You have finally selected your dream home. All you have to do is find a bank which offers you a home loan. You earn a good income and are confident of getting your loan sanctioned. But there is a small problem. The bank charges you a processing fee on the home loan. This processing fee is as high as 0.5-1% of the amount of home loan you avail. Your dream home costs INR 50 Lakhs. The processing fee could be as high as INR 50,000. Worse…The processing fee is non refundable. This is when a friend tells you, that his bank does not charge a loan processing fee. Should you avail a home loan from the bank, where your friend has availed his home loan?
Many banks and Housing Finance Companies, launch aggressive marketing campaigns. Banks and Housing Finance Companies offer to waive processing fees on loans, to lure new customers. Is this good for you or just a marketing gimmick? Should you look for hidden fees and charges? Many banks charge you a processing fee, when you apply for a loan. Some banks waive off these processing fees. So which banks are better? Those which have processing fees, or those which waive off processing fees on loans.
You check with your friend’s bank and find you are not charged a processing fee on the home loan. However there is a small catch. The bank no doubt waives off the processing fee. Instead it charges you, valuation fees and legal fees. Banks make a check of the property you plan to purchase and thoroughly investigate the title (check ownership) of the property, before sanctioning your home loan.
Banks check the title deed, encumbrance certificate, sale deed and if the land is DC converted. They charge a fee for these services, called a legal fee. Banks also prepare a valuation report of the property and charge a fee for this, called valuation fee. Your friends bank charges you legal and valuation fees, which are non refundable. Your home loan is not that cheap. Your processing fees might be waived off, but the legal and valuation fees which are non refundable, are not waived off.
You have to pay a processing fee when you apply for a home loan. This processing fee is not refunded by the bank, even if your home loan application is rejected. Seems unfair….But banks have expenses while processing your home loan which they have to pay, irrespective of whether your home loan is sanctioned or not. If banks do a due diligence check (check the property documents) and find they are not up to the mark, they will reject your home loan application. Why should banks suffer for your mistake?
So why you don’t want to pay home loan processing fees? This is simple. Processing fees can be as high as 0.5-1% of the quantum of home loan availed. If you need to avail INR 50 Lakhs for your home loan, you would have to pay a processing fee of INR 50,000 which is non refundable. This is quite a sum. If you are not sure your home loan would be approved, you prefer not to pay the home loan processing fee.
You must check the interest rate offered on the home loan and the tenure of repayment. If the interest rate on the home loan is high, a waiver on the processing fee is not of much use. If a bank offers you a higher amount of loan, or a longer tenure to repay the home loan, you must opt for this bank instead of a waiver on the processing fee. There is also an important factor while selecting the bank to avail the home loan. If the bank takes too long to process your home loan, you might lose the opportunity to purchase your dream home. Someone else may buy it. You must avail a home loan from a bank, which processes your home loan real fast.
So there are more important things in a loan besides the loan processing fees.
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