Home loan process: Here are 10 charges you need to pay
Lenders levy various charges on the home loan that the borrower has to pay. Often, borrowers are not even aware of most of these charges. It is important to read all the documents carefully before applying for a home loan.
When you purchase a home loan and make payments in Equated Monthly Installment or EMI, you must pay several charges. The charges vary across banks, home finance companies and non-banking finance companies. Additionally, some lenders may charge a separate fee or combine other charges. While some costs are of a fixed amount, some charges are a percentage of the total amount of the home loan. Others are calculated as a percentage share of the home loan amount. It is essential to be aware of these charges, as these charges increase the cost of your home loan.
Also known as the application fee, this is an initial charge that the lender levies for scrutinising the loan application. At this stage, the lender analyses whether the loan application has accurate information along with the relevant documents required for further processing.
During the credit underwriting process, a loan application is evaluated on several parameters, including KYC verification, financial evaluation, employment verification, residence and office address verification, credit history assessment etc. The lender recovers the cost involved with this mechanism through processing fees. Some lenders charge a similar price as a processing fee, while others usually charge up to 2 per cent of the loan amount.
Technical Appraisal Fee
Lenders hire technical experts to assess the property's physical health and market value for which the home loan is taken. These experts assess the property on a series of parameters which include building specifications, statutory approval, layout approval, compliance with construction norms, etc. They also determine the property's market value through various means, including the cost of land and construction cost. While most lenders include this charge in their processing fee, some lenders charge it separately.
All lenders also check whether the property for which the borrower is taking the loan is not embroiled in any legal dispute before granting the loan. For this, they hire legal experts. These legal experts scrutinize the relevant legal aspects like title deed, property devaluation, no objection certificate, occupancy certificate, etc. After that, they give their final opinion to the lender as to whether the loan should be issued against this property or not.
Franking involves getting your home loan agreement stamped using a machine, which thus confirms that you have paid the required stamp duty. The home loan agreement's franking is usually done by banks or government's authorized agencies. This fee is applicable only in some states like Maharashtra and Karnataka. The franking charges are generally 0.1 per cent of the home loan value.
After disbursement of the home loan, if the borrower is late in getting possession of the house, the lender charges a simple interest called pre-EMI till the borrower acquires possession of the property. The EMI payment will start after that.
These charges will be collected by the lender on behalf of the government agencies in the process of availing of the home loan. These costs are primarily in the shape of stamp duty and GST are collected by the lender and paid to the government.
Approval of a home loan application comes with a limited validity period. If your loan is approved, but are unable to make the disbursements for a more extended period, the lender will go for a re-appraisal of your loan application. This period varies across lenders and can usually be up to six months. For example, HDFC charges a re-appraisal fee of Rs 2,000 in cases where the initial approval of six months expires.
Many lenders ask borrowers to take home loan insurance against damages arising from physical damage to the property. Some lenders urge individuals who have availed a loan to take the advantage of debt-protection life insurance policies so that their legal heirs do not have to worry about outstanding loans if something happens to the borrower. So, suppose you decide to take an insurance policy along with a home loan. In that case, you will need to pay an insurance premium -- this is often a single premium policy that lenders are often willing to finance.
If you are an NRI availing a home loan, you may have to do some additional paperwork. Your KYC documents and Power of Attorney needs to be notarized by the Indian Embassy or local notary available abroad. You will have to pay the applicable fee.