Double - Trouble
The increasing residential property market is creating one more issue with buyers, which is Over Commitment as Buyers feel that they should buy the property before the market again starts going up. The ground reality hits them when they go to their bank for Home Loans and unless and until they do not have a pre-approval letter a Seller should not even accept the token amount as most of the transactions get into jeopardy because of that.
For a smooth transaction in the real estate market today, be it for a First Home Purchase or the Purchase from the Re-sale Market it is imperative for the Seller to check the bonafides of the Buyer today. Every buyer feels that he has a clean track record and he can get a sanction against his salary slips or his balance sheet easily. The rules of the game have changed, the bankers are no more lenient and they hold a scanner now before they give you a home loan and with information and technology best used in the Banking sector, each bank can talk to the other and find out your various loans outstanding against your name and the credit cards you have and on top of it the defaults you have done or not done over the past few years. Based on this itself, the banks give you a clear rating and the pre-approval letter. This can be treated as your VISA or PASSPORT to buy the property in case you are buying the property through Home Loan.
The Banks have also learnt that the market value of the property in an ever increasing market is not what it seems, and hence the banks are shying away from funding 80% of the property value as they feel that in case the property markets correct or crashes then they would have an exposure to a default and hence they would only like to fund upto 70% in most cases and with 30% of your personal contribution. However, some banks may fund you more depending on your relationship with them and depending on the value of the property etc. and this is purely a case to case. Hence, it is all the more important to look before you leap in the Home loan funding.
The most important point to learn in this market is that where a lot of people are opting for loan, there is a huge amount of paper work to be done and the paper work is not just for the property it is for your own assessment as well and things are taking time with holiday etc. Hence, it is become imperative to not to jump in the transaction immediately. The best way would be the following as a step by step process:
Ø Be ready with your down payment
Ø Go to your Bank and get yourself a Pre-Approval Letter which sanctions you the in-principle loan.
Ø The banks charge you some amount for this, and it is imperative that you have this letter so you know the approximate amount the bank can fund you based on your personal balance sheet.
Ø The typical buyer psyche is that he feels that he should not pay to the Bank unless and until he is ready to transact and he is unnecessary paying the Bank and the validity of the Pre-Approval letter is only 6 Months.
Ø See the property you are buying has the title clear with the help of your experienced professional real estate consultant or your lawyer
Ø Show the property documents to your bank and based on the valuation they recommend you, then only go ahead with the transaction.
Ø Enter into an MOU and give small amount of token money to the Seller and make sure each and every term in regards to the payments, the delays from the Bank etc. are cleared so that there is no grey area and arguments later.
Ø Please make a small Memorandum of Understanding on a plain paper itself and put the points agreed upon and let your real estate consultant witness the same.
Ø The most important TIP and a RULE to follow for the SELLERS is to not to accept the Token Amount from BUYERS unless and until you see their Loan Pre-Approval Letter from the Bank in their names. It costs time and money to get this letter and if this is not got in advance, your transaction will be delayed by a good 7-15 days more with a grey area as well that will he get it or will not get the loan.
A lot of properties, in the re-sale market are already mortgaged to the Bank and the process becomes most tedious and please do not rush in to these transactions and over commit on the time. Any transaction with loans etc. takes at least 45 to 60 working days and hence please do not feel that things can be done instantly. You are relying on 3rd parties here and hence the delays need to be factored in.
Mumbai Property Exchange.com