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Dream home: Why you should not shy away from a home loan

In addition to your identity and residence proofs, income and tax-related documents the bank will ask you to submit all the legal documents related to the purchase of the house (Illustration: Shyam Kumar Prasad)

By Alok Singhal

While buying a property, you must take a few precautions to ensure that you are not cheated. Let us understand what are the important points one should take care of while entering into a real estate deal.

Don't shy away from loans
Loans make many things accessible and homes are no exceptions. For millennials, loans are a part of life and they may not think twice before buying a home with a loan. Still, there are many who don't want to avail any loan and prefer to buy property only with their own money. In a normal scenario it is not a bad idea but to avoid any kind of complications with respect to the title or the value of the property or any kind of fraud, it is advisable to go for a loan to buy the property, perhaps for a very small percentage of the property value.

In addition to your identity and residence proofs, income and tax-related documents the bank will ask you to submit all the legal documents related to the purchase of the house. One critical stage in assessing home loan applications is the legal and technical verification of the property. Banks and financial institutions verify the property against which the loan is taken. Lenders also verify the property for which you are taking the loan.

Credit appraisal
During credit appraisal, original property documents-title deeds, no objection certificates of authorities and other ownership papers are used to verify that the property has a clear title, and that the home loan is being disbursed to the right owner of the property for legal and valid reasons. No lender ever funds disputed properties or properties that do not have clear ownership titles. The sole motive behind legal and technical verification exercise is to ensure that the property has a clear title, is free from encumbrances, technically sound and meets the valuation standards of the bank. Banks have the best of legal experts to do legal checks which may not be accessible to you otherwise. Though this is not a 100% foolproof course of action as there are cases where banks have disbursed loan for disputed property, still we have to understand that these are just exceptions and if we select our lender judiciously, we can avoid unwanted trouble.

One of the important steps in the property loan process is the property valuation exercise. The report submitted by bank's own valuers is important for the bank and irrespective of the price you are willing to pay, the bank will not go beyond the valuation done by its valuers. It's advisable that you, too, never go by the prices quoting in the market, especially when you are buying property on re-sale. The buyer should make an attempt to know the valuation of the home arrived at by the bank before entering into an agreement to buy that property since, especially after demonetisation, banks have been going low on property valuation to account for the price correction in real estate market.

Choose your lender
You will have peace of mind if you avail a property loan from an independent lender of your choice and not the choice of the builder/seller of the property. This is because you have all at stake in the deal and the lender of your own choice would give you a fair deal which may not be the same otherwise as any possible clove knot between the builder and the lender of his choice may put you in trouble in future.
Although the above-mentioned list of precautions to be taken is not exhaustive, it would be prudent to keep these aspects in mind while finalising a real estate deal.

The writer is a chartered accountant
Source: Tax Guru