Monday, April 28, 2008

Buying Property: Home Loans

After a long gap, the series on buying property is back! The previous sections in this series, in case you missed them, are listed below. This one is on getting a home loan and all the fluff around that. I’ll probably break this up into a couple of sections since it promises to be fairly long, so check back if you’re interested.

Previous articles:
Key Players in the Property Buying Process
Selecting Property, Negotiation, and Deal Finalization
Property Due Diligence
The Agreement to Sale

Getting a Home Loan: Selecting a Bank
If you are salaried, getting a home loan is probably one of the easier parts of the whole property buying process. There are two reasons for this. For one, the competition amongst banks for home loans has made life simpler for consumers. Secondly, a home loan is the most secure form of loan from a bank’s perspective. So, they make sure that you, the consumer, get the money you are asking for… more or less. Sub prime crisis not withstanding.

The first thing you’ve got to think about once you start is which bank you want to do business with. To select a bank you need shop around a bit. As a starting point you can look at magazines like Outlook Money, which lists out the per lakh EMI of most banks. You can use this to shortlist your banks. My recommendation is that you take a sample of different types of banks, say, a nationalized bank, a couple of MNC banks, definitely your usual ICICI and HDFC and then a couple of NBFCs like GE Money and Citi Financial. If this list is too big and you are short on time, then just go ahead with ICICI and HDFC. Selecting the bank after this shortlist should be a function of the following parameters:

  • Cost: This is obviously the most important factor that one looks at. But if you carefully analyze most banks offer EMIs which are within Rs. 5-10 range of the others. However, what one should look for is whether the bank will charge a pre-payment penalty if you pre-pay your loan; what is the processing charge – usually it is in the Rs. 5000 range. Try and see if the bank will reduce this fee; if you pre-pay are you able to reduce your EMI or the bank just reduces the tenor. Also, you should check with the bank if they have any special scheme going on with the builder you have chosen or if they have different house loan products for different segments of consumers e.g. some banks have a step up kind of EMI, where in the EMI is lower in the first few years and then gradually goes up.
  • Service: This is a very critical element in your selection of a bank. Definitely check with anyone and everyone you know about this. Especially ask for things like disbursal process (how cumbersome it is) and the service level post disbursal (things like getting an account statement etc.). These things really make or mar your experience once you get a house loan.
  • Loan amount being offered: This is a very important criterion for many people who do not have lot of cash to make down payments. At this stage, you should ascertain how much loan you will get. You should also check whether the bank is willing to fund some of the cash portion of the deal over and above the white portion.
  • One of the other things people look at is proximity and number of the bank branches. It is always better to take a home loan from a bank which has a large number of branches.
  • Perhaps an often overlooked fact is the quality of the sales person. I think the quality of the sales person is extremely key in the process. You should buy from a sales person who seems competent, knows his stuff and is able to guide you with not only the house loan but also with general information on property. A good sales person can also find creative ways to overcome any issue that you may come up with be it loan approval, disbursement, or service. And believe me, there is a lot of room for creativity here.
  • Last but not the least, your choice of a bank will depend on whether the property you are buying is in the approved list of the bank or not. Do not assume that a particular project, even though it is from a reputed builder will be on the approved list of all banks.

Coming up next, the loan approval and disbursal process. Do leave a comment if you have any feedback on this post, or if there’s something additional you’d like to know about.

1 comment:

Achuthan Kutty said...

Hi!

I am possibly moving into Gurgaon in August - will be working at the Global Business Park - MG Road.
I am looking for a well developed complex, that has all the necessities (and luxuries) - importantly the swimming pool, the gym and the 100% power back up facility.
Where do you think I should start looking if I was not aiming to drive more than 20 minutes to work?
Yes I almost forgot - I am looking for a 2 bed apartment only, as it will only be I who will be moving in, while the family stays put in Bangalore.

Thanks a ton - and just by the way, the blog is wonderfully written! Keep it up.
Achuthan