Should you apply for Home Loan with a bank that has a tie-up with your builder?

When you go looking to buy a home you often find builders associated with lenders who are willing to offer you a home loan for the builder’s projects. Even when you finalize a property and look for a home loan to purchase the property you would find your builder recommending you to choose the lender who is associated with the builder. Many of you, finding it time-consuming to look for loans elsewhere, go with the builder’s recommendations and choose the tied-up lender. But is it a good choice?

The practice

Banks and NBFCs (Non-banking financial companies) usually have tie-ups with reputed builders. In such cases, lenders evaluate the builder’s projects and reputation and carry out a due diligence process before approving the builder. Only if the lender is satisfied with the project evaluation, it enters into a tie-up with the builder. Lenders then advertise the approved projects on their website signaling potential borrowers that they have approved home loans for such properties.

Should you choose the builder’s tied-up lender?

In many instances, choosing the lender tied-up with the builder is a good choice as you can get various benefits. These include the following –
• Your home loan would be approved quite easily and quickly as the lender has already assessed the property before approving it.
• You can avail pre-approved home loans on properties which have been verified by the lenders
• If the builder’s project that you are considering is tied-up with a reputed bank, you can be sure about the trustworthiness of the builder as well as of the feasibility of the project
• The legal and technical verification of the property is already done by the lender before it enters into a tie-up with the builder. As such, you wouldn’t have to conduct such verifications yourself

What is the flipside?

The only flipside to choosing the lender tied-up with the developer is that you lose the chance to compare different home loan interest rates. If other lenders are offering the same home loan at a lower rate of interest, choosing the lender tied-up with the developer would prove costly to you as the loan interest rate would be higher. Moreover, if the lender allows the developer a small commission on the home loans sourced through the developer, the incidence of the commission paid would ultimately come to you. The cost of availing a home loan from the lender would increase as the lender would realise the commission from your loan.

What should you do?

If you are unsure about the builder and the property’s credibility, you can look for the banks tied-up with the builder. If the banks are reputed ones, you can be sure of the builder’s trustworthiness. You can choose the tied-up lender if you need a quick loan and don’t want to verify the legal credibility of the property. However, if you want to ensure you get the lowest interest rates, shopping around is a better option. You can compare different loans and choose the one with the lowest interest rate. However, in that case, you have to wait for the lender to approve the project for which the loan is sought.
So, assess your requirements and then make a decision.

Additional Reading: – How Does an Online Home Loan EMI Calculator Works

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