Buying a home? 6 vital steps to follow

When the real estate sector was on a dream run from 2002-03 till around January 2008, homebuyers in most cases overlooked many issues that are coming to the fore now. Avoiding some common mistakes can make the process of selecting and buying a house a little simpler.

Before you buy. Most mistakes happen at this stage.

Home search. A typical home search starts with scanning advertisements. But, this means you will have to check everything on your own - the developer's credentials, his ability to deliver on time and the approved building plan. Not easy to do. Developers aren't usually forthcoming with this information. Even if they are, analysing it is tough, especially if you are a first-time buyer.

If you find a house on your own and at a price that suits you, getting a loan from a bank or a housing finance company isn't easy. The institution will do its own due diligence before approving the loan, which means you will have to wait for some more time. And, if the lender finds a problem with the project, it may not sanction the loan.

A simpler way is to approach the bank or the HFC from where you plan to take the home loan. Most of them have a list of pre-approved properties. They include properties on which the necessary checks have been done. If you choose from this list, loan approval will be faster. The only hitch is that these properties will typically cost a little more.

Payment mode. There are usually two modes of payment - a lumpsum upfront payment and one that is construction-linked. In the lumpsum payment, you have to pay up to 95 per cent of the cost of the unit upfront. The developer gives a discount of 5-10 per cent on the cost of the property as he gets the funds upfront. Sounds great, but if the project gets stuck, you won't be able to do much about it.

With a construction-linked payment plan, if a project runs into rough weather, the hit you take will be lesser.

Developer agreement. The Agreement to Sell between a homebuyer and a developer is mostly heavily loaded against the former. What you can do is ensure that an exit clause and the approved building plan are made a part of the agreement.

Property dealers. Dealers can be pushy. Don't buckle under pressure. Cross-check what they say. Try to meet some people who have already bought into the project.

More importantly, arrive at a fair value of the property. There is always room for negotiations on the quoted price (see True Value Test). Get an idea of the paperwork from someone who has gone through the process.

Choosing the bank/HFC. More than looking at how conveniently the lender gives a loan, look at its response to interest rate movements. Look at how it revised its rates during the boom period. Choose an institution that is proactive in changing its home loan rates when interest rates move up or down.

From December 2009 you will have access to your credit score. Use a good credit score to get a better rate of interest on your loan.

After you buy. Visit the construction site to check the progress. If you spot any glitches, contact the developer. Get in touch with other people who have invested in the same project. Form a group and discuss the progress of the project. If there is a problem, take it up as a group.

For most of us, buying a house is once-in-a-lifetime decision. Do your bit to make this a happy experience.