A few important home truths


Buying a home is one of the biggest financial goals for most of us. It not only requires good research but also a strong financial planning to get the right deal

It is rightly said, ‘There’s no place like home’. But all of us know that buying home is not an easy task today. We need to do good research and prepare some financial budget to get the right deal. With the rising interest rates and soaring property prices, it is not possible for most of us to make a lump sum payment while buying a home loan.

Even if you take a loan, challenges are aplenty ranging from arranging for the down payment money to servicing EMIs (equated monthly installments). The following tips will help you understand what to look for while buying a home.

Have a realistic budget

Your budget should be ‘realistic’. You need to calculate how much savings and investments you have made till date, which you can invest comfortably while buying a house.

Check the current housing rates in the locality of your choice. Make sure you visit the real-estate websites, interact with agents & brokers and go through property advertisements.

Remember to visit the home finance companies (HFCs) websites as they display a list of approved projects. If you have some time, you can visit property exhibitions held in your city. Property exhibitions are of great help as you get to see many projects of various price ranges all at one place.

Action plan

  • Visit realty portals
  • Interact with brokers
  • Check property advertisements
  • View HFCs websites
  • Attend property exhibition

How much down payment should you make?

Pay the booking amount once you identify a property that fits your budget. Then you need to calculate how much down payment has to be made. HFCs generally insist on making 15%-20% down payment of the property’s cost since they want you to share some of the risk involved.

It is better to maximise the down payment as the greater it is, the lower is the loan amount needed.

There are other charges as well

Keep in mind that there are some charges for which you need to prepare your budget accordingly.

Other charges

  • Stamp duty & registration
  • Loan processing fee
  • Brokerage charges

These would include the loan processing fee, which is charged by the lender, and the lawyer’s charges (if you are seeking a lawyer advice for the property’s due diligence). The loan processing fee could be 0.25%-0.5% of the loan amount, or a fixed amount, whichever is lower. It is non-refundable. If you plan to buy a house on the secondary market, you will need to pay brokerage as well, which is typically 1% of the agreed sale price. You also pay stamp duty which is a state tax on the transfer of property, calculated on the property’s total value.

How much home loan am I eligible for?

Before buying a house, you have to understand how much loan you are eligible for and how much you should borrow. This will depend on a number of factors such as your monthly take-home salary, the down payment required and the monthly household expenses. Approach the bank you plan to borrow from and ask it to assess your loan eligibility. It will issue you a letter stating the maximum eligible loan amount for you.

While most banks give home loans for 20 years, some do so for 25 years as well. You are supposed to repay the loan in full by the end of the loan tenure. There is no harm in going for a longer tenure. If you get a pay hike or a bonus, you can always pre-pay your loan. This will bring down your tenure drastically.

No prepayment fee

You have a reason to smile because the Reserve Bank of India (RBI) has said that banks cannot levy prepayment penalty on home loans with floating rate. Now that all banks will have to follow the guideline, this move will give you the option to switch to another bank in future if the other lender is offering lower rate.

If you are applying for a floating rate home loan from an HFC then you already enjoy the benefit of paying no prepayment charges since the National Housing Board barred such charges in October 2011.

Negotiate with your bank

While applying for a loan, you need to ask the bank to reduce your interest rate. Your bank may be willing to offer you a slightly lower rate, since it may not want to lose you as a customer, especially if you have been a good borrower and have a good credit score.

The best time for you to negotiate is on the 28th, 29th and 30th of any month, when there are month-end targets to meet and you would get the best interest rate possible. You need to try calling banks during month ends, and you are likely to get what you want.

Interest rate schemes

Banks always implement new strategies to attract more customers to take loans. Let’s check some of the interest rate schemes which the banks offer.

Dual rate scheme

The dual rate interest rate scheme is a rather new concept. Under this scheme, bank charges fixed interest rate on loan amount for the first few years. Once the period is over, bank charges floating interest rates on the loan amount. The dual rate scheme is generally good option for buyers as they will have to pay less in later years.

Special consideration

To remain competitive in the home loan market, many banks offers some concession on floating rate home loans. Some banks also offer concession on home loan processing fee. Keep a track of the same to save some money.

Progressive monthly installment

This is a useful scheme for young people who just started their career. Here, EMIs will be less for the first few years and will increase with time. This scheme takes care of the fact that with rising income one can afford larger EMIs in future.

Fixed rate home loans for first few years

This is another fixed rate home loan scheme much like the dual rated home loan scheme. However, with this you will have an option to choose the time span of the fixed rate. It can be either the first three years or the first five years.

Permanent fixed rate

Few banks are offering the permanent fixed rate home loans for the customers. With this scheme, you will have to pay a fixed amount of EMIs throughout the loan term. The interest rate rise will not affect your EMIs with this scheme.

If you are thinking of getting a home loan then you must make sure to compare all the schemes to know which one suits you the best. That’s the best way to beat high interest rates. According to the experts, the interest rates will come down eventually. Keep this in your mind while taking a decision. For progressive monthly installment scheme, make an estimate for the possible future EMIs.

Finally:

Once you have selected the bank, you need to get a pre-approval for the loan. Banks will only disburse the loan after you have paid stamp duty & registration and down payment for the house.

Read more on home loans:

Should you opt for a fixed or floating interest rate home loan?

Get a home loan without a guarantor

Buying or renting a house; what is a better option for you?

Improve your credit ratings with these measures



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