1 Select the property.
This step is normally a matter of luck — either you can find a property you like quick enough, or you may search for months. It is always better to seek properties after a careful consideration of what you want. Do you like a certain locality, or a certain kind of neighbourhood? Do you want proximity to hospitals, schools, etc.? Setting out without a clear idea of your budget, the house’s size and which amenities you seek, will only confuse you. Instead, enlist the help of a real estate broker in the area and get them to line up properties for you to see. Once you find a house you like, you can proceed further and ask for the house documents.
2 Check your home loan eligibility.
While you are looking at houses, it might be a good idea to check your home loan eligibility. Most first time home buyers assume that if they make a good income they will get a high loan amount. Besides, they are unaware that financial institutions do not take into account the entire salary when calculating loan eligibility — House Rent Allowance and Medical Allowance are always subtracted from the monthly income. Besides, you cannot get the loan amount you seek unless your income is quite high and your credit history is good. Normally, eligibility is computed basis your age, annual income and credit history. Use an eligibility calculator to find out the estimated loan amount you can get. This will help you narrow down your choice of houses. For example, if your eligibility is only Rs 40 lakh but the house you wish to buy costs Rs 80 lakh, you must reconsider your choice.
3 Calculate your likely monthly outgo.
Once you calculate your home loan eligibility, use an EMI calculator to find out how much your monthly payment towards the loan will be. Check the home loan interest rates being currently charged, and how much EMI they will amount to. The higher the interest rate, the higher is the EMI. You can reduce the EMI by opting for a longer tenure. Another factor to consider is that you must juggle the rest of your finances after subtracting the EMI from it. If you feel that the EMI will burden your monthly budget, seek a lower amount of loan. Normally, banks and financial institutions advise that the EMI must not amount to over 50% of your monthly income.
4 Find the best home loan providers.
Partnering with the best and most reputed home loan providers will ensure that you get the best deals on home loan products. Look for financial institutions with the lowest home loan interest rates, and those with a proven track record of quick approval and disbursal processes. But be wary of such terms as ‘Apply for instant loan’ on these lenders’ website: it means that you can initiate the loan application process but it will be completed only post verifying your documents. No home loan is approved or disbursed in minutes. If you already have a good relationship with your current bank, you can ask them to explain their home loan application process and get a schedule of their home loan interest rates.
5 Apply for the home loan.
After this, get your documents ready and apply for the home loan. It is important to follow the lending institution’s instructions to the letter — incorrect information will get your loan application rejected or stalled. You may even apply for a pre-approval while you look for good properties. The pre-approval process will set out the terms of the loan that the lender will offer you and it ensures that the loan disbursal process happens quickly when you apply for the loan against a certain property.
6 Submit the property documents.
The home loan financing institution will have a strict evaluation and inspection process. All the documents you provide will be studied and cross-verified: your employer can expect to get a call and your current residential address will be physically checked. Meanwhile, the property you wish to buy will be studied in detail for construction quality, life of the building, the area of the house, current market value and what the seller’s price is. The same evaluation process applies for under-construction properties, where the project and the real estate developer are studied in detail. Any lacunae in the property documents will be pointed out and you will receive time to rectify them. For instance, there could be a document missing in the chain of agreements (in case of a property sold multiple times since its inception) or there could be a dispute over the title of the property or land that you wish to purchase. Most housing finance companies give the applicant time to rectify these factors, while others might reject the application outright.
7 Ask for the schedule of charges.
Every financial institution has its own schedule of charges for the home loan. You will be charged both processing fees and administrative costs, while there may be penalties on pre-closure of the loan before time. Most banks and financial institutions do not charge foreclosure charges for home loans taken on a floating interest rate. Meanwhile, some lenders will insist on charging legal inspection fees and also ask you to buy house insurance along with the home loan. Try and negotiate on these terms and shop around for the best deal vis-à-vis rate of interest charged and the schedule of charges.
Buying a home is certainly hard work, but it is not as tough as it first appears if you take a home loan.