For a house-hunter, next to zeroing in on the dream home, obtaining a home loan is the toughest hurdle that he or she has to cross. How would you like it if you have the loan in your pocket even before you approach the developer to negotiate?
Banks and housing finance companies are now offering home-seekers pre-approved home loans or loans for property that have not been identified. While it sounds like an inviting proposition, there may be some not-so-exciting features that you should need to be aware of.
The procedure for a pre-approved loan is largely similar to a regular home loan application — you need to submit the documents asked for to the bank along with the processing fee.
These will include — depending on whether the applicant is a salaried individual , self-employed professional or entrepreneur — identity and residence proofs, the latest salary slip, Form 16, past six months’ bank statement, past three years’ income-tax returns (self and business) as well as profit/loss statements and balance sheet, certificate and proof of business existence and so on. However, a desirable income level is not the only criterion.
Your repayment capacity, too, is a critical parameter. “We take into account the loan-seeker’s income-toobligation ratio. Hypothetically, if the applicant’s income is Rs 1 lakh, his total repayment outgo should not be more than Rs 55,000-60 ,000,” explains Kamlesh Rao, executive vice-president , retail assets, Kotak Mahindra Bank.
Even after your loan is sanctioned, the disbursal will take place only after you identify a property that passes the lender’s due diligence test. “There is no typical period within which the loanseeker is required to avail of the disbursement. However, we keep the file open for six months and if the applicant does not act within this period, we send reminders to the individual,” informs an HDFC spokesperson. The validity period varies with each bank.
For instance, State Bank of India, which has been publicising this facility of late, requires the borrower to identify the property within 60 days for the sanction to be valid. “Interest rate, though, cannot be locked-in — the rate prevalent at the time of disbursal will be the effective rate,” says the HDFC spokesperson. Adds Kotak Mahindra’s Rao: “In the case of a sanction, the validity could range from 1-3 months.
We, at Kotak, prefer a period of one month.” While the interest rate may change at the time of disbursal, the spread over the bank’s base rate will not be altered for the borrower, unless a significant period of time has elapsed.
Buying a property typically involves a mountain of paperwork — with the builder and, later, with the lender. Availing of a pre-approved loan would mean that at least one part of it is taken care of. “The borrower’s creditworthiness is established already and this helps in negotiating on rates with the builders.
Secondly, your total transaction turnaround time comes down,” explains Rao. Also, banks provide advice to home-seekers on properties that may meet their criteria. Moreover, lenders have tie-ups with builders for various projects. “In the event of the borrower (with a preapproved home loan) finding it difficult to make a decision, the bank may direct him/her to the right kind of project. Thus, if both the loan as well as the project is pre-approved , the processing procedure will be much shorter,” he adds.
So, if you have identified a good deal which is dependent on how soon you arrange for funds, a pre-approved home loan will come in handy. “For the borrower , the key advantage is that he knows his eligibility. Some builders acknowledge those with pre-approved home loans as serious buyers, and this may strengthen your bargaining power when you sit across the table to negotiate,” reasons the HDFC spokesperson. Such schemes also merit consideration in case the bank’s procedure of disbursing the loan is likely to be a long drawn out one.
However, bear in mind that it is certainly not a win-win situation always. What you stand to lose if you decide to defer your purchase or avail of a loan from another lender is the processing charge. “The processing fee is not refunded under any circumstance.
In case of HDFC, it is 0.5% of the loan amount or Rs 10,000, whichever is lower,” informs the HDFC spokesperson. “We retain 0.25% of the loan amount or Rs 5,000,” says Rao. Therefore, you need to factor in the uncertainty regarding the actual disbursement while signing up for such loans. Even if you do make the decision within the prescribed cut-off date, the disbursal may be stalled in case the bank does not find the property to be suitable.
In short, though these schemes score high on utility, they may not be suited for all. You could consider these schemes if you are comfortable with the prevailing rate of interest, the amount required for down payment is in place and you have already narrowed downyoursearch to a particular locality , the size as well as the kind of apartment and the developer. If you are starting from scratch, it would be probably safer to finalise the property before proceeding with the loan-related paperwork.
[ Source: Economic Times]