And only after all these things are taken care of that we look the source of funds. Of course, having adequate savings to completely cover the cost of purchase is an ideal situation, as it gives immediate ownership of the property and saves the several lakhs one pays as home loan interest, and also keeps one away from the mental tension of what happens in case one is not able to play the EMIs on time.
However, most property buyers in the country opt for a home loan, and this is one segment which is soaring despite the overall gloom in the economy, as can be corroborated by the quarterly results of India’s largest mortgage lender Housing Development Finance Corporation. The firm saw quarterly profit soar 18.5 per cent at Rs 1,002 crore in the April-June quarter.
NDTV Profit spoke to officials at HDFC and Corporation Bank on the homework you should do:
1. In case you intend to take a home loan, calculate your home loan eligibility first. A borrower is eligible for a loan five times his annual income. So be prepared to fund the balance from your own pocket in case the value of the property exceeds this limit. The amount of loan sanctioned also depends on the borrower’s age and whether he has an existing financial liability, such as another home loan or a car loan. In case the applicant is nearing retirement, then the loan amount gets reduced in such a way that the last EMI coincides with the retirement of the borrower. So if two borrowers, one 40-years-old and the other 50, apply for the same amount of loan for the same property, the younger borrower will be disbursed the full loan amount he is eligible for, while the older borrower will get only half the amount. Whether the property meets all legal and regulatory requirements also makes a difference.
2. Banks never finance 100 per cent of the value of the property. Most banks offer loan of up to 80 per cent of the value, while some can even stretch to 85 per cent in case you earn well, have a clean financial record and have no other financial liabilities. In this case too, the balance has to be funded by you. So, in case the property you are interested in costs Rs 40 lakh, the bank will only provide Rs 32 lakh, while you will have to shell out the balance Rs 8 lakh. Of course, whether you get the Rs 32 lakh loan depends on your eligibility. For someone earning Rs 6 lakh per annum, the eligibility comes out to be Rs 30 lakh. Therefore, the remaining Rs 10 lakh has to be funded from other sources.
3. Managing to secure the sources of funds is not the end of your problems. You will have to pay processing fee for the loan, registration charges, stamp duty and brokerage. Banks charge a fixed amount as processing fee, which could be staggered depending on the amount of loan taken. This is usually Rs 8,000-Rs 10,000 for loans up to Rs 20 lakh, and could go up to Rs 15,000 for loans of larger amount. So be sure to check these details with your bank. Stamp duty is usually between 3 per cent and 7 per cent, and varies from state to state. Registration charges, usually 1 per cent, also vary from state to state. Brokerage costs are again 1-2 per cent of the value of the house.
4. Never go by the cost of the house mentioned on paper. What you see on the brochure is the basic cost of the house, and the actual cost could go up depending on the following—preference of the floor, preference of whether the flat will be garden-facing or swimming pool-facing, whether the flat will be a corner flat with two sides open, whether you want an open parking or a basement parking, whether you want roof rights or not. The list is huge, and securing funds depending on the base price may give you last minute surprises. Gym or club membership and generator for power back-up could also raise the cost of the house. Usually, electricity meters and water connections also attract a one-time cost.
5. Choose your bank carefully after doing ample research on the home loan rates being offered. Most banks offer lower interest rates in the initial years to attract buyers. These rates are then corrected to the existing market levels after 2-3 years. Some banks also offer the option of charging only the interest component of the EMI till the time of possession, while there are some which begin the installments only after the borrower takes possession of the flats. It is also important to clarify what will happen in case the builder delays the delivery of the flat. In most cases, the banks will insist on charging the EMI from the scheduled date, and this will mean that the borrower will end up paying a full EMI as well as the rent of the flat where he is currently residing.