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Saturday, January 9, 2016

Buy House first or get Home Loan first?

 

Buy first or get loan first?

Before you buy a dream house, it is better to plan your budget for the same. By preparing a budget while you are looking at homes, you can better focus on loan payment goals and how the new house will affect your total expenses. Besides house-price, you will have to consider payments such as the fees charged by the financial institutions, the amount required to be paid upfront, broker's fees, maintenance charges etc. But, at the same time, it is equally important to identify the property which you are planning to buy before applying for loan. It is better to talk to your bank after identifying the property as some banks/HFCs do not readily finance un-identified property.

Ideally one should do both the things simultaneously, speak to a few loan providers while you shortlist the property. This will help you to find out what kind of loan would suit you. Moreover, the disbursal of loan also takes some time which you can utilize while selecting a house/property to purchase. As soon as you receive the loan, you can make payment of your chosen property. Following are certain guidelines which you may consider while applying for loan and planning to buy your dream home:

  1. Find out your loan eligibility. Talk to several banks/HFCs to find out which one can give you the maximum amount on the most favorable terms. Try to seek a bank/HFC that allows you to club the incomes of your spouse or other close relatives (parents, siblings, children etc.) to increase your loan eligibility.
  2. Once you finalize your dream home, the bank/HFC will get the cost of the property evaluated by its own experts. Usually, the evaluation throws up a different price (in most cases, lower) from the actual price you are paying for the property.
  3. Shortlist four to five banks/HFCs and get them to compete for your loan. The cost of your loan also depends a lot on your ability to negotiate.
  4. Apart from interest rate, also check various charges like processing fees, pre-payment charges, legal fees, valuation fees and other hidden costs. Take all these factors into account before choosing your lender.
  5. Processing fee varies from lender to lender, but is usually around 0.50% to 1.00% of the total housing loan amount. It is generally non-refundable. A particular lender may waive the processing fee during a special drive or for a good customer.
  6. When opting for a 'fixed interest loan,' remember that in some cases, it may remain fixed only for a certain period of time, as the bank/HFC may retain the right to change even the so-called 'fixed rate'. So, probe further and read the fine print before you sign on the dotted line.
  7. If you have signed a floating rate loan, check whether the rates of your chosen lender had moved down in the years when interest rates were dropping. This will indicate what you can expect as and when the interest rates start moving down and the time comes for the bank/HFC to pass on the benefit to you.
  8. It is advisable to take life insurance and critical illness policy along with a home loan. Life insurance policies provide cover in case of an unfortunate incident like death of borrower and ensure that your family members inherit your home — not your home loan.
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1. BNP Paribas Long Term Equity Fund

2. Axis Tax Saver Fund

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4. ICICI Prudential Long Term Equity Fund

5. IDFC Tax Advantage (ELSS) Fund

6. Birla Sun Life Tax Relief 96

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8. Reliance Tax Saver (ELSS) Fund

9. Religare Tax Plan

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