Now that you have decided on your dream home that fits your budget, it’s time to start thinking of the financial aspects, specifically identifying the lender who will provide the loan for the purchase. Eligibility criteria, interest rate, processing fee and other factors will are the key to determine your lender.
Loan amount and eligibility
The amount of loan you are expected to get depends on your monthly income and the value of the property. Usually, the loan amount is 80-85% of the property value. However, it could be more in some cases. The RBI, through a notification last year, allowed a loan-to-value ratio (LTV) of up to 90% for home loans worth Rs 30 lakh or less. Whether you get a home loan at all or not depends on your occupation, disposable income and number of dependents.
The rate of interest on the loan is one of the major factors in determining the amount of loan to be taken. Research about interest rates on offer and select the most competitive one. You also need to determine if the rates are fixed or floating. While for short term loans fixed rates are better, it makes more sense to opt for floating for long term loans.
Processing charges and prepayment
The processing fee is the charge banks deduct for processing the loan. This can range anywhere from 0.25%-2% of the loan amount. The lenders will also set terms and conditions pertaining to prepayment. Like 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.
Responsiveness to change in rates
The chances of getting a fair deal are higher with lenders who cut their interest rates as per cut in the repo rate.
The time taken to sanction and pay out home loan differs for every bank. Make sure to select a lender with strong systems and great after-sales service.