With SBI doing away with teaser loan and RBI increasing policy rates, home loan has become once again more expensive for Indian borrowers. The home loan rates since then have been raised to at least 9.5% offered by SBI and few NBFCs such as Indiabulls finance. Other banks and NBFCs may charge even higher. We cannot do much in this case as the interest rate is affected by RBI’s policy rate. However, we could certainly do our due diligence before buying home on home loan.
Let’s look at top five points that we need to consider before buying our dream house.
Your Home Budget
This is one of the most crucial decisions. Know the quantity of loan you can afford. The banks may sanction loan based on your income but you should look at your monthly expenditure and see if you can afford the maximum that banks offer.
As a general rule, the EMI for all the loans you have taken and going to take should not exceed 40% of your income. This is when you have saved 3-6 months gross income for any emergency purposes. Hence if your income is 1 lakh per month, your combined EMI for all the loans you have taken should not exceed 40,000 per month. Some banks enforce this on their own. However, the responsibility lies with you.
The interest rate varies from Bank to Banks and now after NBFCs started competitive rates, you have more choices. In this context, you should also check other fees such as processing fee, documentation fee, and any prepayment penalty associated with the home loan. At the same time do research on the best option that banks offer. Home loan is a huge amount and hence even a difference of 0.5% can make big difference in pay-outs.
You should also get the maximum tax benefit from your home loan. See if you can make your spouse co-applicant and avail the tax benefits. You will simply double the tax benefits if there are two co-applicants.
Builder’s track record
Check the name of the builder and do your research on how the builder has delivered in the past. Check internet discussion groups and forums for views on the builder. Talk to people who are living in homes built by the same builder. This is very important as you are going to make the biggest investment of your life. There are sites such as India Property Review (www.indianpropertyreview.com). This site has rating of building and housing societies. They also publish research reports on housing societies.
You have to have long term view of the investment. The property should be stable enough to last 50-60 years so that if you want to sell it and buy a bigger home, you should be able to do it without much hassle. This is where buying from a reputed builder becomes more important.
At the same time, see if you can link your loan disbursal based on construction instead of time. This will put pressure in builders to build the home faster.
Legal and Documentation
You need to get a lawyer who can search the title and associated documents before you buy the home. You should get everything in writing from the builder. The sale deed should be duly signed by both the buyer and the seller.
You should also ensure that lay out plan, building plan, number of floors, and ownership documents are in order. You should take legal help from a lawyer if you do not understand any document. Apart from these documents, make sure to get the encumbrance certificates from the sub-registrar. The encumbrance certificate tells you the record of last 30 years.
All taxes should have been paid on the property. You should get this from municipality and from the owner too as he or she will have the receipt of the taxes paid.
Last but not the least, the NOC certificate from water and electricity boards has to be obtained.
The most important part of a real estate piece is location. Even if you have to pay little extra, you should do it. The most important aspect of the right location is future prospect of big construction such as mall, IT Park, company, SEZ, airport, railway lines, or any other commercial space. Apart from this, the points to consider in any location are the following:
1. Availability of civic amenities such as power, water, roads
2. General environment
3. Closeness to main road, markets etc.
4. Possibility of renting out your home
There are times when borrowers buy property to sell it once it is complete and pocket the profit. If you have such intentions, location becomes more important.