Housing in the country has always been synonymous with the word ‘unaffordable’. While most people strive to own a few simple square feet of security, the real estate market is often flooded with so-called premium or luxury properties. Even home loan providers target consumers with high salaries or business incomes, whose credit worthiness can easily be assessed.

But with the government promoting affordable housing things are changing now. The government this year announced the Pradhan Mantri Awas Yojana (PMAY) to give the affordable housing the impetus it deserves. Based on the public-private partnership (PPP) model, the scheme has enthused prospective homebuyers. To make the scheme affordable for middle and lower income buyers, allocations have seen a 39 per cent rise and the affordable housing has acquired the infrastructure status, which facilitates easy credit for builders.

The middle and lower income segments constitute a significant majority of the country’s population. According to an India Ratings and Research report, affordable housing finance could be an Rs 6,00,000 crore market by 2022. It also predicts a demand for 25 million homes in the medium income group (MIG) and lower income group (LIG) categories over the next five years.

The domestic rating agency Icra recently reported that the affordable housing segment is set to grow at a faster pace –over 30 per cent in the medium term –compared with the rest of the real estate sector and will be the key growth driver for the Indian mortgage finance market. This has led to entry of several entrants in the mortgage lending space.

But are the players in the mortgage lending space equipped to handle the needs of a population that has been under-served till date? One of the major challenges the traditional lending institutions like banks will face is appropriate risk analysis due to the lack of any customer profile or database of the applicants from MIG and LIG. Their credit scores are almost non-existent, as they have often been deemed unviable for credit.

In other words, they simply do not exist! In such a case, how does a bank even tap this customer segment? The credibility of developers can pose another challenge, especially when buyers in the peripheral towns purchase homes from unknown builders without due diligence.

PMAY was launched with an aim of turning every MIG and LIG Indian into a homeowner by 2022. This appeals to the typical Indian aspiration of owning the house they live in. The government has also enhanced the benefits by extending the credit-linked subsidy scheme (CLSS) to loans up to Rs 12 lakh, which reduces the cost of acquiring a basic home by up to Rs 2.5 lakh, if not more.

The scheme also offers further incentives with tax breaks. The recently introduced Real Estate Regulatory Authority (RERA) has also boosted the confidence of prospective buyers.

But what the first-time buyers should look for? Choosing the right lender is as difficult as choosing the right home. After all, a home loan can lock the borrower’s cash flows for up to two decades or more. So, a wrong decision can cost more in the long run.

While evaluating the home loan offers from different lenders, one should look for certain things like loan eligibility criteria, proof of PMAY, loan and EMI amount, processing charges and prepayment structure and also hidden charges.

Spend some time on finding a lender who matches all your requirements. Also check that if you match their criteria as the loan application process can be long and tedious and you won’t like to realise midway that you are not eligible for the loan.

Check it out that your prospective lender is empanelled with PMAY. So, always ask for supporting documents. Also make sure that the lender has experienced team of executives who understands real estate, financing and loans.

A bigger loan offered might indicate a smaller down payment, but a higher equated monthly instalment (EMI). It should ideally not exceed 40-50 per cent of a borrower’s net income. If EMIs eat up a larger chunk of the monthly income, other long-term financial goals such as children’s education and retirement planning may come under stress.

Usually, financial institutions charge a 1-2 per cent of the loan amount as processing fee. Look for the opportunity when no such charges are levied. While finalising the loan ask details on prepayment clause. The lender should allow you to repay early as well as moving the balance amount from one lender to another who may be offering a lower interest rate. This way you can bring down the tenure or the amount of EMI.

Do clarify that no hidden charges, which disrupt your financial planning, are mentioned in the fine print. The lender should disclose all conditions in advance.

Observe how responsive the lender is towards you and your queries, before the loan has been sanctioned. Check out that executives are well trained, able to explain and meet your queries, equipped to manage post-sales service requests like interest certificate, pre-payments, foreclosures, safety of title documents, etc.

And the last but least is the fact that if your loan invites fixed or floating rate of interest. Both fixed and floating interest rates have their own advantages and disadvantages and you must choose the one that best suits your current lifestyle and future goals.

With the government focussed on affordable housing, it’s time to turn your dream of owning a home into reality. Best wishes.

{The author is chief executive officer (education and housing loans) at InCred}