If you thought selecting your dream home was a big hassle, wait till you reach the part where you have to start arranging for a home loan!
A house is a great investment for the future with low risk factor and ensuring financial stability. As it’s a very expensive venture that swallows up a huge chunk of your income, a thorough research on where to get your home loan is needed; after all, you wouldn’t want to make an expensive mistake. You have to go through a myriad of companies to compare the interest rates offered by various financial institutions as well as the documents and criteria they need.
In some cases however, your home builder itself might suggest or insist upon a specific finance house for home loans, as they have a ‘tie-up’ with them. Though this would immediately set off alarm bells ringing in the minds of the prudent ones, usually there is nothing to worry about. Your suspicion could be due to previous scandals involving fraudulent realtors without approved property documentation or lack of approval for various phases of their projects; in which case, you have a right to be suspicious as there is a chance of your investment going down the drain.
In most cases, builders have tie-ups with finance houses for two reasons. One is that it’s an attempt to inculcate confidence in the customers mind and increase their sales. Second is because not all finance houses are ready to approve all builders, in which case a tie-up would helps save time spent running around for a lender. Though the builder stands to benefit from the tie-up, so does the buyer. While the buyer spends a significant amount of time finalizing on a lender, the builder loses money by paying interest on the capital needed for the project, and the interest these big-timers pay is a whopping 13-22%! They need to disburse out their own loan at the earliest to the buyers, and a tie-up here helps to save expensive time as the bank would have already investigated the property; only aspect remaining would be to investigate the buyer.
The buyer should also realize that if a reputed bank approves the builder’s project, then the buyer’s money is in trustworthy hands. It’s not as if the builder is doing the tie-up from the goodness of his heart, he also stands to benefit; a commission of about 0.5-1% is the builders gain.
You should however watch out for the banking partner as some ‘non-banking finance companies’ tend to be less strict and give room to the builder to be manipulative at his end. Most banks claim to sanction loans in a minimalistic time period, but it could take up to a month, in which case a builder tie-up comes as a blessing. A tie-up speeds up the time of loan disbursal and benefits the bank too as it increases their popularity, reputation as well as their profits.
So a tie-up appears to benefit all the parties concerned, the buyer, the builder as well as the bank. As long as it’s a reputed bank, looks like a good idea to go ahead and follow the builder’s choice for a home loan.