How to avoid mistakes while taking a home loan

Act in haste, repent at leisure. This adage might as well apply to a home loan seeker just as much as to a bridegroom. Here are 7 golden rules which will ensure that you do not repent in future.

Rule 1: Never choose a lender till the property is identified.

Speak to your bank about home finance only after you have identified the property you want to buy. While most banks will provide finance for ready-to-move-in properties, some banks do not readily finance a property which is being self-constructed or a property under construction. Also, if the property is very old or is being developed by a relatively unknown builder, the bank might have an issue with providing a home loan. Take a sanction for the loan only after identifying the property. Banks are known to reserve the best deals for immediate disbursement cases.

Rule 2: Get clarity about the loan amount you are eligible for.

Banks have different ways to calculate loan eligibility. If loan eligibility based on your income is likely to be an issue, then talk to several banks to find out which bank can give you the maximum amount. It may so happen that based on your own income, as well as your spouse’s, you are still not eligible to get the amount of loan that you require. Then you must seek a bank that allows you to club the incomes of your other close relatives (parents, siblings, children etc.) to increase your loan eligibility. Some banks may agree to club the incomes of two siblings for the purpose of calculating the loan eligibility.

Rule 3: Remember to have own funds to the tune of 10-15% of the house cost.

If the house costs Rs 5 lakh, the bank expects you to pay at least Rs .50,000 to Rs.75,000 from your own sources, while the remaining Rs 4,25,000 – Rs 4,50,000 is provided as loan subject to your income based eligibility. If the value of the house goes down in future, your down payment ensures that the bank’s interest is protected by ensuring that outstanding loan amount is less than the realizable value of the property. Once you decide on your dream property, the bank will get the cost of the property evaluated by its own personnel. Surprisingly, this evaluation can throw up a price different (in most cases lower) from the actual price you are paying for the property. In such cases, you will need to shell out the difference between the actual price and the bank’s valuation as additional down payment. So again, it makes sense to ask the bank to value the property (on payment of a small fee), especially if it is an old resale property. The small fee will be worth the while to avoid future hassles.

Rule 4: Go window-shopping, then bargain and then, bargain some more.

You should shortlist four or five banks and get the shortlisted banks to compete for your loan. The cost of your loan depends a lot on your ability to negotiate. Remember that all terms and conditions of a housing loan are negotiable. Interest rates offered by banks take your income and repayment profile into consideration, apart from, of course, your negotiation skills. Apart from interest rates, also check various charges like processing fees, pre-payment charges, legal fees, valuation fees and other hidden costs. Take all these factors into account before choosing your bank.

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