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How to get the best home loans in India? Tips to get the best home loan offer

Updated on March 21, 2016

How to get the best home loans in India? Tips to get the best home loan offer

Have you planned to apply for a home/housing loan? You must know the below important things before applying for a home loan. Home loans are offered by financial institutions like LIC Housing Finance, HDFC, ICICI as well as banks like SBI, Bank of Baroda, HSBC etc. Loans are granted based on factors such as borrower’s age, income/job profile, credit history etc. Generally persons working in organized sector and having a stable income are offered loans at relatively lower rates compared to those working in the unorganized sector. As home loans are granted against security of the borrower’s home, they are provided at lower rates when compared to personal loans. Below are the important things you must check before applying for a home loan

Check the percentage of loan: Check the amount of loan the bank is willing to offer. If Bank A offers only 80% of the total amount required for buying the house and bank B offers 90%, then go for bank B. However, this will be useful only if you cannot afford a large sum as down payment. If you can afford a substantial amount as down payment, then you could realize the remaining amount through loan. It’s always advisable to pay around 20% of the total amount as downpayment. This will substantially reduce the EMIs you need to pay in the long term.

Quick Approval: Time taken for the approval and loan disbursal differs from one bank to another. Choose a bank that has a simple and transparent KYC (know your customer) procedure, as well as a quick loan approval process. There are many loan agents to help you in securing loans but it’s always better to deal with the bank directly. If you could spend some of your valuable time in finding the right bank, it will save you from major hassles in future.

Credit Score: Banks will check your credit score before offering you loans. They will check your Cibil score to determine what kind of interest rate you are eligible for. Hence, it’s necessary to ensure that your credit report is updated. You must check your credit score beforehand and do whatever’s necessary to better it. Sometimes, even if you have paid off a debt in full, it may not reflect on your credit report. Such adverse markings may affect your chances of getting a loan.

Interest rate: Loan EMI consists of two components- interest on loan amount and interest on principal amount. If the rate of interest is high, a major part of the EMI goes towards meeting the interest obligation. Hence securing a low interest rate is important

Floating rate vs Fixed rate: Banks will offer two kinds of interest rates- Floating and Fixed. The former will fluctuate based on RBI signal to banks and the latter will be fixed throughout the period of the loan. Fixed rates are generally 0.5-1.5 percentage points higher than the prevailing floating rates. Floating rates may be lower but banks could increase them in future. If you wish to have a safe unchanging interest rate for the long term, you could go for a fixed interest rate. There is also a provision for switching over to floating rates after availing fixed rate for a particular term, say, 3 years

Hidden charges: Banks generally levy additional charges like processing fee, prepayment penalties, valuation fee etc. You must read the terms and conditions to check for nay hidden charges. SBI charges 0.25% of the loan amount or a minimum of Rs 1000 for loans up to Rs 25 lakh

According to the new guidelines issued by RBI, banks should not collect prepayment penalty from home loan borrowers for floating interest rates. It is also possible to transfer the loan from one bank to another.

Concession: Generally concessions are provided for Women and senior citizens. LIC Housing finance offers a special rate of 10% for female borrowers as against the normal rate of 12.25%. SBI offers a special rate of 10.10% to 10.25% for women as against 10.15% to 10.30% for other category of borrowers. Banks also provide other options like joint loan, hybrid loan etc.

Service: Check whether the bank offers good service post loan processing. A good bank must provide superior customer service. Any queries from your end must be answered promptly either through phone or email.

Compare offers from lenders: Compare loan offer from various lenders before choosing one. Banks offer attractive loans during festive period.

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