What are the costs involved in taking a home loan?

A home loan can help you get the house you’ve always wanted. But apart from the EMIs you pay, there are a few other costs involved as well. Knowing about them can help you calculate exactly how much taking a loan will cost you, especially since this might be the largest loan you will ever take.

The first thing you should know is that you don’t get a loan amount for the full value of the property. The lender will finance about 85% of the property value and you have to pay the rest of it. Let’s now take a look at some of the costs involved other than the interest rate.

Processing charges

Also known as processing fees, this is charged as a percentage of the amount you apply for. The lender charges this fee to cover the costs involved in processing your loan and sanctioning the amount.

Your processing fee usually consists of two parts. The first one is the initial amount you must pay when you submit your application. This fee is non-refundable, meaning, the bank will not refund it to you even if your loan application is rejected.

The rest of this fee will be charged when your loan gets approved and sanctioned. The fee varies from one lender to another and is sometimes subject to a minimum or maximum amount.

Taxes (GST)

You have to pay taxes on the various fees that the lender charges you. For example, if your processing fee is Rs.5,000, you have to pay GST on this amount (presently at the rate of 18%).

Cost of stamp paper

Once your loan gets sanctioned, you must get into a written agreement with the lender. For this, you will have to buy the necessary stamp papers. Currently, the stamp paper for a housing loan agreement costs Rs.300.

Home insurance costs

You should keep in mind that this is not an optional cost. Home insurance is mandatory when you take a loan to buy a house. This is to protect your home in case something untoward happens.

The premium is normally around 0.1% to 0.2% of the value of your property. Let’s say you’re buying a home that’s valued at Rs.50 lakh. In this case, your insurance premium will be Rs.5,000 (50 lakh x 0.1%).

You can choose to pay the whole amount in one shot or pay in yearly installments.

Legal and other fees

When you apply for a property loan, the lender will investigate the property to identify it and verify its value and other specifics. Your property documents are vetted to ensure that they are authentic and legal as per the laws of the state and free from any other legal issues.

To cover the costs involved in such an investigation, the lender normally charges a fee. This is in addition to all the charges mentioned above.

The charges mentioned above apply only to the housing loan you apply for. Remember that there are other charges such as property registration fees, stamp duties, and brokerage charges that may apply to the property you’re buying.