As the old saying goes, “Home is where the heart is.” And no doubt, the heart would be much at ease if there was no home rent to worry about. Not to mention purchasing land, or apartments, or building structures, or renovating existing buildings requires massive investment. The good news is the real estate industry is booming in Bangladesh. Simultaneously, many reputed government-approved banks and financial institutions in Bangladesh are offering lucrative home loan deals under easy conditions. Let’s explore the best home loan in Bangladesh.
How Do Banks Choose a Potential Borrower for Home Loan in Bangladesh?
Bangladesh Bank has a specific policy for sanctioning home loans. Each Government approved bank in Bangladesh has individual policy complying with these guidelines of Bangladesh Bank. When potential clients apply for home loans, the banks evaluate those applications on the basis of their respective policies. In this section, we are going to discuss the key criteria appraised by the scheduled banks before approving a home loan.
In Bangladesh, the Government approved banks provide home loans under several categories, like apartment purchase, apartment renovation, construction of semi-pucca house, renovation of an existing house, etc.
When a potential borrower applies for a home loan for purchasing an apartment, the banks tend to verify the age of property through its registration date. Generally, the scheduled banks in Bangladesh show more interest to sanction home loans for purchasing newly constructed real estate properties than old ones.
Surveying a number of reputed banks in Bangladesh, we found that the scheduled banks usually provide home loans for apartments aged not more than 20 years old. A few banks, like prime bank, EBL, Bank Asia, etc. might show further flexibility for allowing home loans for old apartments. In simple words, the fresher the property is, the higher the probability of getting ‘home loan’ approval.
Range of Income:
An individual’s monthly earning represents his/her ability to repay any kind of personal loan. Banks expect a minimum range of gross income per month to choose a potential client for home loan approval.
Our survey shows that most of the scheduled banks in Bangladesh are willing to provide home loans to the job holders and professionals who earn at least 40,000 to 50,000 BDT per month. However, the requirement may slightly increase for the self-employed people like doctors, freelance professionals, consultants, etc. Some banks have flexible rules for Government officials.
However, the earning requirement for home loan is not a fixed issue, as it varies depending on the total amount of loan including interest. For instance, a client has applied for 1 crore (BDT) for purchasing an apartment. Another client is expecting only 50 lacs (BDT) for undertaking renovation tasks. In this station, banks would expect a higher level of monthly earning for the first client than the second one.
Debt Burden Ratio (DBR):
DBR is calculated on the basis of a prospective borrower’s monthly gross earning against his/her liability. The liabilities may include monthly expenses, house rent, interest rate of another loan, etc. In most of the cases, the scheduled banks try to approve home loan applications when the potential debtor’s DBR value is comparatively low.
However, DBR limit is not a fixed issue. In fact, the maximum allowable DBR margin might vary from one client to another depending on his/her level of earning. For instance, an individual’s monthly income is 40,000 BDT. Now, usually the banks won’t offer him a loan if his DBR crosses 45%. However, the same bank may allow home loan for another client scoring up to 60% (DBR), when s/he earns about 2 lacs (BDT) per month.
In the above diagram, we have compared the maximum allowed DBR limit by a number of prominent banks in Bangladesh for home loan provision. The scheduled banks hardly allow home loans, when the client’s DBR profile exceeds 60%.
Length of Work Experience
Work experience is another significant factor for getting home loan from different banks in Bangladesh. While reviewing an application for home loan, the scheduled banks consider several issues under work experience criterion like, job category, number of servicing years, reputation of the employer organization, stability of employment, etc. In case of the business owners, the banks tend to see the age of trade license.
In the above graph, we have compared the required job-experience (for home loan) by some leading banks in Bangladesh. The scheduled banks usually look for 2 to 3 years of experience for service holders, and self-employed professionals. Some banks set a bit higher margin for the business owners.
Usually the loan repayment tenure of any home loan is continued for a comparatively long period. That is why the scheduled banks put emphasis on the borrower’s age limit during the process of home loan approval. However, the borrower’s age level is counted as his/her prospective age at the end of loan tenure.
For instance, the ‘X’ Bank allows up to 65 years for providing home loan. Now if an individual aging 40 years applies for the home loan, then s/he can avail 25 years of loan repayment tenure, which means at the end of loan tenure the borrower’s age would be 65.
Our Research reveals that the majority Banks in Bangladesh are offering home loans for individuals aged utmost 65 years – at the end of loan tenure. The minimum age to get a home loan varies from bank to bank.
Generally, the scheduled banks provide loans to the deserved candidates aged at least 21 years old. However, this minimum age limit can be a bit lower, – not under 18 years – if the borrower’s income profile is outstanding.
How to Find the Best Deals for Home Loan in Bangladesh?
At present a considerable number of banks are offering lucrative home loan offers on the market. It is quite confusing for any individual to pick the best banks for home loans in Bangladesh 2020. In this section, we would focus on some essential factors you need to consider for choosing the right bank or financial organization for availing a home loan.
Home Loan Ceiling
According to the policy of Bangladesh Bank the ceiling for home loan should not exceed 12000000 (One Crore and Twenty Lacs) BDT. In exceptional cases, banks may approve home loans beyond this ceiling. However, the banks can also lower this ceiling amount according to their respective policies.
In general, most banks allow 12000000 BDT for home loans, but a few banks like, Uttara Ban, Jamuna Bank, Pubali Bank, HSBC bank, etc. offer 7500000 to 10000000 BDT as maximum amount for home loan.
Minimum Loan Amount
Not all borrowers are looking for a high amount of money for purchasing apartment or home-construction. Some people are willing to take home loans for renovation purpose.
Generally, the banks can approve as low as 500000 BDT for home loan. However, some banks are less interested in sanctioning low amount money under their home loan offers.
Ratio of Loan Amount to Property Value
When you are planning to take a home loan for buying any property, – like home or apartment – the banks won’t provide the total value of the property. Banks calculate the Forced Sale Value (FSV) of the property. Now what is FSV? For instance, a property values 100 BDT in normal situation. Now if it is sent to action for immediate sale and gets sold at 70% of it’s normal price. Now it’s FSV would be 70 BDT.
The majority of the scheduled banks in Bangladesh provide 70% of the property value as a home loan, complying with the policy of Bangladesh Bank. However, some banks might allow home loans at lower FSV ratios depending on their respective policies. Out wining the other banks Delta Brac Housing (DBH) and IDLC is offering 80 to 85% of the property value which is certainly a blessing for the ambitious borrowers!
Interest Rate and EMI
For any personal loan, the rate of interest affects upon the EMI (Equated Monthly Interest). On average, the scheduled banks in Bangladesh keep their interest rate floating during the loan tenure. So, it would be wise to compare the initial interest of different scheduled banks for choosing the best home loan deal in Bangladesh.
The above graph shows a comparative view of initial interest rates set by some leading Banks in Bangladesh. On average, the rate of interest is hovering around 10.5 to 11.5 percent. However, a few banks like City Bank, Eastern Bank Limited (EBL), etc. sanction home loan at lower initial interest rate (9.9%). While some other banks demand a bit higher initial rate of interest (up to 16%) for home loan provision.
Unlike other personal loans like education loan or auto loans, the home loan covers a huge amount of money which usually runs for a lengthy tenure. But not all banks allow the longest loan repayment tenure for home loan.
Another thing to consider is, the borrower age is linked with amount of loan tenure. Therefore, the loan tenure might vary from one borrower to another. For example, the ‘Y’ bank allows maximum 65 years long tenure. Now an individual aged 45 years is applying for home loan. S/he can get maximum 20 years for repaying the loan; whereas, a 35 year old borrower can avail a longer tenure of 30 years for loan repayment.
While reviewing the home loan deals offered by various banks in Bangladesh we found that the maximum loan repayment tenure hovers around 20 to 25 years depending upon the current age of borrower. However, a few banks sanction home loans for comparatively limited tenures.
Owning own residence is no more a distant dream today, if you can find a suitable home loan deal. However, it takes both determination and ability to acquire a dream home. Fortunately, many banks are ready to provide you this support. However, no blessing comes without some drawbacks. The EMIs of Home loan may create a huge burden overhead. And, this traditional but pragmatic thought prohibits many people from owning their dream homes.
So far we have analyzed a number of the eminent banks in Bangladesh who are currently offering lucrative home deals on the market. Summarizing the home loan deals of our researched banks, we found that the scheduled banks in Bangladesh mostly prefer newer apartments (not older than 20 years) to old apartments for approving home loans.
Generally, the banks select prospective borrowers who earn at least 40000 to 50000 BDT per month depending on the type of occupation. While evaluating the Debt Burden ratio (DBR) of the client profiles, most of the scheduled banks tend to keep their DBR range under 45 to 60%. The banks usually demand 2 to 3 years of work experience depending on type and reputation of the employment.
In general, the banks sanction home loan to clients aged around 21 years at minimum. And, the maximum age limit is usually not more than 65 years. Most of the banks provide 1.2 crore (BDT) loan ceiling starting from a minimum 5 lacs (BDT). And, under home loan deals, the banks offer 70% of the property value, in general. Though the rate of interest fluctuates from bank to bank, usually it hovers between 10.5 to 11.5%.
Due to the limitation of adequate manpower and fund, we couldn’t survey all banks. Hope our research helps you to pick the best bank for home loan in Bangladesh fulfilling your needs.
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