Home Loan Provider in India is normally finalized based on the reference or word of mouth. There is no harm in taking references or feedback from friends and family members. It helps in better decision-making. In most of the cases, it is the builder who decides Home Loan Provider of a buyer. He has vested interest in this entire process as builder receive cut or commission to promote particular Home Loan Provider. Secondly, he doesn’t want you to initiate Title Search or Legal Check Process again. Some of the common tactics of the builder to pressurize buyer are Documentation, Payment Deadlines or everyone else is availing Home Loan from same Home Loan Provider. In the financial world, Trust and Pressure are 2 biggest enemies of an investor. I am not saying that you should not trust anyone. But, the final decision should be yours and after your own due diligence. If you will allow someone else to take decisions on your behalf or take any decision under pressure then you will end up losing in financial terms.
While finalizing Home Loan Provider, everyone has a different criterion. Some people prefer convenience while others are more particular about the interest rate. Everyone has it own priority list. In one of the case, my client was availing a home loan of 1.5 Cr but most of the Home Loan Providers refused. One of the small Housing Finance Company i.e. HFC A agreed to provide Home Loan. If i go and ask him which is the best Home Loan Provider then his obvious choice will be HFC A. His priority was different and yours & mine might be different. Therefore, it is very critical that we should take logical, scientific and pragmatic approach towards this exercise. As a borrower, you may face the host of problems while availing Home Loan. If you pose the right set of questions to your Home Loan Provider then you can avoid most of these issues at letter stages. Secondly, in most of the cases borrower is dealing with an agent of a Home Loan Provider. These poor guys don’t know much. It is always advisable to deal with an employee of a Home Loan Provider. Till you apply for a home loan entire process looks like a cake walk as most of the details are not disclosed to the borrower. The real problem starts when you submit Home Loan application to Home Loan Provider and processing fees cheque is encashed.
8 Ques You Should Ask Home Loan Provider
1. What is Disbursement / Home Loan Process?
Before you apply for Home Loan, it is critical to understand the complete Home Loan Process. In my post on 6 Steps of Home Loan Process, i highlighted general process. In some states, Home Loan Provider follow the different process than a standard one. For example, in Mumbai or Maharashtra Sub-Registrar hand over the original copy of sale deed after 3 days. In this case, some home loan providers don’t release final disbursement till original documents are received. Now most of the sellers are not comfortable with this process and there is a possibility of fraud. Another example is related to builder NOC. Typical scenario is that the property is registered in the name of a buyer but the association / society is not formed. Some Home Loan Providers demand builder NOC if you are transferring Home Loan or availing fresh Home Loan. As per the ruling of the state Govt, builder NOC is not required in such cases. You should clarify all the nitty gritty related to Home Loan process before applying for Home Loan.
2. Is there any Financial Product Bundled with the Home Loan?
Normally Home Loan Provider trap the customer before final disbursement. They put a pre-condition to opt for Home Loan Protection Plan. In my post, 7 Reasons why should not buy Home Loan Protection Plan i explained in detail. Most of the borrowers are not aware of the details of this group policy. It is one of the costliest insurance available in the market. Another trap is that the agent will try to convince you that you need not pay any premium and it will be included in your Home Loan amount. A poor borrower doesn’t know that if he is paying the premium through EMI then he is also paying the interest of 10% on the premium amount. In short, he is paying additional interest towards insurance premium. As per IRDA guidelines, bundling of financial products is illegal. Moreover, if Home Loan Provider insist on compulsory insurance then you can always share reference of IRDA guidelines. If Home Loan Provider still insist you can say that you will return the policy during free look up period.
3. How Interest Rate is Calculated?
The interest calculation is not transparent for few Home Loan Provider specially Housing Finance Companies. Best example i can think is of one of the leading Housing Finance Company. When you avail Home Loan from this HFC, the interest rate is 10.10% which is only fixed for 2 years. It is not disclosed to the borrower what will be the interest rate after 2 years i.e. when Home Loan will shift from fixed to floating. If everything remains same for 2 years, your interest rate will be between 11.75% to 12% after 2 years. In short, its a unfair practice not to declare what will spread on Benchmark rate after floating interest period is over. Customer gets the shock of the life after 2 years when the interest rate shift from fixed to floating interest rate. In some cases, discounted interest rate is only valid for short duration say 3 months / 6 months. You should understand how the interest is calculated against benchmark rate of the Bank or HFC. It is always advisable to compare the interest rate movement of various Home Loan Provider for last 5 years to get a fair idea of transparency in Interest Rates.
4. What are hidden Charges?
If someone ask me What are hidden charges? I say that they are “Hidden” :). I am just kidding, It is advisable to put all the charges in black and white. Either Home Loan Provider can share a printed page or you can send a mail based on your discussion with an employee of bank / HFC. I shared most common 15 Home Loan Hidden Charges Banks Don’t Tell. Borrowers are under the impression that they cannot negotiate on these charges, but some charges are in Banks / HFC’s control. For example, recently i advised my client to negotiate Home Loan Processing fees for 1 Cr Home Loan. HFC agreed to reduce it from 0.5% to 0.25%. Only point is you need to play your cards well.
5. Can i check Home Loan Agreement copy?
Though Home Loan agreement is standard but it is advisable to go through the same. It is critical if you are availing Home Loan under Subvention Scheme or under some special scheme. It will help you to understand every possible scenario. For some Home Loan providers, it is available on their website, still you may demand the same from the employee of bank / HFC.
6. When was the due diligence of the project done?
Recently, i came across a case wherein one of the HFC disbursed loan of a borrower for a reputed project in Greater Noida. After making payment borrower came to know that 6 months before the disbursement, the court ordered “ban on the sale of flats in the same project”. Normally in such cases, the Banks / HFC’s conduct due diligence at the time of launch of project and after that they simply approve without checking latest developments. Therefore, i have suggested in my post 5 Myths about Pre-Approved Project that such projects are legally not safe. You should only buy in a project which is approved by minimum 5-6 banks and HFC’s. Normally, Builders take approval from 1 small player and then push the buyer to avail Home Loan from same Home Loan Provider. If your Home Loan provider completed due diligence more than 6 months back, it is advisable to opt for some other bank.
7. What will happen if my Home Loan Eligibility fall short of my requirement?
Now this is the very crucial point. if you have not availed pre-approved home loan then there is a possibility that your Home Loan Eligibility may fall short of your requirement. Many of my clients stuck at this point and they have to run around to arrange for the shortfall. In my post, How Home Loan Eligibility is Fixed? i explained that it vary from bank to bank. Some banks / HFC’s offer top up or Home Improvement loan in such a scenario. Therefore, it is critical to discuss this point beforehand so that you should have clarity on same.
8. Do you need Co-Borrower / Guarantor / Co-Applicant?
As i highlighted in my post, Beware of being a Home Loan Co-Applicant that you should avoid the same. Co-Borrower or Co-Applicant should be added only if the co-applicant is co-owner of the property, you want higher home loan eligibility or wish to avail tax benefits for both. I personally don’t suggest co-applicant / co-borrower until unless absolutely necessary. Most of the banks insist on the same therefore, it is advisable to check beforehand.
Word of caution: Entire communication with bank / HFC should be documented through email to avoid any confusion in future. In this post, i tried to cover most of the common points, which have wider financial implications. I can mention many more such points, but they may or may not be relevant for everyone. Be cautious while dealing with your Home Loan Provider.
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