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How To Choose A Home Loan Lender

Do you know how to choose "the best" home loan lender for your needs? If you choose only on the basis of lowest interest rates, you might be making a mistake. This is because its equally important to consider other criteria, especially softer issues like service and speed.

Lets take a stylized example to understand this better:

Anita wants to buy a home, but the price offered to her is valid only for the next month. Anita also needs a home loan to make this purchase, and she narrows down on a lender called Bank X because it is offering her the cheapest interest rate. When she asked her colleagues about their experience with Bank X, most warned her not to go to this lender because this lender is always delayed with disbursements. When Anita shares this with Bank X, they dismiss this feedback and claim that her loan will be sanctioned and disbursed on time. So, she sticks with Bank X because the cheapest interest rate is still very appealing to her.

A few weeks pass and Anita does not have any visibility on when her loan will be sanctioned. Meanwhile the month is about to finish, and the seller of the home informs Anita that their offer price is valid only for another week. Anita rushes to the Bank X pleading for a speedy sanction and disbursal, but the Bank pushes back saying there is a delay of two weeks because of some missing documents. However, Anita is confident that she was never asked for these documents in the first place.

By the time the loan finally gets disbursed, the seller has raised the price of the house. As a result, Anita is forced to pay a higher amount just because her loan was delayed.

While this is example is fictional, the reality is that there are numerous customers who lose out on their property deals due to delays and complications at their lender. For sure its important to get a good interest rate, but generally speaking most banks will be very close to each other on rates. As long as the difference between rates is not too high, you must evaluate your lender on the following key points:

1. Speed of processing: You should deal with a lender who is quick to process your application and not one who creates delays. Ask your friends who have dealt with the same lender about the speed with which their loan was processed. Typically, it takes about 10 to 14 working days for the processing of a home loan if you have all the documents in order. However, it is advisable not to take this timeline at face value. Ask existing customers within your circle of friends and colleagues about their experience.


2. Speed of disbursal: Once your loan is approved you want the loan amount to be disbursed quickly. Once again, its best if you ask around in your network if your chosen lender has a reputation of fulfilling its commitments on time. Lenders claim that disbursal of the loan amount takes an additional 2 to 3 days after loan sanctioning. Factor in enough time so that an unexpected delay, like say a public holiday or bank holiday, does not affect your transaction.


3. Convenience: You want a lender who offers convenience and high service levels across the tenure of the loan. Your initial experience with the lender, at the time of your first few interactions, will be representative of the relationship you may have with them in the future. In case your initial experience has been bad at a time when they should be going all out to please you to get your business, chances are that it is not a service-oriented company.


4. Loan amount qualification: The loan amount that is approved for you can vary from lender to lender because of internal lending criteria such as your job profile and age. For instance, some lenders prefer salaried employees, because their salary slips and tax returns are easy to understand during the underwriting process. On the other hand, the process for self-employed or freelance professionals might take much longer at certain lenders because the amount of underwriting diligence that needs to be conducted might be time consuming.


5. Repayment terms: There are certain repayment terms and conditions that a lender imposes. You must clarify these conditions before finalising a lender. Some of these are:
   
   
   • Whether there is a penalty for settlement or foreclosing of the outstanding loan amount with the lender or not.
   
   
   • How much fees are you charged for transferring your balance amount to another lender.
   
   
   • Whether there are any prepayment charges or not.
   
   

   Loan repayment need not be a primary consideration but recognise that it is a criteria worth understanding at the time of applying for the home loan to avoid problems later.

No one wants to pay a higher EMI or interest rate than what they could get in the market. But recognize that if you only use a cheap rate as a criteria, you might be hit with some other delay or cost that might turn out to be more expensive in the long run than the benefit that the cheap interest offers you today.

Comments

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Dev said : 03/04/2010	Nice Article. Really helpful for ones interested in home loans.