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Friday, June 17, 2016

Home Loan Analysis

 
There are several factors to consider before you settle on a lender while buying a house.
You have zeroed in on your dream home and it fits your budget. The next step is to iden tify the lender who will provide the loan you need to make the purchase. It can be a daunting task, given the number of financial institutions and banks operating in the space. "Eligibility criteria, interest rate, processing fee and other factors will be key to deciding your lender," says Rishi Mehra, Co-founder, Deal4loans.com, a loan comparison service engine. Start your search by evaluating the home loan offerings from lenders in the following manner.

Loan amount and eligibility

The quantum of loan you are likely to get will depend on your monthly income and the value of the property. Typically, the loan amount would be 80-85% of the property value. However, it could be more in some cases.  For property valued up to `30 lakh, the customer can avail of a maximum of 90% funding, subject to his income eligibility as assessed by the lender. The RBI, through a notification last year, allowed a loan-to-value ratio (LTV) of up to 90% for home loans of `30 lakh or less. Earlier, 90% LTV was allowed for loans of up to `20 lakh.

Whether you get a home loan at all or not would depend on your occupation (salaried or self-employed), disposable income and number of dependants. Remember, a bigger loan would imply a smaller down payment, but a higher EMI.

Interest rate

The rate of interest on the loan, which will influence the EMI and the total interest paid by you, must be considered before applying for the home loan. Shop around for rates and

choose the most competitive one. You also need to find out if the rates are fixed or floating. When rates are fixed, there are no fluctuations. Floating rates vary according to market conditions.  Fixed rate of interest is 25 - 100 basis points higher than the floating rate.For a shorter loan tenure of 2-5 years, it is better to opt for fixed rates. But for a longer tenure, floating rates works best.

Processing charges and prepayment

The processing fee is the charge banks deduct for processing the loan. This can be anywhere between 0.25%-2% of the loan amount. Lenders also set terms and conditions pertaining to prepayment. Borrowers must clarify the terms related to settlement and foreclosing the outstanding amount, transferring the balance to another lender's account, prepaying a part of or the full amount of the home loan, and other things, before finalising a lender.

Responsiveness to change in rates

You are more likely to get a fair deal if you opt for lenders who slash interest rates in response to a cut in repo rate by the RBI.

Documentation

Though most lenders seek the same documents, like proof of age, address and income, actual requirements may vary.

 

The time taken to sanction and disburse home loans varies from bank to bank. On an average, banks take around five days to sanction a home loan, provided all documents are in order. There are a number of post-disbursement services involved. These include getting regular account statements and interest certificates on time every year. Choose a lender with strong systems and good record of after-sales service. After the loan is sanctioned, the bank's surveyor will visit the property to prepare a technical and legal report. Based on the report and current market value, the valuation of the property will be done by the bank.

 

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