In October 2016, The Reserve Bank of India (RBI) took a revolutionary step by increasing the amount of money that banks could lend for the purchase of property in India. The central bank also reduced the risk factors attached to such loans, and the focus was clearly on providing a boost to an otherwise struggling real estate market in the country.
Earlier, the loan-to-value ratio (LTV) was 90% for home loans of Rs. 20 lakhs only, but after this announcement,this is now possible for loans of up to Rs. 30 lakhs. This means the buyers need to put only 10% of the total amount to purchase the property from their own pocket, while 90% is paid for through financing from banks.
This did have a positive impact, given thathousing loans in India saw growth of 10.4% in the last weeks of September 2016, as compared to the previous year. Overall, there has been growth of 13.01% from 2012 to 2016. The reduction of risk-weights has also increased the lending ability of banks in the country.
If you are planning to take a home loan in the near future, keep these things in mind to choose the right lender:
It is easier to get funding for an already constructed home than to build a house on a plot. In the latter case, you may have to pay a higher rate of interest, since there are fewer options. Another aspect that comes into play is whether you are buying the house to live or for rental purposes.
The Amount to Be Borrowed
The amount of money you can get as loan depends upon your monthly income and the value of the property you wish to purchase. In most cases, people look for 70%-80% of the total amount needed for purchase but to be eligible for that, different providers have different criteria.
These criteria could include your occupation, disposable income and the number of dependents, etc. Also, remember that if you want a large sum, then the down payment may be lower but the EMI would be higher. Your credit card history should also be up to the mark to be eligible for a loan.
This is the amount that banks deduct for processing the loan. It can be anywhere between 0.25% to 2% of the loan amount. This it may not seem like a large amount but when you take into consideration the amount of money you are borrowing, it might just add up to a lot.
For example, at 0.50% for a loan of Rs. 50 lakhs, you will have to pay Rs. 25,000 as processing fees and at 1% you’ll have to pay Rs. 50,000 for the same borrowed amount. This can affect your budget. Most lenders also have certain terms and conditions pertaining to prepayment that you should be aware of.
Responsiveness to Change in Rates
You should look to balance out the current deal with the future benefits that you expect to get. The RBI does change its policies from time to time and the lender should be highly responsive to such changes. For example, there should be a reduction in rates in response to a cut in the repo rate by the RBI. This not only gives you the best deal in the market but also a fair deal.
The time taken to approve and disburse loans varies from bank to bank,which has a direct impact on your plans. On an average, a bank may take four to five days to sanction a housing loan in India, if the proper documents are submitted. If the time taken is more than that, there might be a rise in the property rates in the interim period, which will force you to pay more than you initially expected to.
So, the urgency to get a home loan also plays a part in choosing the lender. Also, make sure that the lender has a good tracking system and provides you with regular bank statements and interest certificates on time.
This where things might get a little tricky. Most banks increase the repayment period to up to 30 years to enhance your eligibility but you may end up paying a higher amount as interest in this case.
So, before choosing the lender, you also need to value your own repayment capability and intention. If the repayment is made through another home loan, then you’ll also end up paying a prepayment penalty and the amount will depend on whether the loan was at a floating rate or a fixed rate.
This factor comes into play only when you have decided to invest in property that is far from your current place of residence or workplace. In this case, you should look for a lender that has a branch in both the places. It will be more convenient for you in future as well.
Thanks to the efforts by the RBI, getting a housing loan in India is not as difficult as it was some years ago. However, you still need to read the fine print before signing on the dotted line.