A Home buyer's Simple Guide to Short-List a Financing Option

Buying a home is one of the most important decisions a person makes in his life. Weeks, months and sometimes even years are spent searching for that Dream House that a person would like to call a Home.

It is a very important decision not only because of the emotional value attached to it but also due to the enormous financial impact that this decision has on one's life.

Deciding on the house is only half the job done, as arranging for funds to buy this prized possession is an extremely critical step in the whole process. However, many a time, the intensity or dedication witnessed while selecting the property is missing while deciding on the financing options available. It is important that the buyers do their homework on the market players and the various products being offered before deciding on the financing option. Listed below are a few of the factors that one should keep in mind before deciding to take a home loan:

It is advisable that the buyer identifies the property before selecting the lender. By doing so, the buyer can avoid spending time and money on getting his loan pre approved and later on finding out that the property does not fit the requisites of the lender. If the property is identified first, the lender would be able to provide an informed decision.

Lenders have their own methods and standards for calculating loan eligibility, norms on how much margin a customer is required to contribute also differ, though today a 20% margin is mostly the standard.

Choosing a lender who is more flexible on both the above factors would be advisable.

Loan seekers are expected to furnish various documents to the lender for obtaining a loan approval. These include financial documents like bank statements, salary slips, income tax returns and Know Your Customer (KYC) requirements like identity and address proof. The faster these are provided the quicker the lender would be able to process the loan.

Once the buyer is ready to choose an appropriate lender, the following aspects need to be considered before deciding on the financing option:

The rate of interest is one of most important factors that govern the decision to avail a home loan. The most popular options available in the market are fixed and floating rate of interest. A fixed interest rate (may be fixed for entire loan tenure or may be fixed for a certain time period) ensures that the rate of interest on loan remains the same over the fixed period. Floating interest rates are dynamic and may move up or down based on the market situation resulting in proportionate change in the EMI or the loan tenure. An appropriate choice needs to be made depending on one's financial status and risk appetite. Currently most home loans being provided, carry a floating interest rate.

Processing fee or administrative fee is a fee charged by the lender for processing of the loan. The quantum of processing fees varies in the range of 0.5 to 1.0% of the loan amount and this information is available on the schedule of charges which is published on the web-site of all banks. It should be noted that payment of processing fees does not guarantee sanction of a loan. The other major fee is the prepayment fee charged when the loan is to be closed before normal maturity. Most lenders charge around 2% of the loan balance as a penalty for prepayment though some lenders waive this charge if the funds for the closure are from own sources and is not a transfer of loan to another lender.

Time taken to process the loan is crucial since most buyers would have finalised the property and may have paid earnest money to the builder/seller. The balance payment needs to be made within a prescribed time period failing which the buyer could be penalised for delayed payment. Therefore, for some, the turnaround time to process the loan becomes an extremely critical aspect while taking the decision.

Post-sale service is an important factor which requires consideration when deciding the financing option. The lender should be well equipped to handle requests like interest certificate (for tax purposes), statement of accounts etc within a reasonable time frame. It is advisable to be associated with a brand that has a recognised high level of customer service.

The loan should be availed for the maximum tenor possible as by doing so, the monthly installment (EMI) is kept in line within monthly budgets. Most lenders have the facility for accepting part payments and as and when excess liquidity arises it is advisable to pay a portion of the loan thereby bringing down the tenor of the loan.

Most lenders offer a term insurance policy that provides an insurance cover for the loan, the premium payment frequency is generally one time and the lender also finances the same. It is advisable to avail of an insurance cover for the loan as the near and dear ones are not troubled in the event of an unforeseen occurrence. The insurance company settles the loan with the lender and the family is not troubled to repay the loan. Plan and set aside money for interiors

Sometimes home buyers dip into all their available savings for fulfilling the margin money requirements. Plan ahead and remember to factor in furnishing cost whilst speaking to your financier.

-      Adv. R. P. Rathod.