Road To Your Home

From Outlook Money

BANKING A home loan taken in haste could prove to be expensive later. A few checks, however, will make things fall in place for you. Here’s how OUTLOOK MONEY 1. Why should you take a home loan? Most houses in India are bought through home loans. Even if you are able to buy a house with your own resources, it makes sense to go in for a loan. Home loans are easier to get and borrowing rates are fairly low compared with the 1990s. Another big advantage is that the bank/lending institution will do all the necessary checks on the said property, apart from examining your creditworthiness, before approving the loan. In short, you will be saved from the arduous task of carrying out due diligence on the said property. Besides, you get a tax break on the interest paid on a home loan. 2. What is a pre-approval loan letter? When you apply for a home loan, the bank/lending institution, after going through your finances, determines the maximum loan amount you are eligible for. It states this in a letter called the pre-approval letter. Its validity is usually six months. 3. What is a combo home loan product? A combo home loan product has the features of both fixed as well as fl oating rates. This means that for a particular tenure the rate of interest on the loan will be fixed. Once that period is over, the applicable floating rate on the home loan becomes effective. 4. What is the difference between a construction-linked plan and lump sum payment? There are two payment options that a builder offers you. In a lump sum payment option, you make the entire payment upfront, except for the 5 per cent that you pay while taking the possession. Usually, the builder gives you a discount as he gets the funds upfront. However, in a construction-linked plan, you make payments as per the scheduled plan. This way, even though you do not get a discount, you spend much less initially. Construction-linked plans come in handy especially if there is a project delay. 5. What is a pre-approved property? Most banks and lending institutions maintain a list of properties that they show you if you want to use their home search facility. They include properties in this list after doing the necessary due diligence. So, if you choose a property from that list, chances of your loan getting approved faster is much higher. 6. How should one deal with banks? Give yourself time. Do not rush with your purchase or loan. Shopping around for a home loan will help you get the best financing deal. Comparing loans and negotiating with banks can save you a lot of money. a) Obtain information from several banks. i) Ask your lender about its current home loan rates and whether the rate is fixed or fl oating. ii) Check the reset clause, especially for fixed interest rate loans, as rates will not be fixed throughout the loan's tenure. iii) In case of a floating rate, check if the margin is fixed or variable. The rate of interest will vary accordingly. iv) A home loan often requires payment of various fees: loan processing charges, administrative charges, documentation charges, late payment charges, charges for changing the loan’s tenure or switching to a different loan package during the loan’s tenure, charges for restructuring of the loan or switching from fixed to floating interest rate or vice versa, and legal fee, technical inspection fee, recurring annual service fee, document retrieval charges and pre-payment charges (if you want to prepay the loan). Every lender should be able to give you an estimate of its fees. v) Some lenders ask for 20-30 per cent of the home’s purchase price as a down payment. However, many also offer loans that require less than that, sometimes as little as 5 per cent. b) Get the best deal. Once you know what each bank has to offer in terms of rates, fees and down payments, negotiate for the best deal. Ask the lender to write down all the associated costs and if it will waive or reduce one or more of its fees or agree to a lower rate. Make sure that the bank is not agreeing to lower one fee while raising another, or to lower the rate while raising the fees. Seek clarification if you do not understand any term. Banks are obliged to explain in detail the important terms and conditions of the home loan. Once you are satisfied with the terms of the loan, get a written offer letter from the lender and keep a copy. Read the offer letter carefully before signing it. editor AT outlookmoney.com