Authored by Pankaj Singh

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With some lending institutions issuing loans below the 7 percent p.a. level, it might seem like an ideal time to buy a home in India. The country’s residential market already has a large number of ready-to-move properties across categories, thereby providing buyers with ample choice. Some innovative platforms have even made it easier to find your dream home with just the touch of a button. It’s wise to purchase the property when the prices are low.

However, before you go on to purchase one, you must be very careful about your lender.

Here are some tips for you that will help in choosing the perfect lender for your soon-to-be ‘home’:

Check the interest rate and other charges

As a borrower, your first instinct will be to pick the bank that offers the lowest interest rate. That’s justifiable, as a slight change in interest reflects prominently in the long haul. However, comparing interest rates to find the best lender would only provide you with a partial view.

Banks tend to levy various other charges on home loans in the form of processing fees, technical assessment, and documentation fees. There are also high prepayment charges if you want to close the loan early. It means that, as the borrower, you could be asked to pay 25 basis points to 200 basis points of the loan amount towards these charges. Such outgoes increase your overall cost of the loan, so try to find out if the bank offers any waiver on these charges.

Does the bank offer incentives if you have a good credit score?

While the credit score has always been a primary determinant of a borrower’s creditworthiness, it can also affect the rate of interest that the bank might charge you. Certain lenders charge interest rates based on the borrower’s risk profile. Hence, a borrower with an impressive credit score may be able to avail of a cheaper home loan by selecting a bank that offers said facilities.

Is your lender trustworthy?

Akin to picking the perfect home, you also have to pick a lender with a good market reputation. When a developer falters, as it has been in some cases, the buyer invariably suffers. The same could be said about the lender. If your bank goes down because of any wrongdoings, the case might as well involve you and your loan account. This is evident from the recent high-profile fiascos. Only bank on trusted lenders.

What kind of after-sale service does the lender offer?

Buyers must also evaluate a bank based on its after-sales services as you will be dealing with the lender for a long time. For example, to claim tax deductions, you will have to get an interest certificate from your lender every year. This document has to be submitted to your employer to claim the deductions. While some banks have it sent to you via email, others require you to visit a branch to get a printed copy. Banks may also not be proactive in apprising about policy changes that may lower one’s loan liability. So, find out how forthcoming your bank is on this front.

Read the home loan terms and conditions carefully

These days, most banks promise a speedy approval of your home loan application. In many cases, you can apply online, submit your documents, and the lender would disburse the loan to you within a week. Even though this helps buyers to close the deal quickly, the proposition comes at its risks. In your eagerness to get the loan soon, you may not read the terms and conditions carefully.

Although the RBI has forbidden banks from charging a penalty on a home loan payment, if it is based on a floating interest rate, financial institutions are free to do so if you transfer the loan to a different lender. Additionally, in the case of a fixed rate of interest, the bank typically reserves the right to change the rates later. This is because the loan agreement is subject to re-setting, and the money market clause. So, discuss it with the lender beforehand.

How to negotiate while taking a housing loan

You would be surprised to know the benefits you could get from the lender by negotiating for your home loan. More so, during these trying times, when the demand is quite low and financial institutions are willing to be more forthcoming. You could convince the lender to offer you some waiver in the processing fee or other charges that they typically impose. You can also use a good credit score to get yourself some benefits with the interest as well.

Documents you need to submit with the lender for a home loan

Last but not least, almost all banks and lenders demand similar documents to process your home loan request. They include:

Passport size photos

Proof of identity: Voter ID card, passport, Aadhaar card, driving license, ration card, utility bills, etc.

Proof of address: Passport, Aadhaar card, driving license, ration card, utility bills, etc.

Income proof: Statements of bank account, income tax returns, PAN details, and employment certificate.

Property documents: Agreement to sale, sale deed, builder-buyer agreement, non-encumbrance certificate, property tax payment receipts, etc.

You must remember that choosing a lender is the first step towards a long-term relationship. Therefore, considering the aforementioned points should ease the process and pave the way to your dream home.

Pankaj Singh is Founder at Multiliving Technologies