How to choose the right bank for a home loan?

bank for a home loan?

Owning a home is everyone’s dream and also a necessity. However, the rising real estate prices often shatter the dreams of people. However, this scenario has changed in recent times with the availability of financial support for home purchase. Availability of home loans at lower interest rates and government initiatives have encouraged people to go for their dream homes.

With interest rates below 7% now it is an excellent opportunity for homeowners and developers to invest in real estate. In comparison to five years back, property values have already undergone a correction. Furthermore, India's prime residential markets have a vast number of ready to move-in apartment homes in a variety of categories, giving buyers plenty of options

Check the RoI and other charges

Borrowers' first tendency is to choose the bank providing a low-interest rate, as a small difference in interest significantly impacts the monthly repayment. Comparing prices to choose the right lender, on the other hand, can just look at the home loan from a partial perspective.

For home loans, banks usually charge a processing fee, a technical assessment fee, and a documentation fee, among other things. The borrower will be required to pay anywhere from 25 to 200 basis points of the loan amount for these fees, significantly increasing the loan's total expense.

When you're looking at interest rates, see if the bank is ready to forego all of these fees. Consider the options that are most cost-effective.

Incentives for credit-worthy borrowers

While a borrower's credit score has long been an essential factor in determining how much of a loan they are qualifying for, it also determines the amount of interest that the bank can charge you. Lenders, such as BoB charge interest on loans depending on the borrower's risk profile that can be as low as 6.85%.

However, this rate is only applicable to borrowers with a credit score of 760 or higher. This will result, a borrower with a good credit score will likely get a better deal on a home loan if they choose a bank that provides those services.

Swiftness in rate transmission

Borrowers and the RBI have also expressed their dissatisfaction with this situation. Even though banks are swift to raise home loan interest rates in response to an upward change in the repo rate(the rate at which the RBI lends credit to them), they are not as quick to pass on the benefits of rate cuts.

Although rate transmission is now much faster, especially after the central bank raised the repo rate to 4% in response to the difficulties faced by the Coronavirus crisis, some banks still refuse to pass on the benefits to customers.

When choosing a lender, look at how quickly they have aligned their interest rates with the RBI's rates in the past. This is one way to ensure that you will be able to benefit from policy changes throughout the life of your loan

Trustworthiness of the bank

You must choose a lender with strong business credibility, just as you must choose a trustworthy contractor when purchasing a home. When a developer fails, as in the cases of Amrapali, Jaypee, and Unitech, the buyer is most often the one who loses. The same could be said of his funder.

If your bank is harmed due to any wrongdoings, the situation will almost certainly affect you as well. This is clear from the recent debacle at the Punjab and Maharashtra Co-operative (PMC) Bank.

It's also crucial to learn about the lender's financial situation. Usually, these figures are available in the public domain.

Additional services by the bank

Buyers must also review and judge a bank based on its after-sales offerings, keeping in mind that the home loan application acceptance is just beginning a long-term partnership with the bank.

For eg, you'll need an interest certificate from your bank every year to receive tax deductions. To demand the deductions, you must apply this form to your employer. Some banks will send it to your email address, while others will need you to visit a branch to get a printed copy.

Banks can also be unable to communicate regulatory reforms that may reduce a borrower's debt obligation. Before choosing a lender, find out how forthcoming your bank is on this issue.

Transparency in home loan terms and conditions

Most banks nowadays guarantee that the home loan application will be approved quickly. In most cases, you will apply for a home loan electronically and submit all of your paperwork, and the lender can disburse the funds within a week. Even though this expedites the closing process for buyers, mainly if they have already chosen a home, it is not without flaws.

You may not read the terms and conditions closely due to impatience to get the loan as quickly as possible. Rushing into a home loan reduces your ability to shop around for a better deal.

Even though the RBI has prohibited banks from charging a premium for prepayment of a home loan, financial institutions are free to charge a penalty if the loan depends on a floating interest rate and try to move the loan to another lender. This is something you can clarify with the bank before taking out a loan.

Since the lending deal is open to re-setting and the money market clause, the bank usually can adjust the rates later if the loan was taken at a fixed rate of interest.

The negotiation while availing of a home loan

You will be shocked to know the advantages you might get from the bank, by negotiating for your home loan, particularly in these testing periods where demand is deficient and financial institutions are likely to be more forthcoming.

You may be able to persuade the banks to waive the transfer fee or other fees that they usually charge. A decent credit score will also help you get some interest rate relief on your home loan.

Documents for a home loan

Almost all banks demand similar documents to process your home loan request. These include:

  • Passport size photos
  • Proof of identity: Voter ID card, passport, Aadhaar card, driving licence, ration card, utility bills.
  • Proof of address: Passport, Aadhaar card, driving licence, ration card, utility bills.
  • Proof of income: Statements of bank account, income tax returns, PAN details, employment certificate
  • Property documents: Agreement to sale, builder-buyer agreement, sale deed, non-encumbrance certificate, property tax payment receipts, etc.

The bottom line

While almost all nationalized banks have similar features to offer for home loans, it still depends a lot on the borrowers on what kind of service they receive from the banks. A good CIBIL score, past repayment behaviours, transaction in the accounts and relation with the bank are a few of the crucial points to remember while availing of a home loan.

To make the whole process more hassle-free, real estate companies in India are now partnering with banks and NBFCs to offer home loans to homebuyers without running errands for home loans