Money talk: What to do and not to do when shopping for a Home loan

Purchasing a house is a complex process with seemingly a thousand little steps that you must accomplish before you have that roof over your head. For first timers, the process may seem daunting. However, armed with information, they can make the process easier, increase the chances of loan approval, and negate the possibilities of rejection. Here are some things to keep in mind.

FIXING YOUR LOAN REQUIREMENT
Do keep your margin money ready for your home purchase. Banks, NBFCs and HFCs may typically finance up to 80 per cent of your property purchase cost. They may even include GST, cost of utilities, maintenance fund contribution, etc. in the loan-to-value calculation. However, the balance needs to come from your pocket. So don’t expect your lender to finance 100 per cent of the cost. It means you should not go for a home purchase if you don’t have the margin money, which could range between 5-30 per cent of the base price. This additional expense will include registration and stamp duty, brokerage, loan processing fees, furnishing, and moving costs.

Check YOUR CREDIT SCORE
Do keep a regular check on your credit score. Even when you are not looking for a new loan or credit card, knowing your score helps. If your score is low for any reason, take corrective steps. This will help when you need a new loan.

Don’t wait till you apply for a home loan to find out your credit score. You may just be in for a surprise — a rude one. Lenders today provide the best loan offers to borrowers with a credit score of 750 or more. Those with lower scores may have to pay a higher rate of interest or have their applications rejected.

LEGALITY
Proactively check if the documents pertaining to the pro-perty you wish to purchase are in order. It should have the necessary legal clearances and its titles should be clear. Before you get into the deal, employ a lawyer to vet the property documents for you.

Don’t settle for your lender’s legal opinion of the property. Don’t take the builder or seller’s word either, nor settle for what your broker tells you. Only an independent, professional verification of the papers would do. Sometimes, your lender’s legal opinion may help you get a loan but still fail to establish that your property has all the necessary clearances.

GETTING YOUR DOCUMENTS IN ORDER
Do your research on the income, identity, and address proofs that most lenders require for processing your loan. Even before you apply for a loan, start collecting these documents. Apart from the Officially Valid Documents which are used as proofs of identity and address, you will need your salary slips, income certificate, Form 16, and income-tax returns to prove your income.

Don’t, therefore, delay such necessary tasks as filing your tax returns.

You must file your income-tax returns on time, not just to prove your income and taxes, but also to avoid the penalties the income-tax department have set for late filers.

HAVING A CO-APPLICANT
Do figure out who your home loan co-applicant could be. A co-applicant need not be a co-owner but will be responsible for the loan repayment.

Your spouse is the ideal co-applicant. The bank may also allow co-applicants to be father and son, parent and unmarried daughter, or brothers — all of which are subject to conditions.

The co-applicant as a co-borrower will be eligible to receive useful tax deductions for the loan payment.

A co-applicant will also help expand the loan amount ambit to accommodate a more expensive property or come to the rescue if your income doesn’t meet the required eligibility.

Don’t wait till you apply for the loan to figure out who your co-applicant will be, or how their co-application will impact the property ownership or loan repayment. These matters need to be sorted before you get into the deal to fix responsibilities now and avoid unpleasantness in the family later. Lastly, your co-applicant's documents — identity, address, and income proofs — need to be in order before you make the application.

MANAGING OTHER BORROWINGS
Do assess the impact a new loan will have on your finances. You may have existing debts — such as a personal loan, or an education loan, or credit card debt — and repaying them may take up a portion of your income. You must assess how far you can stretch your income by taking another loan. You may also want to clear those debts before applying for the home loan.

Don’t take on such a high EMI-to-income ratio that you strain yourself financially. Ideally, all your EMIs should be no more than 40 per cent of your disposable income. Remember that you can only borrow what your current income eligibility allows you to. Buying a home is a long-drawn, challenging journey, and you must do several things right for your own peace of mind. Armed with information, you can make the process smooth.