A lovely location, great amenities, and close to work and school. The only thing Raman had to worry about was a home loan to finance his dream home. Little did he realise that the toughest part of his homebuying journey was ahead of him.
Though it sounds pretty straightforward, we would recommend you to make a judicious decision while choosing the lender for your home loan. Some simple tips like the ones below should help a buyer scouting for home loan lender.
Know your credit score
The first point that anyone should pay attention would be the credit score. A credit score above 750 is required to get a home loan sanctioned. If you’ve a score below the stipulated number, it would be better to wait until the score improves.
Approach a known lender
It is advisable to approach a bank/financial institution with who you already have a banking/financial relation. The bank where you have a savings account, a credit card, existing vehicle loan would have information on your repayment history/existing balances and would be glad to extend their relationship with you. Moreover, you could negotiate for better interest rates.
Pay attention to other conditions attached to the loan
A home loan comes with other charges such as processing fee, pre-payment charges, legal fees, and others. It is important to have clarity on these charges. Understand what conditions apply if the loan is transferred to another lender. Make sure you are clear about the fine print as well.
Loan to value (LTV) ratio
Only a certain proportion of the value of the property is sanctioned as the home loan. This is called the Loan to Value Ratio. Commonly, banks are allowed to lend up to a value of 80-85%, although, for loans up to Rs 30 lakh, 90% of the value is allowed. However, banks often restrict the LTV ratio. It’s good to look for a lender who would lend to you at a higher LTV. Remember higher LTV = lesser down-payment.
Interest rates
An important part in deciding a home loan is the rate of interest charged on the loan. Although the rate of interest charged may vary just by small basis points between lenders, it makes a lot of difference in the amount paid over a period of 10-20 years. Make an informed decision on choosing between a fixed or floating loan. If the loan is for a short period, fixed rates make sense. You might want to choose a lender who passes on the effects of rate cuts at the earliest. A little research on the previous history of rate changes would be helpful.
Documentation and other services
A home loan requires quite a bit of documentation. Though the requirements remain pretty much the same across lenders, it is better to choose lenders who don’t press for needless documents. Processing time for loans also matter. Look for lenders who offer prompt after disbursal services such as the issue of interest and account statements.
