idea about the price points, which can be a good indicator for a new buyer.

While these are some pointers which can be very helpful, there are other things which should be kept in mind while deciding on the lender as listed below:

Eligibility: The first step is to know the minimum and maximum amount of home loan you can get from the lenders. Based on your requirement, you need to find the match. “The eligibility criteria is based on your monthly income and the value of the property. The loan amount is decided in such a way that the EMI payout comes out to be 50-60% of your monthly income and about 85% of the property value. But it differs from bank to bank and thus choosing the closet as per your requirement is the key,” says Rishi Mehra, Founder and CEO, Wishfin.

Loan Pricing: The interest outflow on a home loan has very high sensitivity to the rate of interest. “Even a 10-basis point difference over the tenure of the loan can make a huge difference. So the rate of interest should be carefully looked at. One should also check the fixed rate versus floating rate to ensure that the interest rate benefit in case of rate reduction is passed on to the loan availed,” says Chaudhari.
Processing Fee & other charges: Apart from interest payment, the processing fee and other onetime charges could be a big outflow for a buyer. Processing fee is the charge that bank deducts for processing the home loan. Processing fee can be 0.25%-2% of the loan amount. To ensure that the same is also well under control, a buyer should do a comparison of the same.

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Sanction / Disbursement Turnaround Time: The time taken for sanction of a loan is critical from a buyer perspective irrespective of the stage at which a home loan is being applied, as the buyer needs to commit himself to the deal. “This implies a good turnaround time is a pre requisite. This becomes even more critical where a buyer is looking at an under construction project as there the buyer would need multiple disbursements as per the progress of the project,” says Chaudhari.

Builder linkages: The ease of processing a home loan application typically depends on how the lender is connected to the builder. The process of documents to be collected could be quiet cumbersome for an individual to do on his own and so a good lender-builder relationship eases the process.

Customer Service: As a home loan is a long-tenure product, multiple requirements may come during the course of this tenure where the buyer would need to interact with the lender. These could be things like rate reset, thereby impacting EMIs or the tenure of the loan, part payment, loan reschedulement, interest paid certificate or any other similar requirement. Hence an efficient and easy customer service channel should be given due importance.
These points are critical while selecting a lender. However, “apart from these points a buyer might want to look at other factors like the brand image of the lender, closeness of branch and flexibility in payments, etc. In case of a resale property, which may already have been financed, it may be a good idea to go with the current lender itself,” informs Chaudhari.

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