If you have decided to purchase a new home, you may be excited about moving into your own space and living a happy life, right? At the same time, you may feel a bit overwhelmed about finding the right property to suit your exact needs, complying with all the legal processes, and applying for a home loan.
Taking a home loan is a big financial decision and a long-term commitment. It is paramount that you understand the whole process of a home loan and the different charges involved. One such important charge that you must know about is the housing loan processing fee.
Today, there are many lenders in India that offer home loans at competitive interest rates. All these lenders levy a one-time fee to facilitate your application, which is called a processing fee. Some of the home lending companies also call this fee an administrative fee, and they don’t deduct it from your monthly payments, i.e., EMI (equated monthly instalment). This means you must pay the home loan processing fee from your pocket and upfront before you get the disbursement.
If you are a first-time home loan application and not sure what processing fee of home loan meals, then this guide is just for you.
What is a home loan processing fee?
When you apply for any kind of loan with any financial institution, a bank, or an NBFC (non-banking financial company), you must pay the processing charges for a home loan. It is a standard procedure. The same charge applies to a home loan.
Typically, the lenders levy this fee to meet the different administration expenses they incur when processing your loan. The amount of home loan processing fee you pay varies from one lender to another. So, as a smart borrower, it is paramount that you do your research about different lenders well and choose the one that has the lowest processing fee.
This is important because it has a direct impact on your overall borrowing cost. When you look for the best lender online, you may find certain lenders that offers zero processing fee home loan. But be wary about such lenders as they may have high hidden fees.
Generally, most of the NBFCs in India ask you to pay the home loan processing fee right when applying for the loan. However, some lenders even give you the flexibility to deduct this amount from the home loan amount. Depending on the lender that you are applying for the home loan with, the processing fees you pay can be as high as 4% of the loan amount.
But when you apply for a home loan with reputed NBFCs like IIFL Home Loans, you can get the loan with minimal processing fees that are very low.
What are the different charges included under the home loan processing fee?
As mentioned earlier, financial organisations levy home loan charges, including processing fees, to take care of the administrative expenses to facilitate your home loan application. It includes many charges, including –
- Property assessment charges
Irrespective of whether you are applying for a home loan to purchase a ready-to-move flat or an under-construction property, the lender will definitely assess the said property to ensure that the construction is legal and if it meets the construction standards as well as the construction is in accordance with the construction laws.
They appoint a special team to conduct the assessment. They also evaluate the current financial and its appraisal value in the future. For all these assessments, the lenders incur a cost, which they recover from you through the processing fees.
- Verification charges
After you submit the home loan application form to the lender, they will conduct a thorough background check of all the details you have mentioned in the form, including your age, profession, income, employer, and financial details. In addition, they will initiate a hard inquiry into your credit history and contact the credit bureaus, like CIBIL (Credit Information Bureau India Limited), to find out your credit score.
For all these tasks, they usually rely on a third-party agency to get this information about you. This means they incur a cost for providing you with the loan. And they pass on these charges to you through processing fees to recover the cost.
- Goods and Services Tax (GST)
The Goods and Services Tax is a mandatory fee that you must pay while applying for a home loan. It is a statutory fee that is levied by the Government of India. Many lenders collect the GST as part of the processing fee itself instead of charging it separately.
Other charges involved with home loan
Apart from the processing fees, there are other home loan fees and charges that you must pay. These include:
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- Collateral evaluation charges – Rs. 3,000
- Lay payment charges – 18% per annum on the overdue loan amount
- Foreclosure charges – 5% of the amount repaid from taxes if the loan is foreclosed within 12 months of the 1st disbursement. 3% of the prepaid amount plus taxes if you foreclose the home loan after 12 months till the fixed rate tenor
- Home loan interest rates
As a home loan borrower, you must know about the different charges involved with the home loan, especially the processing fees. This is paramount as it helps you make an informed borrowing decision. Also, you must do your research well about the different home loan companies in India and choose the best one to apply for your loan. Additionally, use tools like a housing loan EMI calculator to estimate your monthly payments and better manage your financial planning.
You can consider for a home loan with top NBFCs like IIFL Home Loans and make your dream of buying a home come true in the most hassle-free way. Whether you want to buy your first home or buy a second home for investment purposes and generate rent income, you can get the loan at the most affordable interest rate.
Not to mention, you can get the loan for a period of up 30 years. Additionally, the simple eligibility criteria and the quick online and approval process can help you get a smooth borrowing experience.
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