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For a majority of people bank financing is the primary route to raising finance for buying property. This is a trend all over India. The real reason behind the strong real estate growth in the country has been the measures taken by RBI to prop up bank loans for housing.
Due to the formation of a temporary bubble towards the end of 2000, RBI changed the norms for bank finance from 100% to 80% of the property value, so that customers have to at least put in 20% of the money from their pockets for purchasing a property. Most of our customers who come to Nandanam for advise on financing their home purchase usually have three queries: 1) Which bank or financing institution do you go for the home loan 2) How much do I have to pay upfront to avail the loan? 3) What documents would be needed?
Typically when we advise customers on financing their property, we try and understand their risk apetite. When it comes to liabilities, if you are a salaried employee your liabilities such as Auto loan, Home Loan and others should ideally not be more than 50% of your take home pay. This is because you have to also plan for monthly expenditure, education for children, marriage, medical expenses, investments (if any in mutual funds or shares or FD's) and contingency expenses.
The same applies to banks as well. Usually banks would finance based on 50% of your take home pay i.e. if your 50% equates to Rs.50,000 and you have no other liabilities, you could avail a loan of up to 50 Lacs for a period of 20 years. This means your net property value (excluding regn, stamp duty etc.) could be around 65 Lacs. The rules vary depending on the type of the property for e.g. residential flat or land or independent house etc.
For the question of which financing institution to go for, it purely depends on what you want to expect in terms of service, loan interest rates, other charges etc. As you might know, SBI has probably the largest home loan portfolio in the country and offers good terms to the home loan customer. But some people do not have the time and energy but rather prefer a home loan executive from ICICI or HDFC doing all the paper work. One inside tip which we would like to offer you is to have a good relationship with the manager of the branch from which you are availing the loan. For e.g. some of our customers availed bank loans from SBT and had a really good experience, when they faced trouble paying their EMI's. The bank on a case to case basis gave a little leeway to the customers if they could not pay their EMIs on time. For large private banks this may not be the case and you might have ended paying up some penalties. So the choice of the financing institution needs to be made based on a plethora of factors and a good property consultant should be able to advise you on the pros and cons of each.
With regards to how much one needs to pay upfront for the loan this again varies on a case to case basis with some thumb rules like we explained earlier. The real benefit which a good property consultant brings to you is not only negotiating payment terms with the bank or HFC, but also in negotiating payment terms with the builder or seller of the property. To give an example, one of our customers liked a property near Technopark and wanted to buy it immediately on a short trip to India. For him what mattered was not the bank itself from where he availed the loan, but the upfront payment which was not there at his disposal at the given moment. Usually for doing the agreement, the builder would ask for 20 to 25% of the value of the apartment paid either completely by you, or partly by you and partly by the bank. In this case, the customer could avail the loan based on his salary, but he did not have all the money needed for the upfront payment. We helped negotiate with the builder, so that he could avail a 6 month time frame for the agreement and pay the money, instead of the usual one or two months which builders give customers once they pay the advance and book the property.
This example may not be hold good for all builders and all properties. Its the relationship that the property consultant maintains with the said builder or the property owner, and his experience in finance and expertise in agreement negotiations which really changes the game for the customer. The customer in question is really happy with his purchase and is paying his EMIs as planned. Also in terms of time value of money, the customer could avail the bank loan at a later stage and hence got more than what he desired.
Last but not the least, were some customers struggle with is documentation like Tax Returns, Pay Slips etc. It would be prudent on your part to check with your properly consultant, if you have paucity of time, as to what kind of documentation would be required to avail the loan. Even if you do not have everything in place, a good advisor can help with all of what is required for you to finance your property.
Due to the formation of a temporary bubble towards the end of 2000, RBI changed the norms for bank finance from 100% to 80% of the property value, so that customers have to at least put in 20% of the money from their pockets for purchasing a property. Most of our customers who come to Nandanam for advise on financing their home purchase usually have three queries: 1) Which bank or financing institution do you go for the home loan 2) How much do I have to pay upfront to avail the loan? 3) What documents would be needed?
Typically when we advise customers on financing their property, we try and understand their risk apetite. When it comes to liabilities, if you are a salaried employee your liabilities such as Auto loan, Home Loan and others should ideally not be more than 50% of your take home pay. This is because you have to also plan for monthly expenditure, education for children, marriage, medical expenses, investments (if any in mutual funds or shares or FD's) and contingency expenses.
The same applies to banks as well. Usually banks would finance based on 50% of your take home pay i.e. if your 50% equates to Rs.50,000 and you have no other liabilities, you could avail a loan of up to 50 Lacs for a period of 20 years. This means your net property value (excluding regn, stamp duty etc.) could be around 65 Lacs. The rules vary depending on the type of the property for e.g. residential flat or land or independent house etc.
For the question of which financing institution to go for, it purely depends on what you want to expect in terms of service, loan interest rates, other charges etc. As you might know, SBI has probably the largest home loan portfolio in the country and offers good terms to the home loan customer. But some people do not have the time and energy but rather prefer a home loan executive from ICICI or HDFC doing all the paper work. One inside tip which we would like to offer you is to have a good relationship with the manager of the branch from which you are availing the loan. For e.g. some of our customers availed bank loans from SBT and had a really good experience, when they faced trouble paying their EMI's. The bank on a case to case basis gave a little leeway to the customers if they could not pay their EMIs on time. For large private banks this may not be the case and you might have ended paying up some penalties. So the choice of the financing institution needs to be made based on a plethora of factors and a good property consultant should be able to advise you on the pros and cons of each.
With regards to how much one needs to pay upfront for the loan this again varies on a case to case basis with some thumb rules like we explained earlier. The real benefit which a good property consultant brings to you is not only negotiating payment terms with the bank or HFC, but also in negotiating payment terms with the builder or seller of the property. To give an example, one of our customers liked a property near Technopark and wanted to buy it immediately on a short trip to India. For him what mattered was not the bank itself from where he availed the loan, but the upfront payment which was not there at his disposal at the given moment. Usually for doing the agreement, the builder would ask for 20 to 25% of the value of the apartment paid either completely by you, or partly by you and partly by the bank. In this case, the customer could avail the loan based on his salary, but he did not have all the money needed for the upfront payment. We helped negotiate with the builder, so that he could avail a 6 month time frame for the agreement and pay the money, instead of the usual one or two months which builders give customers once they pay the advance and book the property.
This example may not be hold good for all builders and all properties. Its the relationship that the property consultant maintains with the said builder or the property owner, and his experience in finance and expertise in agreement negotiations which really changes the game for the customer. The customer in question is really happy with his purchase and is paying his EMIs as planned. Also in terms of time value of money, the customer could avail the bank loan at a later stage and hence got more than what he desired.
Last but not the least, were some customers struggle with is documentation like Tax Returns, Pay Slips etc. It would be prudent on your part to check with your properly consultant, if you have paucity of time, as to what kind of documentation would be required to avail the loan. Even if you do not have everything in place, a good advisor can help with all of what is required for you to finance your property.
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