In a time where many are looking to own homes, the desire for easy funding options has reached unprecedented levels. While conventional banks remain the traditional funding source for home loans, NBFCs have stepped up to fill these gaps in recent years. This niche seems to have left an indelible mark as there is flexibility in terms, faster processing, and tailored solutions.
If you are planning to opt for an NBFC home loan, whether it is to purchase a readymade home, construction, or a home loan for the purchase of a plot, then you must know what they have to offer and how they hold ground as compared to that of traditional loans. This will help you evaluate whether they really will meet all of your financial needs. Further to the article, NBFC home loans are discussed: the intricacies of the above, its benefits, and key considerations that can guide you in arriving at the right choice.
What are NBFCs and how do they stack up against banks?
NBFCs: Non-Banking Financial Companies. It means that these are financial companies which virtually provide the same services of a bank, such as loan services, credit facilities, and investment products. However, they bear a world of difference from banks in certain aspects like:Â
- No Banking License: NBFCs cannot accept demand deposits like savings accounts.
- Regulated by RBI: NBFCs are regulated by Reserve Bank of India, although the regulatory requirements are not as stringent as compared to banks.
- Focused Lending: NBFCs lend to special niche or un-served markets that large banks will not lend to because of the high risk involved.
Important Features of NBFC Home Loans
1. Flexible eligibility criteria
NBFCs cater to customers whose earnings include unusual sources of revenues, say freelancers or small entrepreneurs. It is because the documentation procedures of these traditional banks are very rigid, thus not easily available for them.
2. Faster Approval
Loan approvals are much faster with NBFC’s also. Due to fewer paperwork and online application platforms, NBFCs can deliver loans faster than a traditional bank.
3. Competitive Interest Rates
Although the home loans from NBFCs would, at times, attract a higher rate of interest than compared with banks, recently, the gap has narrowed down due to increased competition and RBI regulations.
4. Customer-specific Loan Products:
The NBFCs can provide customer-specific products like composite loans (plot purchase and construction), bridging loans, and top-up loans based on the demand by the borrowers.
Advantages with the NBFC Home Loans
1. Easy Availability
NBFCs have granted home loans to those whose credit scores were low, whose source of income was irregularly generated, or whose employer belonged to unorthodox industries. Most NBFCs use cash flow projection to decide eligibility.
2. Various Loan Options:
Whatever the kind of loan, whether it is a traditional home loan or home loan to buy a plot, NBFCs offer a plethora of options. These include:
- Plot Purchase Loans: Loans taken for the purchase of a residential plot.
- Composite Loans: Over and above the land cost and construction that may follow.
- Affordable Housing Loans: Special loans available to low-income groups with relatively relaxed eligibility criteria.
3. Attractive Loan-to-Value Ratios
NBFCs can provide a higher Loan-to-Value (LTV) ratio, or the portion of the property’s value financed by the lender. In the case of plot loans, the LTV has a cap imposed by banks at around 75-80%, while some NBFCs take this value up to 85% .
Disadvantages of Considering NBFC Home Loans
1. Higher Rate of Interest
Although the interest rates by NBFCs are more competitive, they charge interest that is a lot higher than that offered by public sector banks, particularly on low credit scores. This may cost more while borrowing.
2. Limited Tax Benefits Available on Plot Loans
Unlike home loans taken for the purchase or construction of a house, sanctions for loans on plots would not qualify for tax benefits available under Section 80C in respect of principal repayment or Section 24(b) in respect of interest repayment unless construction starts within an absolute time-frame.
3. Very stringent Plot Eligibility
For home loans for the purchase of a plot, NBFCs often require that the land be within municipal limits, free of legal disputes, and not classified as agricultural or industrial land.
NBFC Home Loan Process: Step-by-Step
If you’re considering an NBFC home loan, understanding the process is critical to a smooth application experience:
Step 1: Research Lenders
Compare various NBFCs based on:
- Interest rates (fixed vs. floating)
- Processing fees and hidden charges
- LTV ratios
- Loan tenure
Step 2: Application SubmissionsÂ
Fill up the online or offline application form and attach a copy of all the required documents.
- Identity Proof : Aadhaar, PAN, passport, or voter ID
- Income Proof : Salary slips, bank statements or profit-and-loss statements (for self-employed applicants)
- Property Documents : Title deed, sale agreement, and encumbrance certificate
Step 3: Loan Evaluation
The NBFC analyzes the repayment ability, income, credit report, and property worth on which loans are sanctioned on plot; individual tests pertaining to land quality.
Step 4: Sanction of Loan
Once sanctioned, the sanction letter written by the NBFC conveys the loan amount, interest rate, period, and other condition terms.
Stage 5: Disbursement
The disbursal of the loan amount is segmented step by step, depending upon the purpose-to make full payment at the time of purchasing the plot or otherwise in tranches for construction.
Government Schemes and Incentives to Keep in Mind
1. PMAY (Pradhan Mantri Awas Yojana)
Eligible borrowers receive the benefits of CLSS under the Credit Linked Subsidy Scheme for home loans approved by the NBFCs. The eligible categories under this particular scheme are the EWS, LIG, and MIG.
2. Affordable Housing Schemes
Under normal circumstances, the NBFCs partner with government schemes for affordable housing loans to first-time buyers.
Ways to Select the Best NBFC Home Loan
- Rate of interest: Compare interest rates between banks and other NBFCs for the best deal.
- Fee and Charges: Know all the fees-Processing Fees, foreclosure charges or late payment penalties.
- EMI Calculators: Understand how affordable your loan is by calculating EMIs based on interest rates and loan tenure.
- Flexibility in Repayment: Choose loans that enable part-prepayment or foreclosure free of any extra charges.
- Ensure Property Compliance: For plot loans, confirm whether the property satisfies the eligible criteria of the NBFC
Conclusion
An NBFC housing loan is a real ‘game-changer’ for the residence seeker who is highly seeking flexible and accessible funding for his or her housing needs, whether it’s buying a house, constructing one, or securing a home loan to buy a plot. Every Borrower’s profile is different, and NBFCs also have customized solutions, but there are benefits and limitations on such loans, like higher interest rates and fewer tax benefits on plot loans.
Research lenders thoroughly, understand loan terms, and match your choice to your financial objectives, and with all this, buying a house should be able to be done with confidence.
