Guide to all kinds of fees you need to pay to buy house Latest News

If you are a loan applicant or an existing borrower, chances are you have paid up a series of fees to your lending institution; sometimes without being aware of these during the application process. However, you are not the only one who has been at the receiving end of this unpleasant surprise. Most home loan applicants have often failed to read the fine print, beginning with the processing fee.

Fee-l let down?

Recently, a leading bank announced it would be charging a processing fee for home loans, top-up plans, and loans to corporates and real estate companies. The bank’s internal circular mentioned that the full waiver of consolidated processing fee offered during the festival period for loan proposals sourced up to December 31, 2019, was withdrawn. The bank is now charging 0.4 per cent of the loan amount, according to sources.

While the bank’s decision came on the heels of its linking its lending rate to the benchmark repo rate post which the bank faced a sharp dip in its interest income, finance experts are of the opinion that it is the discretion of lending institutions to either waive off or introduce certain fees in the application process. They also emphasise that the payment of these fees is not a guarantee to the loan sanction.

Need for a fee:

With borrowers having to contend with their EMI payment, these additional charges levied by lending institutions seem unfair because a few lenders actually waive them off.

Mukesh Jain, corporate lawyer and founder, Mukesh Jain & Associates throws more light on the revival of these levies.

“Until recently, banks were not fully passing the benefit of reduction in repo rates by Reserve Bank of India (RBI) to the borrowers. Instead, the policies of various lenders were quite arbitrary. Different rules were followed for realignment of rates for housing and other personal loans as compared to other borrowers. Distinction was also made between existing and new personal loan accounts. The rationale was that while the changes in the lending rates became immediately effective, the rates of interest on term deposits would effectuate only on renewal of the existing term deposits. Recently, RBI mandated the banks to pass the benefit of repo rate revision fully and immediately to the borrowers to ensure seamless delivery of the policy-driven gains to the micro level. This will create a lag effect and put pressure on the Net Interest Margin (NIM) of banks. Hence, the lenders have revived the practice of levying processing and other upfront charges to mitigate the above lag effect. It may be deemed to be immoral to levy processing fee as lending inherently involves processing and cannot be charged as a service to the borrower.”

However, former banker Shubham Prabhu clarifies.

“The lender makes optimal use of manpower, time and resources during each borrower’s loan application process. This is because a number of documents need to be verified and the bank may need to hire a legal firm’s services in order to evaluate the borrower’s credibility,”

she says, adding,

“There is also the necessity to enquire about the developer’s financial capability to complete the project.”

In the case of the borrower buying a certain property where the developer has tied up with a bank, the fees could be waived off depending on the understanding between the parties, say experts.

SOME FEES LENDERS CHARGE BORROWERS:

Administration fee: It is charged at the time of the initial log-in of the file and is usually nonrefundable. Rs 5,000.

Processing fee: This is the cost of borrower’s credit appraisal and depends on the borrower’s credit history, income, loan type, etc. Some lenders split the processing fee and the fee charged after the loan is sanctioned is the ‘administration fee’. Rs 5,000 to 0.50 per cent of the loan amount depending on the borrower’s profile.

Legal and valuation fee: Most lenders employ the services of legal firms to scrutinise the borrowers’ legal documents. Most banks include this fee as part of the processing fee; some others charge it as a separate component. Rs 3,000 to Rs 5,000.

Notary fee: This fee is for Non-Resident Indians (NRI). If you are an NRI, your Know Your Customer (KYC) and Power of Attorney (PoA) are required to be notarised by the Indian Embassy or the local notary of the city where you presently reside.

Adjudication fee: If you are an NRI, before you begin the home loan application process, your notarised PoA abroad needs to be adjudicated in India before submission of the loan application to the lender.

Technical evaluation fee: If you are buying property of very high-value, some lenders conduct two evaluations and the lower of the two is considered for the sanctioning of a loan. A fee is thus charged.

Documentation fee: Some lenders charge this fee during the documentation process of getting the loan agreement signed, activation of the Electronic Clearing Service (ECS) facility, etc. Rs 500–Rs 2500.

Indemnity fee: This fee is to protect or indemnify the lender for certain risks such as the payment of property tax by the property owner, delay in receiving the building approval by the builder, etc.

Franking fee on sale agreement: A few states in India levy a stamp duty on the property sale agreement with the builder. Franking fee on loan agreement: Some states like Karnataka and Maharashtra levy this fee on the loan amount. Fire insurance fee: This is charged by most lenders who are tied up with insurance companies. Title and search fee: Fee charged when the work is done internally within the bank through their panel lawyer. Is included in the admin/ processing fee.

- Inputs by Nagesh Sharma, founder, Mera Loan Doctor