The Househunting Chronicles - Part 3 - The return of the Banker

Story till now: I had purchased a property in Nerul on the outskirts of Mumbai in early 2008. I finalized a sale transaction for the property recently and started looking for houses near Chembur in Mumbai close to where my parents stay. Had shared a few observations about the entire process in my previous blog posts.

Having finalized my dream home and paying a token to the builder, I started another painful process called 'Searching for a Home Loan'. Having taken a loan for my last purchase in 2008, I was quite experienced with the process and was aware of the various steps and processes. Since I had spent many sleepless nights in 2008 worrying about my loan disbursement I decided not to take any chances this time. My plan was simple - Apply to 2-3 banks at the same time and take the loan from the one which gives the best deal in terms of interest rate and speed of disbursement.

For the uninitiated let me first take yo guys through the process of a home loan sanction and disbursement in India. (Disclaimer: This is not a moronic Economic Times type articles meant for the retards)

Step 1: The collection of documents. Since I belong to the salaried class I shall cover aspects mainly related to my clan. If you have less than 2 years of work experience, please don't bother applying to a Private, MNC or a PSU bank for a home loan, you are better off trying with a NBFC.
Basic documents you will need are:
 - Salary Slips (3-6 months depending on the bank which you are applying to
 - Form 16 (1 - 3 years depending on the bank which you are applying to)
 - Bank Account statement (6 months minimum, and this is for the account into which your salary is paid)
 - PAN card copy (everyone needs it)
 - Identity and Address proof (Driving License or Passport Copy)
 - Photographs (1-4 depending on the bank where you apply)
 - IT returns (1-3 years, usually Form 16 should do, but some banks insist on this)

These are some basic documents which every bank asks for. I suggest that you make 3-4 sets and keep them ready. Please ensure that you sign on each and every page of all the documents. Most banks do this to confirm that the documents received are from prospective customer only and not someone else (to prevent fraud).

Now for the silly document requests.
 - Copies of degree / post graduation certificates (some PSU banks)
 - Copies of repayment records and closure letters of past loans (once again PSU banks and some NBFCs)
 - Recommendation letters from branch managers where you took education loans in the past (Bank of baroda actually asked me for this)
 - Appointment letter from present employer (some private banks and most PSU banks ask for this)
Tips:
 - If you are applying for a joint loan with the wife / husband, please keep a copy of your marriage certificate ready. if you haven't bothered getting your marriage registered forget about applying for a joint loan. (more tips about obtaining a marriage certificate in a later post)
 - If you have any personal loans / educational loans / car loans please mention it truthfully in the application form, else the bank credit will get back saying you withheld information from them.
 - There is a difference between a co-applicant and a joint applicant. A co applicant is a stupid concept introduced by banks to ensure that someone takes over the liability in case you die, the co applicants financials wont be considered for loan eligibility and he / she need not be a joint owner of the property. A joint applicant is also a joint owner of the property and his / her financials are considered to increase your loan eligibility.
 - If your loan amount is small (below Rs 25 lakhs) even Sales executives will throw attitude and collect your documents according to their convenience.

Step 2: Logging in the documents
This is where the home loan executive collects your documents and creates a file in your name. The file is checked for discrepancies like missed signatures, information missing from the home loan application form etc. In case there is any discrepancy then the executive will contact you again and get it rectified. Finally when your file is complete in all aspects, it is logged in the operations department of the Home loan vertical. This process is almost uniformly followed by most banks.

Tips:
 - The worst time to log in your file would be the last five days of a month. The executive will keep avoiding you on one pretext or the other. Most of them have disbursement targets and they are running around to get the disbursals in the cases which are already sanctioned. The best time to send your documents for processing would be the first 10 days of the month.

Step 3: The Verifications
This is a two part process, the first part consists of verification of your home and office address and telephone numbers. The second part consists of verifying your CIBIL records to check for any past defaults in loan payments / credit cards.

Tips:
 - In case you have a friend working in the credit card department of any bank please use your charm and get a copy of your CIBIL report for free beforehand. You can also get it through a painful process through the CIBIL site which is best avoided. Usually banks look for a CIBIL score of 750+ to sanction a loan
 - If you have some late payments in your credit card or personal loan accounts worry not, they are unsecured loans and a home loan is a secured one so the late payments don't matter so much. However a default is a serious matter and might result in you application being declined.
 - Many a times (especially with PSU banks) you repay a loan and they forget to update the CIBIL records. Always ensure that you have documentary proof of a loan repayment (statement / closure letter). This is important because outstanding loans on your CIBIL file will reduce your loan eligibility.

Step 4: The Approval
This is where the people in the credit department approve your home loan amount and give the go ahead to another department to issue the sanction letter to you.

This is just the start, we still have 2 more painful processes lined up which I shall cover in my next blog post. The technical and legal evaluation of the property can make or break your deal.

General Tips and Observations:
 - The first thing you need to be aware is how much loan you want and for how long. Private Banks usually finance 85% of the property value (this includes agreement value + stamp duty + registration). ICICI bank goes up to 89% in some cases. Banks like Kotak do this for their employees but not for external customers. PSU banks are generally more chindi and sometimes do only upto 80%. MNC banks also usually do 85%, for some senior employees they go upto 90%. So if your agreement value is 90 lakhs ad stamp duty and registration works out to Rs 10 lakhs. Most banks will want to give you only Rs 80 lakhs to Rs 85 lakhs. Rest has to be paid from your own pocket BEFORE loan disbursal. Bank will also ask you to show your account statement to evidence that the payment was indeed made from your own account.
 - In case you wish to get 90% funding, ICICI Bank or an NBFC (Indiabulls / Reliance / Dewan Housing Finance) would be your best bet. The interest rates in the NBFCs will be slightly higher (0.5% to 1% more thank bank rates).
 - Please make it very clear to all bank executives that you are negotiating with 2-3 banks for rates and approval terms, ensure that they give you an option to stop processing your papers once you have finalized something with a competitor. Once the sanction letter is out, no one will refund your processing fees.
 - Some banks (like HSBC) give 25 year loans, this is really helpful to increase your loan eligibility and reduce EMIs.
 - Some banks like Standard Chartered and HSBC have an interest saving product called Smart Home / Interest Saver. Its a very good product where all your savings go into a savings account linked to your home loan account. The tenor of your home loan keeps increasing according to the savings kept in your account.
 - Most banks have a tie up with General / Life Insurance providers to provide you with a term cover on your loan which reduces with your outstanding. Simply out, if you die the insurance company pays off your home loan and the property belongs to your family. However some banks force you to buy the insurance product and some even club the premium amount with your loan amount hence reducing your payout to the builder. Make it very clear to the sales executive if you want the insurance or not and ensure that the premium amount is kept out of your loan sanction.
 - Loan eligibility norms of most banks differ, however from experience I can safely say that PSU banks will show that you have the lowest loan eligibility. Private bank sand MNC banks are better.
 - If you are looking for low interest rates only please go to a PSU bank, however be warned that the sanction process takes 10-15 days there and largely depends on your relationship with the Branch Manager. Disbursal takes a further 15-20 days as their technical and legal evaluation procedures are too lengthy.
 - If the project is pre-approved / approved (for under construction properties) by a bank it makes a lot of sense to apply for a loan there as the legal and technical evaluation is already done. For a property which is for ready possession and if you are buying through a builder please enquire and find out which banks have financed flats in the building and approach those to reduce the time to disbursal.
 - Resale properties (where you are buying from the house owner) are slightly trickier. Most banks wont touch a flat if the building cooperative society is not formed yet. If the society is not formed please talk to the sales executive upfront and give your papers for processing only if he confirms that his bank finances such projects. Better still, give a copy of the previous sale agreement and related documents to the sales executive so that he can check and confirm.
 - If you are buying a property in Navi Mumbi be careful, two main issues: firstly the way the builders calculate super built up there is totally different from the way Mumbai city builders calculate it. As a result my 865 sq ft Chembur apartment is larger than my 970 sq ft Nerul one. Secondly there are two types of building plots Gaothan plots where the builder has purchased land from a villager who used to own it and CIDCO plots where the developmental authority (CIDCO in this case) sells the plot directly to the builder. Most banks will easily finance the second case and stay away from the first one. This is simply because in a Gaothan plot other family members of the villager might stake a claim to the plot in future and demand money from the builder and the property might get involved in a legal dispute. However a Gaothan plot becomes cool once a society if formed.

Enough gyan about the loan approval part for now. Please to let me know your views and feedback.

Coming Soon: So Long and Thanks for the House (where we evaluate the technical and legal aspects of a loan disbursal)

Previous posts about Househunting:
The Joke called Property websites
The Broker strikes back

The Househunting Chronicles: Part 2 - The Broker strikes back

In my last post I mentioned how property portals like MagicBricks and 99Acres have been useless in helping me find a property to buy which fits within my budget (upto Rs 90 lakhs). I was resigned to using the neighbourhood brokers to continue my search. So armed with the numbers of some brokers me and my dad started doing rounds of their offices.

Stop 1: A fat lady who claims to have sold many many houses in the area asks us point blank if we have the money to buy a property. I felt quite offended by the rude question and offered an irritated response saying that why else would we come to her. To this the lady said that she merely wanted to confirm if the deal for my Nerul property had been concluded and if I had the money to make a downpayment. That angered me and we walked out. I hated her attitude and made a mental note to ensure that I mention this to all my friends and acquaintances who were planning to buy a property in Chembur.

Stop 2: The real estate brokerage arm of one of the leading MNC banks of the country. This one was recommended to me by the wife. Their executive calls us to Diamond garden and promises to show us a 2BHK flat near Amar Cinema at Chembur, the cost of the flat isRs 75 lakhs. We reach at the given time, wait for 15 mins for the guy to show up, he leads the way on his bike and we follow in my car. Instead of taking a left turn to go towards Amar Cinema he takes a right and starts leading me towards Basant Cinema. I wonder if we heard wrong. He stops at a building there and says he is showing us a 3BHK flat now and will show us the 2BHK after that. We point out that we dont want a 3BHK becuse its not within my budget, he gives me the usual broker bullshit 'Sir dekh to lo, kya pata pasand aa jayega'. We see the house and like it a lot, but its quoted at Rs 1 cr so obviously beyond my budget. I once again mention my budget to the guy and tell him that I want to see house that are below this or equal to this amount. He nods his head. Next to took me to a building in the middle of nowhere and showed me a tiny pigeonhole which had rooms as big as my kitchen (seriously, I am not joking). The quoted price for the house was Rs 75 lakhs. No way on earth was I even going to consider it. The executive later called my wife and offered to show similar good properties, thankfully she politely declined.

Stop 3: My parents then went to the broker who had helped my Dad rent an office in Chembur. He showed them around 5-6 properties which either they did not like or were way beyond our budget. Finally he showed them a project which quoted an affordable rate and he claimed that he had done a deal a month ago at a rate which was Rs 200 per square ft lower than the amount quoted by the builder. Parents loved the property and told me about it. I too was kicked about it because it was a 16 storeyed tower with a swimming pool, club house and all that jazz. However I wanted to approach the builder directly and negotiate a rate. Here I made a big mistake, in my eagerness to get that Rs 200 discount, I told my Dad that we should inform the broker and tell him that we will give him a brokerage only if he manage to get us substantial discount.
A time was fixed and we headed to the builders office, the broker didn't bother calling us before the meeting. However when we were looking at the flat which we wanted to book, he called my Dad. Now I was irritated with him because he didn't bother calling us before and also because my friends recommended I deal directly with the builder, so I asked Dad to make an excuse and cut him out. Dad said he was out and would call him later. After looking at the flat we walked back to the builders office and our beloved broker was waiting for us there.
We began our negotiations with the builders representative, Mr Broker just kept quiet. My Dad finally told him to get us a good discount else he wont get his brokerage, so his highness finally 'requested' the builder "Sir, thoda kam kar dijiye please". I was irritated beyond my wits. Somehow we concluded our negotiations with Dad and My best friend (who is quite knowledgeable about property deals) being the major participants and managed to get a price which just about fitted into our budget. However the discount which we got was nowhere close to what the broker promised my dad.
Later on we found out that in fact this particular broker had not even closed the deals he was mentioning. And the price at which he quoted he closed the deal was also incorrect, the actual price was much higher. It seems he just made up the story to impress us and ensure that he gets something out of this deal.

We finalised the property and paid a token to the builder directly, Mr Broker-Who-wanted-a-small-cut was nowhere to be found and we decided to cut him out of the deal. If he comes back to fight Dad might give him a small token amount simply for the effort he put in to show them some properties.

Learnings:
1. Most brokers wont even show interest in you if your budget is small, they will throw massive attitude and behave as if they are doing you a favour by showing you some houses.
2. A lot of brokers tend to boast about the deals which they have done and their great contacts. Ideally you should make discreet enquiries within your circle, if that's not possible observe the broker closely. How soon can the broker get the keys to a flat, how soon can he get you a meeting with the owners etc will tell you a lot about how effective the broker is.
3. If a builder still has a site office in a ready possession project, do not even think of going through a broker. The builder will obviously give you a bigger discount as he does not have to pay the broker. Going through a broker makes sense only when the broker can ensure you a fixed discount over the last quote of the builder.
4. For under construction projects, ALWAYS talk to the builder directly.
5. A broker will usually try to show you flats which he wants to sell not what you want to buy. So if you want a 2BHK within a budget of 80 lakhs, he will show you a 3BHK with a budget of 1 cr first. Some brokers do this to show you how property rates are high and your budget is ridiculous, some do it in the hope that maybe you will like the property and might exceed your budget in trying to buy it.
6. The brokerage of the broker is ALWAYS negotiable.

Services you should insist your broker provide:
1. Negotiating the rate as per your budget not a compromise between what the owner wants and whats your final limit.
2. Helping you resolve any payment disputes / delays with the owners
3. Helping you with documentation (property related) for bank loans

There is a breed called as a 'good' and 'effective' broker, although its in danger of extinction. Finding one of this species will take some time and you might have to deal with lots of assholes