Many experts are of the opinion that real estate is now a buyers’ market, what with falling or flat house prices and large unsold inventories. You can make what is perhaps the most important financial decision smoother with some groundwork and due diligence on your part. A well-prepared financial plan can help you tide over the anxiety.
Readying an upfront sum
Typically, a bank finances up to 75 per cent of a property’s price, of course, only after you pay the rest of the amount.
Treat home-buying as you would any other financial goal. Start saving early for the same. Mumbai based certified financial planner Parul Maheshwari recommends investments in hybrid and equity funds, if you have more than five years on hand. For shorter time frames, she recommends investing in bond funds and fixed deposits. “As you move closer to your goal, you should move your money into liquid funds or fixed deposits,” Maheshwari adds.
But not everyone has the corpus ready. Some start saving late. “Avoid taking personal loans as they are high-cost funding options and they eat into your loan eligibility,” says Maheshwari.
Kiran Telang, founder Dhanayush Capital Advisors also insists on using own funds for down payment for home loan instead of personal loans. “If there is a minor shortfall, you should consider raising soft loans from friends and family. Avoid touching your retirement savings for house purchase,” Telang adds.
Typically, banks offer pre-approved loans to its long-term customers and, at times, to new clients as well. You still need to apply for a pre-approved loan and banks would consider your applications, credit score, and so on. A pre-approved loan is given even before you buy a property. So, the chances of surprises – the bank rejecting your loan application after you pay the builder – are less.
Ensure that your credit report is error-free. A good credit report is a starting point to applying for a pre-approved home loan.
Pre-approved home loans come with riders. For instance, some banks don’t give loans for properties bought in certain geographies. “Do check the riders the bank has stated in the pre-approved loan letter. It reduces the chances of unpleasant surprises from the bank’s end at a later date,” says Sukanya Kumar, founder and director, RetailLending.com.
If you have the down payment money and a pre-approved home loan letter ready, builders may view you as a serious buyer. This may help bargain for discounts to you and close the transaction quickly.
“You can negotiate with the bank till the time of the disbursement of the loan, if there is a difference between the rate of interest mentioned in the pre-approved loan letter and the rate at the time of disbursement,” says Kumar.
Do not overstretch your finances while going for a home loan. “Your home loan equated monthly instalment (EMI) should not exceed 35 per cent of your net take home monthly income, says Maheshwari.
Getting to the right property
Once you have your funding in place, you should start looking for an ideal property. Do assess the property on factors such as location, connectivity with the business hubs in the city, the quality of the infrastructure and of the construction, documentation and price.
The documentation part is taken care of by the RERA (real estate regulation act) website, if you buy a ready-to-move-in or an under-construction property.
For a ready-to-move-in property, ensure that the occupancy certificate is taken. In case of an under-construction apartment, do check for the building plan, commencement certificate, intimation of disapproval and the title report of the land, among other factors. Visit a few of the developer’s other projects to assess the quality of construction.
If you are going for a second sale, you need to be a tad cautious. Ensure that you see the original chain of documents, and the means of transfer along with the payment of stamp duty and registration charges at the time of each transfer. Naushad Panjwani, managing partner, Mandarus Partners recommends engaging a lawyer to conduct the title search. It is better to err on the side of caution.
Identification of the right property is one step in the right direction, though the process does not end there. “Banks conduct a valuation exercise of the property. For high-value properties (typically more than Rs 1 crore) two agencies are engaged. The loan-to-value ratio is applied on the lower of the two values so obtained,” says Kumar. If two agencies assess a property and come out with values of Rs 1 crore and Rs 1.1 crore, then Rs 1 crore is taken as the price by the bank. The bank gives a loan to the tune of 70 per cent of this amount.
This can reduce the loan amount if the valuation arrived at by the bank falls short of the price quoted by the seller. The shortfall needs to be funded by the buyer. Be prepared with some additional amount as buffer to face such situations.
Apart from these aspects, prudent financial planning is necessary. Have an emergency fund to the extent of six months’ expenses. Take adequate term cover to all liabilities. Finally, ensure that the EMI does not become too much of a stretch on your finances.