Our surprise posts on home loans have evoked a lot of curiosity. We are inundated with various questions vis-a-vis how to go about home loans. Our recent interaction with PNB Housing Finance Limited in connection to home loans has been enlightening. A common query that we are getting is what are the charges involved when you apply for a home loan.

From our experience, this is what we understand regarding fees that may be levied at the point of applying for home loan.

Processing Fee

Financial institutions levy a charge commonly called the Processing Fee for taking care of the verification and administrative expenses while processing a home loan application. This fee includes charges for procuring relevant documents, credit appraisal, borrower verification, legal and technical verification etc. Let’s look at in detail what each step means actually.

Credit Appraisal

To assess the repaying capacity of the borrower, financial institutions conduct a due diligence on various parameters like income assessment, ongoing liabilities, past repayment track record and prudency in payments. For this, they take access of various institutes which give them information on the individual’s credit score and which is also a window to his or her liabilities, accounts, credit cards, loans and their respective payment schedules.

Applicant’s Verification

It is critical to know who you are lending the money to. For this, borrowers are required to submit Know Your Customer (KYC) documents which is a norm across mortgage and financial sector. Home loan institutions verify these submitted KYC documents to confirm borrower’s identity, residence and reliability. They also conduct a field verification to the borrower’s local residence and office address to verify his or her whereabouts.

Legal and Technical Verification

Financial institutions mostly appoint independent lawyers or law firms for scrutinizing ownership of the property to assess the clear title and marketability. Technical verification is conducted where property and project plan approvals are verified with the actual site along with the valuation. In addition, a title search may be conducted at the local property registrar’s office to check whether the property in question is free from encumbrances. Charges to these ends may be passed on separately to the potential borrower.

It is important to note that, notwithstanding whether the home loan application is approved or rejected, the Processing Fee is not refundable as by then the lender has already incurred the cost. The Processing Fee varies between 0.25% to 1% of the loan amount sought. Incidentally, rarely, only in exceptional cases, the financial institution, at its discretion, may waive the Processing Fee depending upon the circumstances. Many a times, it is done with a business objective, that is to garner more business or as a promotional activity.

What we understood while discussing these charges with PNB Housing was that although financial institutions charge processing fees from applicants, yet many a times, they themselves bear the additional cost as the processing fees does not cover all the expenses.

Customers should remember that different organizations may charge different processing fees based on the loan amount. Although the fees forms a miniscule percentage of the overall transaction, yet it is imperative that customers should consider various factors before zeroing on the lender like interest rate, loan tenure, customer delivery standards and communication channels, brand vintage and also processing fees. Knowing about all these and the charges upfront helps in better decision making and in avoiding any last minute confrontations or hassles.

Enquiring about the charges involved when you apply for a home loan may be tedious but is really not much of an effort when you think about the dream home you are set to achieve.