What fees are associated with a home loan?

What are the various fees associated with a home loan application?

—Sanyam Verma

Understanding the various fees associated with a home loan application is crucial for a comprehensive view of the overall cost. Here are the key components:

Processing fees: This is a one-time, non-refundable charge payable at the time of loan application processing, typically ranging from 0.5% to 1% of the loan amount.

Legal charges and valuation fees: These cover the cost of legal scrutiny of property documents. It ensures the property is free from legal encumbrances. Legal charges vary and depend on the complexity of the legal verification process. Valuation fees involve the valuation of the property to determine its market worth. It is charged by the lender to ensure that the property’s value aligns with the loan amount sought.

Stamp duty and registration charges: These fees vary across states in India and are associated with legally registering the property in your name. Stamp duty is a state-specific charge, and registration charges are based on the property’s value.

Insurance premiums: Lenders may require you to take insurance, such as home loan insurance or mortgage protection insurance, to safeguard against unforeseen events. The premium is an additional cost that needs to be considered.

Please note there are no foreclosure/prepayment charges on home loans.

What percentage of the property’s value can I expect to be approved for a home loan?

—Name withheld on request

In the Indian market, the percentage of the property’s value that you can be approved for as a home loan typically ranges from 75% to 90%. However, this can vary based on several factors that lenders consider when assessing your eligibility.

Loan-to-Value Ratio (LTV): The LTV ratio is a critical factor influencing the loan amount. It represents the percentage of the property’s value that the lender is willing to finance. Generally, lenders in India offer an LTV ratio of 75- 90%, with 80% being a common benchmark. The remaining amount, known as the down payment, needs to be funded by the homebuyer.

Income and repayment capacity: Lenders evaluate your income to determine your repayment capacity. A higher income often results in a larger loan approval. They may consider your fixed monthly obligations, such as existing loan repayments and other liabilities, to ensure that you can comfortably manage the proposed home loan.

Credit History: Your credit score is a crucial factor. A good credit history indicates financial discipline and enhances your chances of approval for a higher loan amount. Lenders typically prefer applicants with a credit score above a specified threshold, often around 750 or higher.

Employment stability: Job stability and a steady income are pivotal. Lenders prefer borrowers with a consistent employment history.

Age and loan tenure: Your age plays a role in determining the maximum loan tenure, which, in turn, affects the loan amount. Younger applicants may have the advantage of longer loan tenures, potentially increasing the eligible loan amount.

Understanding these factors and working towards strengthening your financial profile can improve your eligibility for a higher loan amount, allowing you to make a well-informed decision.

Anuj Sharma is chief operations officer, IMGC