What to check out before buying a home :: Business Line

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Banks and housing finance companies pre-approve residential projects by carrying out property due diligence themselves, which provides credibility to the project from the buyer's perspective.

For most middle and upper-middle class families, a house is the most expensive asset that they may ever own. The asset also has emotional value and therefore families should take care not to compromise on meticulous research before buying property. The following is a set of must-dos before buying a house.

DUE DILIGENCE OF PROPERTY

To ensure credibility of the builder, two must-have documents for a home buyer are the approved drawings of the project and the Intimation of Disapproval (IOD), which is an instruction set pertaining to construction, from an authority to the builder.

Buyers looking to buy space in under-construction buildings should obtain a no-objection certificate (NOC) from the lender, if the property is mortgaged, and a commencement certificate which is a proof that the builder has obtained all licenses and permissions from the appropriate statutory authorities.

In case the buyer doesn't hold the NOC and the builder defaults on his mortgage payments, the buyer may be evicted from the property.

The builder should provide a clear land title, which implies that the property is free of litigation and associated debt.

A source of risk for under-construction projects is the uncertainty on completion time.

Banks and housing finance companies are pre-approving residential projects by carrying out property due diligence themselves.

This provides credibility to the project from the buyer's perspective. Hence before opting for a loan one can check if the particular project they are interested in is pre-approved.

The buyer should also ensure that the property he is evaluating has adequate water supply and there is no problem of voltage fluctuation, which can damage electrical appliances.

HIDDEN COSTS

Buyers ought to be wary about per square feet price quoted by builders, as there are myriad hidden costs not captured in the quote. Stamp duty and registration fees are mandatory fees and amount to approximately 5 per cent of the value of the property.

Majority of urban property purchases are financed by home loans and therefore there is the cost of an insurance policy to cover the loan. Customising the property to the buyer's tastes and preferences entails a substantial expenditure on purchase of, interior furnishing, furniture and white goods. Liabilities like unpaid telephone and electricity bills may be present in case of a second hand property.

ACCESSING YOUR HOME LOAN

It is advisable for buyers to approach a bank or housing finance company only after selecting the property to buy. Some banks are averse to financing purchases of property more than 15 years old which has been resold more than twice.

Financing purchases of under construction properties, which are not listed with any of the banks for pre-approved loans, is difficult. Large builders may have tie ups with banks or finance companies which offer lower rates and lend up to 80-85 per cent of the property value. It is always advisable for borrowers to lower their loan exposure.

INTEREST RATE ON HOME LOAN

Home loans are costly in the current scenario, especially since the RBI has been hiking its borrowing rate consistently over the past year and half.

It is believed that interest rates are currently at or nearing their peak and it could only be a matter of time, when the hike cycle leads the way to the downward trend in rates.

Borrowers who are yet to identify a good deal could perhaps postpone their decision until the downward trend starts.

However, if a good deal comes by a potential borrower should remember that interest rate hike and fall is part of a cycle, especially so in a long term loan.

With prepayment penalty done away with as far as housing finance companies go, one has the option of switching over to a cheaper loan rate, once interest rates start falling.

Do remember that a higher down payment and prepaying at regular intervals during the loan tenure can also help in saving your total interest outgo for your home loan.

OTHER CHARGES

These should be looked into to understand the exact amount of expenses the buyer would incur towards the home loan.

Processing fees, amounting to 0.5-1 per cent of loan amount is charged by most lenders, in addition to administrative fees and legal charges during loan disbursement.

The buyer has to pay stamp duty which depends on the amount of the loan and the state in which the property is purchased.

Prepayment charges could still be levied on loan repayments made over and above the amount stipulated by the repayment schedule by some banks, which do not fall under the purview of NHB (National Housing Board). Making EMI payments after the due date attracts delayed payment charges. Hence, it makes sense for the buyer to take into consideration all these extra charges, the total loan cost or money outgo throughout the loan tenure when comparing loan offers. This will provide a clear picture of which loan is most affordable for the buyer.

(The author is CEO, bankbazaar.com)