Tuesday, December 1, 2015

Getting Prepped to Buy Your Dream home – Part 2

Buying a home is a “Dream” for most of us and most likely involves applying for a home loan to fund the purchase – isn’t it? Buying a house is supposed to be a pleasurable experience but applying for a loan and all of the processing associated with it as well as dealing with your builder can make the experience far from pleasurable.

In the previous article we covered unplanned expenses from the Builders Side of the world. Next is the Banks side of the world. As you negotiate with your bank to get your home loan, there may be many fees and charges you  wouldn't know and if you add all of them up, it could be a sizeable amount.

Unplanned Fees and Charges for the Loan – Bank Side

The below are some of the fees & charges that you may have to pay-up as part of signing up for the home loan. Most of the times, people are unaware of these kind of charges and end up having to worry about the same once the loan processing starts. If we total up all of these charges, you may have to shell out an extra Rs. 50,000/- to 1 lac depending on your loan amount as well as the bank. But still, this is not a small amount and its always better to be prepared than be surprised with a sudden expenditure.

Loan Application & Processing Fee

Even though you are going to pay a ton of interest while you actually repay the loan over the next 10 to 20 years, Banks usually charge you an upfront Application Fee as well as Processing Fee. This fee pattern varies from bank to bank. Some banks charge either or both fees and even the amount they charge would vary,

If you are signing up for the loan during some festive offer from the bank or something similar, your application may be accepted without fees. But, the chances of this are quite low and you gotta be on the lookout for such offers and grab them when they come up. Unfortunately, buying a house is a carefully planned decision and you cant just sign-up for a loan because the bank has a deal going on. You need a corresponding house that you like and can afford – right?

Realistically, You can expect an application fee ranging between Rs. 1000/- to Rs. 5000/-. Similarly, the Processing Fee could range from Rs. 5,000 – Rs. 15,000 depending on the bank. Some private lenders even charge up to 1% of the loan amount as processing fee depending on your profile, how much loan you are requesting and your credit history. If your CIBIL Credit Score isn’t so good and if you couldn't get a loan from a regular bank and you approach a private lender, they may take advantage of the situation and add this kind of hefty fees.
Tip: When you are talking to the agent from the bank who is helping you process the loan, try to negotiate on a better deal. If you have all the requisite documents like Tax Returns, Pay slip etc and your CIBIL Score is good, there is a good chance the bank is going to approve your loan. If the agent knows your loan will go through, they may agree to offer you a small discount on this processing fee because they wouldn't want to lose a confirmed business. Their payment is based on success rate and if I knew you are a guaranteed loan customer, I wouldn't mind offering you a small discount to make sure you sign-up for the loan with me because – based on your credentials, getting a loan from any bank would be easy…

Administrative and Legal Fees

This is basically the cost the bank incurs in administrative expenses in processing your loan as well as in reviewing the legal documents of your property. Most banks usually do not charge you this Administrative and/or Legal Fees and absorb it as part of the general processing fee they charged you already. But, some of the lenders may expect you to pay-up this fees.

Tip: Do your homework. Try to negotiate with the bank and highlight the fact that other banks aren’t charging this fee and you aren’t interested in paying this fee. Make sure you have a product brochure or proof that some other bank isn’t charging you this fee so that you can do the bargain. If you don't do your homework and the agent asks you “so, which bank isn’t charging you this fee” you wouldn't be able to answer and your power to negotiate will be significantly compromised.

Property Evaluation Fees

If the loan value is very high (usually above 1 crore) banks/lenders are extra cautious before they grant the loan. Usually they have two or more valuations done for the property and only the lower of the valuations is considered as property value. Usually banks factor-in one valuation fee in the loans processing cost for the bank but the second may be extra. In such a case, the bank may ask the customer to pay-up for the additional evaluations they did on the property.

Tip: The higher the loan amount, the more interest the bank is going to earn on the loan. As a high-value loan customer, banks usually would try to be cautious in terms of charging unnecessary fees that may irritate some customers. However, they do try to make the extra buck. Remember to negotiate and highlight the fact that your loan is for a huge amount and they are trying to get you to pay up such a small amount which could be easily waived off by some other banks.

Franking Fee on the Sale & Loan Agreement

This fee actually varies from state to state in India and what I write here may not be applicable if you live in a state where this fees aren’t charged. As part of the registration of the “Sale Agreement” and the “Loan Agreement” most states would charge you this fees.

The fee on the sale agreement is usually around 0.1% of the property cost and has an upper limit of Rs. 20,000/- similarly the fee on the loan agreement is around 0.1% to 0.2% of the loan amount payable.

Tip: The bank would most likely expect you to pay-up for the loan agreement fee since the amount may run into many thousands however you may be able to negotiate with the builder/seller to absorb the sale agreement fee. 0.1% of 75 lakhs property works out to about Rs. 7,500/- and considering the fact that you are providing business worth 75 lakhs to the builder, you may be able to negotiate this small amount. It all boils down to how well you can negotiate.

Notarization Charges

If you are an NRI and are applying for the loan from abroad, the bank may expect you to get all your documents notarized by the Indian Embassy or a local Notary near you. This is basically done by the bank to ensure that someone verifies that you are in possession of the original documents while submitting the copies. Most folks who are eligible to notarise documents would charge you a small fee for doing so.

Tip: If you are in India at the time of the loan processing, you may be able to avoid this fees but make sure to submit all documents in one shot to avoid having to get notarizations on one document because the notary is going to charge you the fee irrespective of whether you have 1 document or 10.

ECS & Other Documentation Fees

Ok, this one is actually quite ridiculous but for the sake of completeness I have to mention this. once your home loan is approved, most likely you will be asked to take up an ECS Mandate wherein the bank will automatically deduct the monthly EMI from your account. If your bank account and the home loan are from different banks, there is a chance you may be asked for a small fee for the bank to set-up this ECS Mandate. Most Banks would not charge you this but just be careful, a small fee of a few hundred rupees may get added into your transaction for setting up the ECS facility.

Important Note: All fees attract a service tax amount of additional 14% levied on the fee amount.

Hope you found this article useful. If you did, do share this in social media (facebook/twitter/google) so your friends and contacts could benefit from this information too…

Happy Home Buying!!!

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