Sunday, May 31, 2009


"Food, Shelter and Clothing" has been defined as basic needs of a human being and out of the three the one that is hard to come by is shelter or one's own home. In India, buying a home is dream for most of the people because of the high cost of transaction along with several other factors. However, with the availability of home finance , the dream of owning one's own house is becoming increasingly possible for many . If you too are thinking of having your own "dream home" on finance , then you must take care of few things so that you are not short changed by anyone in this process and also your dream home actually turns out just that.
There are broadly 2 activities for anyone wishing to buy a home on finance. First , he needs to identify the property he wishes to buy and second is to arrange for finance. The various things that one needs to check in the whole process is as under:-
The first and foremost step towards owning your own dream home or house is to identify it. The various things that will go into identifying your dream house are
1. The property should be as per your family requirements-For example a family of just husband and wife might need 1BHK (Bedroom hall kitchen) or 1RK(room kitchen) while a family of four might require 2BHK. So you must keep the family size and the area you need while identifying the property.
2. Your Budget - You must also have a clear cut budget defined for your house. This will help you narrow down the potential properties which fit in your budget. Your budget should be the one which you can afford without really stretching yourself too much.
3. Proximity to office and school- Your home should ideally be near your work place and kids school. This will reduce the travel time and will help you lead a much better and stress free life.
4. Society and security arrangements - You must also find out about the society in general (CHS) and the security arrangements in place in the CHS. For example, an affluent businessmen may not be very comfortable in living in a society of lower divison clerks working in government office. Similarly the security aspect can not be overemphasised.
5. Check the approved plan of the building - You must also check the official approved plan of the building. Ask for the approved plan copy from the builder and check if the building is as per the plan. This will avoid any chances of the property being declared illegal by the govt in future.
6. Check for occupancy certificate - Before taking possession of the flat you must ask for the Occupancy certificate from the builder. This OC is given by the government bodies to the builder. Anyone residing in a building without the OC is deemed as an illegal occupant of the said property.
7. Title Check - For all resale properties, you must do a through check on the title of the property. The title of the property must be clear of any encumbrances. The same can be checked from local corporation.
8. Reputation of the builder - For all under construction properties, you must to a background check on the builder's reputation, the kind of projects he has done, the facilities he provides in his building, whether there are any complaints against him etc. This will ensure that you deal with builder who has clean image and has good business ethics.
9. Future appreciation potential - The property should also be ideally located in a place where there is appreciation potential . Check for new infrastructure projects coming up and planned for in the vicinity of the property. It will helps jack up the going rate of the property .
10. Payment of utility bills etc- For all resale property, you must check if all the bills like electricity bills, society maintenance charges etc are paid by the current owner otherwise the same will become your liability and you may have to pay that.
After having identified the property, the next step would be to arrange for the finance form the banks/FIs. For that you must take care of
1. Find out the finance amount and margin money - Banks generally finance anywhere between 60% to 90% of the property value and the rest is the margin money which the borrower will have to pay as down payment. Find out if the bank is willing to finance the property you have identified.
2. Save for the margin money- Since you will have to pay the margin money yourself, you must arrange for it. It is safe to assume that you will have to pay at least 20% of the property value as down payment. One way of bringing down the margin money is to negotiate hard with the builder on the total property price. Generally, you can expect to get some discount from the builder as well. Here too the key is to negotiate hard.
3. Shop around for the best deal- You must shop around for the best deal offered on home loans. The rate charged varies a great deal between banks and hence it makes lot of sense to do some shopping around. You may do this by comparing the rates offered by various banks. This is available on
4. Negotiate hard - Even after shortlisting the bank with the best offer for you, you must drive a hard bargain since most banks have margin for further reduction in rates charged. Even a half percentage waiver on your loan could mean a huge benefit for you over the entire tenure of the loan.
5. Decide on fixed or floating interest rate- You must also decide whether you want fixed rate of interest or floating.In fixed rate loans, the interest rate remains fixed over the life of the loan, irrespective of the interest rates in the open market. The plus point of fixed rate loans is that they remain steady over the years, making at least one aspect of your monthly cash flow predictable. But the flip side is that the lenders charge a higher rate of interest for fixed-rate loans because if interest rates shoot up, they lose the opportunity to make more money on the funds they are lending. In floating rate loans, the rate of interest changes according to a set formula, as interest rates fluctuate in the open market. The plus point is that lenders charge a lower rate for such loans because you are taking on some of the interest-rate risk. The downside is that interest rates may rise anytime and you can end up paying more than fixed rate loans.
6. Limit your EMI to 40% of the monthly income - You must ensure that the monthly EMI on your loan is not more than 40% of your monthly income. This will ensure that your finances are not overstretched and you are able to meet any untoward expenditure in future.
7. Take loan in the name of both the spouse - If your spouse is also working, then it makes sense to take the home loan jointly. It will help you increase your loan eligibility . Both of you will also get Income tax benefit under IT ACT.
8. Be ready to loose the processing fee- Banks charge processing fee just to process your loan application. At times this may not result in your loan disbursal and in such situation, the bank will not refund you the processing fee. You must be willing to pay that as service fee to have them process your application.
9. Find out the prepayment charge - About 50% of the home loan borrowers end up prepaying their loan and as such the prepayment penalty is an important aspect in the whole equation. Look out for lender which has lowest prepayment penalty.
- Legal fee paid to the bank
- Fees paid to the bank for property valuation etc
- Cheque Dishonour fee etc.


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