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How to Choose Right Property?

Things to Consider When Buying A House

Last Updated 14th Jun 2021

  • Ensure that the cost of property does not exceed 4-5x of your current annual income.
  • The cost of under construction property is always less than ready to move into property.
  • Ensure keeping a legal check on: Property chain, Co-applicants, Disputed properties, Power of attorney cases.
  • Some properties which are usually avoided by banks for loan sanction are subdivided (without approved maps) units, standalone basements/ lower ground floor, very small houses, houses built with unapproved building plan/ non compoundable deviations, houses outside municipal limits, banks also avoid funding old properties.
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A decision to buy a property, in most of the cases, is a long term decision that is not as easily reversible as that of buying any other financial instrument. Hence, purchasing a property becomes a highly critical decision that calls for exercising due care and diligence. Here are a few guidelines to assist a homebuyer and home loan borrower in taking a wiser and more informed decision while purchasing a property.

Checklist to Choose The Right Property

A Checklist on choosing the right property could be based on many factors such as purchasing value, ongoing cost, legal parameters, and technical checks among others. All these factors are explained in detail as follows:

Purchasing Value

Points to be keep in mind related to the purchasing value are listed as follows:

  • Should not exceed 4-5x of your annual income: The cost of the home you are buying should typically not exceed 4-5x of your current annual family income. Suppose your salary is ₹ 10 Lakh per annum then you should avoid looking to buy a property more than worth ₹ 50 Lakh as you may find it difficult then to pay your EMI’s and manage your household expenses at the same time.
  • Ready vs Under Construction: The cost of the under construction property should always be less than ready to move in property in the same area/locality so as to allow the property to potentially appreciate overtime thus giving you the maximum gain.

Ongoing Cost

Apart from the purchasing cost, ensure keeping a check on the ongoing cost as well. Always check for outgoing costs such as maintenance cost, parking spot cost, house tax, society charges as these charges differ from builder to builder and add up to the total cost of the property. This cost may typically not get funded by the bank when taking a home loan. Therefore these ongoing costs must not be overlooked while choosing the right property.

Legal Check

Ensuring a legal check on various parameters is an important factor to consider before choosing the right property. It is based on these parameters:

  • Property chain: Check Property chain and statutory approvals as a break in the property transfer chain or some missing approvals from the authorities might act as a barrier for getting a home loan. It is advisable to check everything before finalizing the property.
  • Involvement of Co-applicants: Don’t buy any property in joint name with anyone who is not a direct relative of yours. Banks avoid advancing home loans to unrelated co-owners such as friends, distant relatives and married sisters as banks may consider them as different families. In general, direct relatives such as spouses, parents, real brothers are typically eligible as co-owners.
  • Disputed properties: Banks don’t fund properties with disputed title of ownership as in case of default it becomes difficult for the banks to re-sell or auction properties with disputed ownership.
  • Power of attorney cases: Banks also avoid properties bought on power of attorney as such a title is not regarded as a marketable title.

Technical Check

There are some types of properties that banks avoid funding on a technical basis to mitigate their risk that might arise in future. A buyer must avoid such properties during home search for smooth sanctioning of home loans. Here is a list of properties that most banks typically avoid:

  • Subdivided (without approved maps) unit: In such properties builder gets an approval for building a single home but builds multiple units in the same area and never gets the multiple subdivided units approved from the respective authorities. In such cases banks may not fund these properties as the unit does not constitute an independent dwelling unit under building regulations. This is despite the registrar registering such properties. On technical inspection, the bank is likely to reject your home loan application. Properties that are subdivided in compliance with local building regulations are funded by banks.
  • Standalone basements/ lower ground floor: Banks avoid funding a standalone basement as it is not considered as a standalone unit as per building laws. Basements bought together with a ground floor unit can be funded.
  • Very small houses: Banks avoid funding properties with less than minimum specified size which varies from city to city, typically 600 sq. ft. Hence, avoid buying such properties if you are looking for a home loan to fund it.
  • Third floor built with undertaking: In some areas such as in Delhi NCR, construction of third floor as an independent dwelling unit is not allowed and third floor building plan is approved only on an undertaking that the owner will demolish the third floor if asked to do so by the court/ authorities. However, in many areas, construction of third floor is allowed and hence third floor built with approved building plan can be funded by banks.
  • Houses built with unapproved building plan/ non compoundable deviations: Banks carry out technical inspection of property before funding it. Properties built with approved building plans or with deviations or excess construction that are not compounded by local building or municipal authority are not funded by most banks.
  • Houses outside municipal limits: Banks avoid funding properties outside municipal limits as banks find it difficult to establish legal title of such properties. However, local cooperative banks may sometimes fund such property.

Other Factors

  • Property Age: Banks also avoid funding very old properties with remaining residual life less than the estimated loan tenure.
  • Payments: Never make payments to builders/sellers in cash even with a receipt as most banks don't recognize this type of payment as their own contribution while applying for a home loan.

Views expressed here are for general information only. Myloancare does not offer legal or technical advisory services. When doing home search, buyers must consult a professional lawyer before finalizing a deal. The Company shall have no liability whatsoever to the user for any direct, indirect or consequential losses, damages, costs, charges, expenses or otherwise, which the user or any third party may incur arising out of the use of the above information.

FAQs

What should I know before buying property?

Before buying a property it is better to put a legal and technical check on property. This includes checking the property on various parameters such as whether the property is constructed on authorized models, checking the background of the sellers and builders and also ensuring that the property is not disputed and free of legal and criminal ties. Apart from these, one must keep a self-check as well before buying a property, and must be aware of one’s purchasing capability and financial stability.

What should be the ideal cost for purchasing a property?

The ideal price of the property you wish you to purchase, should not exceed 4 to 5 times of your current annual income. Maintaining this ratio helps in stabilizing and balancing out one’s income and investment portfolio. This is specifically beneficial for potential home loan borrowers.


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