- Looking to buy a home? Ensure you do your homework to reduce cost and avoid the rejection of loan application
- Compare interest rates & processing fee and choose the right property
Servicing a home loan is one massive task that you need to do for a greater length of time. A home loan can run for as long as 30 years. Even if you take it for 20 years, that will be quite a long obligation for you! So, if you don’t choose the home loan carefully, you might end up paying more to the lender. That is the financial side of a home loan. The other part is the legal side that you can’t ignore. Both financial and legal angles have to be carefully analyzed before taking a home loan. If done properly, it will not only help bring down the cost but also prevent the rejection of the loan application. To ensure a seamless approval and a reasonable home acquisition cost, we have put out some practices that you need to do before applying for a home loan.
The interest rate has a bearing on all loans, but in a home loan, its impact is much more. You might not pay attention to the interest rate difference of 0.50%-1%. But it’s only you who will get hurt later on and the one who takes the loan at a lesser rate will enjoy being a borrower. So, you should compare the home loan interest rate of different lenders. This is one due diligence you should do with precision before applying for a home loan. To get the loan at lower interest rates, you need a high income and a good credit score. Lenders are now offering special interest rates if someone has the required credit score. Let’s check out the table below to know the rates offered by a few lenders based on the credit score.
|Lenders||Credit Score||Special Interest Rate (In Per Annum)|
|HDFC Limited||780 & Above||7.35%|
|LIC Housing Finance (LIC HFL)||800 & Above||7.50%|
|PNB Housing Finance (PNBHFL)||800 & Above||8.60%|
|Bank of Baroda||726 & Above||6.85%|
|Punjab National Bank (PNB)||750 & Above||7.00%|
|Bank of India||760 & Above||6.85%|
Note – Lenders will most likely assess the interest rate based on the credit score generated by CIBIL.
You also check the processing fee levied by lenders on a home loan. The fee can be around 0.25%-1% of the loan amount plus goods and services tax (GST). The greater loan amount will mean the processing fee will be quite a significant amount. You need to submit the processing fee cheque to the lender to process your home loan application. So, if you have an idea of the processing fee, you will be in a good stead before applying for a home loan.
Legal & Technical Fee
This fee can either be a part of the processing fee or be taken separately by the lender. So, you need to search websites of different lenders and see whether the fee for legal and technical verification is included in the processing fee or you have to pay them separately.
Check the Circle Rate of the Property
Circle rate is decided by the government authorities and that means the minimum rate at which real estate transactions (buying and transfer of property) should be made. Although government authorities try to keep circle rate at par with the market rate, the former is invariably lesser than the latter. As a buyer, one has to register the property on the amount agreed upon or circle rate, whichever is higher. Checking the circle rate will give you some idea about the market rate, helping you deal effectively with the seller of the property. Dealing effectively means negotiating with the seller on the sale value. In case the seller is expecting an exorbitant deal where the sale value is way beyond the circle rate, you can negotiate hard with the seller by telling him/her the massive difference between the two rates. If the seller does not oblige, approach someone else who agrees to deal with you at a reasonable price.
Down Payment Amount
Home loans are not financed to the extent of the property cost. Lenders provide loans amounting to 75%-90% of the property cost. You’ll need to pay the remaining 10%-25% from your pocket to the seller. Now that property cost could either be the value agreed between the buyer and the seller or the market value of the property. Depending on your comfort and communication with the seller, you can pay the down payment sum by the time the ‘Agreement of Sale’ is done or when the sale deed is made. Since the down payment amount is contingent on the property cost, it pays to search for the property that comes to you relatively less. In case you have savings that can help pay more than the down payment asked by the seller, you can do that too. This will help reduce the loan amount and interest obligations over time.
Location and Authenticity of the Property
While most focus on the location because they want to stay at a place where they can live with basic amenities at least, not many check the authenticity or have the knowledge to determine the legality of the transaction. So, before paying the down payment sum, do ask the seller to hand you a photocopy of the property documents he/she has. If you can assess its validity, the job is done! If not, take help from someone who knows the matter. Because the lender will send legal experts to check the property. In case they find anything objectionable, the lender can either reject the loan application or put your case on hold. So, your dream home will take more time to be a reality. Plus, lenders assign different categories to different locations based on factors such as the availability of amenities, modernization, and even authenticity. There could be a few locations where the lender may not finance your home purchase. The reason is obvious – the possibility of bogus transactions in those places. So, it’s better to do all these property-related due diligence before applying for a home loan. This will help prevent undue rejections.