How to pay for your new home

uying your home is very much like choosing your life partner. Both are long-term decisions and exit routes, if exercised midway, can be extremely messy (not to mention frightfully expensive!).

So you faithfully put in months of heart-wrenching rounds scouting for that dream home. Well, your diligent hard work has probably borne fruit if you are reading this. Which brings us to the next hitch! What about the moolah?

Here's a five-point programme to ensure that finance should not be a problem as far as your little haven is concerned.

1. Get cracking with the immediate costs

Let's be honest. You didn't get up this morning, sip your favourite cuppa and decide on the drive down to work that you would buy a house tomorrow. You have probably mulled over this decision for months (if not years) on end and bounced the idea off numerous people before you actually began the search.

Now, give some serious consideration to the money part.

Start by determining how much it all amounts to and whether or not you can afford it. No, don't just take the buying cost and stop there. Take into account the registration fee and stamp duty.

All these taken together can be presented to the home finance company to be included in the loan amount.

But they won't pick up the entire bill. They will expect you to pay at least 15 percent of the cost.

Add to this the processing and administration fees.

If you have utilised the services of a broker, consider the brokerage.

If it is a co-operative housing society, then the buyer and the seller will have to share the transfer fees.

2. Scout around

Start with the bank where you have an account and pay a visit to other banks in the neighborhood. Get friends, colleagues and family to talk about their experiences.

Besides the personal trips, visit the web sites of banks and home finance companies. If the information they offer appeals to you, give them a call and arrange for a meeting.

Also, take a look at home loan web sites where you will get comparisons of various loans.

A list of some of the companies is provided at the end of this piece.

Don't restrict your decision to the one giving the best interest rate and lowest processing fee. Look at other aspects:

~Is the loan provider going to hand-hold you through the deal or leave you guessing and floundering on your own?

~Is the paperwork minimal?

~Is the processing of the loan speedy?

~Are services like builder approval, a property services cell or even insurance provided?

~Are they open to customising your loan?

3. Get a pre-approval

There are few things as frustrating as not being able to buy your dream home (though searching for one might come close). To circumvent this, get a pre-approval of the loan amount.

Typically, pre-approvals are valid for a period ranging from 45 to 120 days, depending on the organisation.

How do you get pre-approval?

The finance company will come up with a credit score telling you exactly how much loan you are entitled to. That directly translates into how much you can invest in your home!

How does it help?

Once you get pre-approval, you go up a few notches in the seller's eyes. S/he now knows s/he will not have to wait forever to get her/his money. Remember, you are not the only one taking the plunge.

The actual deal can now be closed in a matter of days.

The documentation

While documentation varies as per individual applications and finance companies, typically pre-approval documentation can be broken into the following broad categories:

~Proof of Income: Documents like your salary slip, Form 16, appointment letter or retainership contract letters confirm you actually earn what you claim to earn.

~Proof of Residence: Documentation that validates your address will include your ration card, passport, PAN card, voter's ID, driving license and the electricity bill.

~Proof of Asset Portfolio: This convinces the bank you don't save only when the weather suits you but you do so on a regular basis. Get bank statements, demat account statements, fixed deposit receipts, mutual fund statements, statements of your holdings in shares.

Remember the more information and documentation you provide, the faster they will approve your loan.

No lies, please!

There is no bigger deal breaker than dishonesty in the pre-approval process.

If you have any other loans, please be upfront.

Remember, the person on the other side of the table is not an idiot (despite what you may think). S/he is paid to discover what you try in vain to hide.

Sanction does not mean disbursement

A word of caution: a sanction is not akin to disbursement.

The sanction is just the nod of a head, the disbursement is the handing over of the cheque. That will take place only when you finally decide on your home, come up with the margin amount to be paid and oblige with the entire documentation.

4. Remember, there's life after the loan

A home is not just about getting a loan and then paying an equated monthly installment. That's part of it.

But there's a whole lot more seeping out of your pocket.

Consider your monthly maintenance costs and car parking charges.

You may want to give the apartment a coat of paint or do some basic renovation. Furnishings are required along with basic conveniences like furniture, lamps and kitchen utensils.

More importantly, if you are a first time home buyer -- this involves taking flight from the parental roost -- please remember that all bills (electricity, phone, grocery) will have to be borne by you alone!

Remember to accordingly judge the amount you want to take as your home loan.

5. Decide your loan amount and structure carefully

Once you have used the above rules to arrive at an approximate (and sane) loan amount, identify which of the following first-time home-buyer categories you fall into.

The Cautious Entrant 

You are a periodic and disciplined investor, you don't like taking risks and are of the opinion that debt should be kept at a minimum. You are 35 years of age or older and are of the view that your income will go up steadily, along with your expenses and medical bills. You panic at the mere thought of dragging a huge EMI with you over the years. What you would prefer is a big down payment instead.

The Bindas Borrower

You are very comfortable with raising debt and always adopt the best-case scenario. Typically, you are a young professional or an entrepreneur on the rise, falling in the 26 to 35 age group. You would rather stretch yourself now than compromise on your dream home.

There we are. Five simple steps to ensure that, once you've have identified the perfect house, you don't wait for providence to make sure the finance comes your way. Here's wishing you a smooth ride!

Some useful web sites

Next week: How to qualify for a home loan

Image: Rajesh Karkera