Well, you have made up your mind to buy a house on finance. And now you are looking for a housing finance company (HFC) that can finance the amount required to buy the property. Rest assured, there are a number of HFCs in the market who are more than eager to finance that elusive roof over your head, provided of course you have a constant income level over 2-3 years.
The number of HFCs in the market is increasing rapidly and each of these HFCs is known for making tall claims about excellent service standards, quick processing with the added advantage of lower interest rates. All this noise makes it very difficult for the home-seeker to decide in favour of a particular HFC.
Here are some tips that may help you in evaluating the HFC before you decide to go ahead with the home loan.
Home loans are typically long term commitments and some of the issues that will matter over the long run are the financing cost, branch network, doorstep services, collateral, flexibility in repayment options and the way the HFC calculates your loan eligibility.
Lets evaluate these factors one by one:
Actual cost of financing
The cost of home loan is an ingredient of following charges:
Processing fee: This is charged by housing finance company to process your loan and it is generally in the range of 0.5% - 2% in the industry. The cheque for this amount is collected upfront by HFC.
Administrative fee: This is charged by HFCs when a loan seeker has accepted the home loan offer and disbursement is due. This charge is also in the range of 0.5% - 2%.
Prepayment charges: This charge is levied on foreclosure of the loan and it ranges from 1% to 3% of the loan amount pre-paid.
So, choose a HFC that offers you the lowest actual financing cost, factoring in the interest cost and other upfront charges incurred while applying for a loan.
Higher Loan amount
The financed amount and the way HFCs compute your eligibility is not common across the board. Some HFC may offer higher loan than others. This happens because some may consider all your income and some may exclude a few income heads while calculating your loan eligibility.
So, choose a lender that provides you the highest possible loan amount. This will reduce the financial burden of making the down payment.
Service standards
This is one of the most important factors that should help you narrow down to a particular HFC. There are HFCs that offer value-added service, like helping you identify property, collecting documents from your home, etc. that too free of cost, thereby making the loan process simple and easy. Give preference to such HFCs but never get carried away with the freebies offered or promised.
Geographical presence
The branch network of the HFC also plays an important role and this factor could tilt the balance in favour of the HFC with a wider presence vis-à-vis smaller HFCs. You never know because of your professional commitments you might have to relocate to a new city and if the housing finance company has a branch in that city, it always helps.
Collateral
Collateral is basically a guarantee. HFCs ask for the guarantee by way of hypothecation of the property to be financed. There is no need to provide an extra collateral in case the asset you are buying from the loan proceeds is hypothecated to the lender. But some HFCs do ask for equitable mortgage of your insurance policy or any such asset for the purpose.
Past relationship with the financer
Always give preference to your current financier or bank. It is easier to get a loan there because they already have your credit history and you can use your past relationship to extract a better deal in a shorter time frame than otherwise.
Re-payment options
Today the housing finance industry is skewed in favour of consumers. Home-seekers are getting everything on their wish list right from low interest rates to flexibility in the prepayment options with tailor-made schemes matching each individual’s need. Some of these are Step Up EMI, Step Down EMI, and Balloon Payment etc.
So make sure that the HFC that you have chosen (or plan to choose) has all or most of these options.
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