The first thing that will hit you when you decide to take a home loan is the sheer amount of information available on the How’s and Why’s of home loans. The SwitchMe blog is an effort to make this information a little more structured and simpler to understand. After all, we aren’t all gifted, financial experts! In this article we would like to talk about the benefits of choosing Dewan Housing Finance Limited (DHFL) for your home loan. Being a Housing Finance Corporation (HFC), DHFL is a good option for borrowers who are unable to qualify for a loan from banks like SBI, Axis and IDBI due to their strict application requirements. Here are some of the advantages that DHFL offers:
1) Leniency in Credit Score:
When Deepak Jain wanted to buy a 2BHK in Vashi, he was faced with a seemingly insurmountable problem. He had approached HDFC for a home loan but his application got rejected due to a low CIBIL Score of 640. He was due to be married in a few months and he was desperately in need of a home loan. On a friend’s recommendation, he applied to DHFL as a last resort and to his great surprise, his loan got approved!Deepak’s experience is quite extraordinary because a CIBIL score of 640 would have definitely been regarded as an impossible obstacle to overcome. In contrast, nearly all other home loan providers require a healthy CIBIL score of 750+. While a good credit score does not guarantee a loan approval, a poor score can reflect very negatively on your application and generally result in a rejection. Deepak’s 640 was a far cry from a strong credit score but he benefited from DHFL’s leniency in this regard.Normally, when lenders look at a poor credit score, they perceive the customer to be risky because they don’t know if he can pay off the loan. DHFL is more lenient in this regard because it safeguards this risk by charging high interest rates to such customers. There is however, no specific range of credit scores that it accepts. The decisions are made on a case by case basis.
2) Leniency in documentation:
A few months ago, SwitchMe received an enquiry from 28 year old Pooja Singh who was considering buying a resale home in Nala Sopara. Housing in Nala Sopara is an upcoming trend due to affordable homes but there is a whole new set of problems to deal with here. As this area is still within the jurisdiction of the Gram Panchayat, the documentation required for home loans can become a potential nightmare.Let’s take SBI for reference. SBI requires 37 documents for home loan application like:
ITR Returns for the last 3 years
Bank Account Statement for 6 months
Salary Account Statement for 6 months
Offer Letter/Appointment Letter
Agreement to Sale
Sale deed certified copy
Possession Letter/Allotment Letter
(The exact list of documents is a lot longer!)Loan lenders, especially banks, are quite strict about obtaining proper documentation before approving a home loan. The specific problem that borrowers face in locations like Nala Sopara is that there isn’t a clear system for obtaining these documents. Pooja found herself stuck in the loan process because the Occupancy Certificate that she received from the previous owner was from the Gram Panchayat instead of the Municipal Corporation.Neither banks nor other HFCs were willing to accept this document and she was ready to give up her dream of owning her own home. Ultimately, it was DHFL that came to her rescue. It accepted the Gram Panchayat Occupancy Certificate and approved her home loan.Pooja’s case is yet another story of seemingly impossible odds of obtaining a home loan where the only option possible was DHFL. The acceptance of imperfect documentation is a boon for loan aspirants like Pooja who are able to move closer to their dream of owning a house.
3) Higher Loan Coverage:
Previously, if you compared HFCs and banks, the biggest advantage of HFCs was that they included Stamp Duty & Registration Charges in the loan amount. These charges are 6-8% of the property cost and are a potential hassle for the borrower to arrange by himself. HFCs like DHFL used to include these charges in the property cost and provide a loan on this amount. This was great for the customer because he would then qualify for a greater loan amount.However, this is no longer true. On 8 April 2015, NHB released a circularwhich stops HFCs from increasing the loan coverage by including Stamp duty and Registration charges for properties over Rs.10 Lac in value.That being said, it is generally true that HFCs try to provide higher loan coverage. It is not rare for HFCs like DHFL to provide a higher loan amount than banks.
4) Leniency in eligibility for loan:
DHFL is also known to exhibit a leniency in deciding the eligibility of a loan candidate during the loan application process. As compared to banks, DHFL favours the borrower and generally provides a larger loan amount.Clearly, DHFL is ideal for loan applicants who cannot get loan approval from other lenders. However, our advice to you is to proceed with caution. While DHFL is more lenient than other lenders, this comes with a cost attached to it.
Only Short-Term gain
A lot of the people that SwitchMe has spoken to are plagued by problems with DHFL after taking a loan. DHFL charges an exorbitant Rate of Interest once a home loan enters the floating-rate period which can range from 10-13% of the outstanding amount. We even saw a case where a loanee was being charged an astronomical 14.5%! For reference, SBI currently charges a rate of 9.55%.One of our customers, Suraj, faced a similar problem. He had taken a loan from DHFL and had planned his salary to manage rent, utilities, children’s fees along with EMI. When his loan entered the floating-rate period, his interest rate was increased to 11.85% and DHFL suddenly increased his EMI without notification. The inflated EMI completely threw his finances off track and for months he struggled to make ends meet. Finally, we switched his loan to HDFC and got his EMI reduced to a manageable amount. In cases like these, we always advise transferring the loan to other lenders who are offering reasonable interest rates.In conclusion, Dewan Housing Finance Limited offers many advantages if you are restricted by imperfect documents or a low CIBIL score. The fixed-rate period is generally 2 years which is sufficient time for you to get your documents in order and improve your credit score. At this point, you can switch your loan, reduce your stress and enjoy your long-term savings.
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