Is it time when you fulfill your dream of buying your own home? If you have decided to get your hands on that house of your dreams, then you are probably looking to arrange money for that. When one thinks of buying a home, one immediately thinks of taking out a home loan. And if you are also one of them, then you are reading the right blog. Ok, so you have decided to opt for a house loan, but are you confused about where to get it from? Your friends and family may have guided you, shared their experiences, and probably have made you more confused. When choosing a lender, one must take into account his or her unique needs. There are two options that you can go for.
- Banks that come under Reserve Bank of India regulations
- Housing finance company Or HFC – non-banking housing finance companies that are regulated by the NHB, National Housing Bank
The regulatory environments and fund sources for bank and HFC house loans differ significantly, despite the apparent similarity. Both of them have some negatives and some positives. It is important that before you decide which one to go for, you should read about them and do proper research. Check both of their pros and cons and then make an informed decision. Before choosing, you should know about the home loans rates, tenures, borrowing process, eligibility, and other critical things.
To make things easier for you, we are listing down a list of the pros and cons of both, so that you make a wise choice as per your requirements.
Home loan from Bank
A home loan from a bank is a secured loan offered by banks that come under the regulation of RBI.
Advantages of home loan taken from the bank
Following the Reserve Bank’s margin cost of funds-based lending rate model (MCLR), banks pass interest rate changes on to borrowers more quickly.
Banks offer an overdraft facility that provides savings on the interest payments that borrowers make.
If you have a good credit score, you can easily get a home loan at attractive interest rates.
Disadvantages of home loan taken from the bank
Although banks allow a very quick and simple home loan process these days, there are a lot of documents that need to be submitted while applying for a home loan.
Banks these days have made their home loan process digital. However, sometimes it takes a lot of time to get your loan processed and the loan amount sanctioned.
If you want to get a home loan from a bank, you need to have a good credit score. Generally, banks ask for a credit score of more than 750. If you do not have this much of credit score, you might lose your opportunity of getting a home loan from any registered bank.
When you get the home loan amount sanctioned, it will not include your stamp duty charges, registration costs, and other costs that might have incurred while applying for the home loan.
Home loan from Housing Finance Company (HFC)
Depending on your needs, you may be able to get a home loan from a bank or a non-banking finance company (NBFC). In the Companies Act, Housing Finance Companies are entities registered to provide housing financing, directly or indirectly.
The Advantages of getting a home loan from Housing Finance Company
With HFC, your sanctioned home loan amount also includes stamp duty and registration costs. This increases the loan amount for the borrower.
In comparison to banks, Housing Finance Companies are less strict in terms of credit scores. But if you have a low credit score, they might give you a home loan at a higher interest rate. So, even if you have a credit score of 750 or less, you can easily get your home loan approval.
With HFC’s credit scoring model, people in the low-income range or people with no or poor credit scores also have the chance to get a home loan.
There’s no hassle when it comes to documentation, and turnaround time is less.
The Disadvantages of getting a home loan from a Housing Finance Company
If there is so much flexibility, there are some obvious disadvantages also. Interests rates on home loans are higher.
There is no overdraft facility.
The lending rates of certain HFCs may be slower to pass on to borrowers due to their reliance on the benchmark prime lending rate (BPLR).
How to make a decision
Making a decision would now depend from person to person. You should be able to carefully analyze both options and then come to the right decision. Some major factors that one should consider are:
Home Loan Processing Fees and other charges
Home loan sanctioned amount
Credit score requirements
The quick and simple home loan process