“Do in haste, repent at leisure” - might as well apply to a home loan seeker just as much as to a bridegroom.
Here are eight golden rules which will ensure that you do not repent in the future.
Rule 1
Man proposes, bank disposes
This proverb acquires illustrative ability with respect to bank’s retail loans and the loan seekers. The relationship between these two (read - the bank and you) can be summarised as above.
When you finally decide on the property in which you want to invest, speak to your bank about it. While most banks will provide finance for ‘ready to move in’ properties, some do not readily finance a property that is being self constructed or a property under construction. Also, if the property is very old or is being developed by a relatively unknown builder, the bank might have an issue with providing a loan. It could be that the ‘dream property‘ you have identified is one that the bank may not wish to finance. To avoid such circumstances, communicate clearly about the property you are seeking finance for.
While it helps the bank to gauge your loan eligibility more effectively (since loan eligibility is also based on the cost of the property), it also serves other interests. Take a sanction of the loan only after identifying the property. Banks are known to reserve the best deals for immediate disbursement cases. The bank gets an assured client and you can count your days for the ‘greha pravesh’.
Lesson 1: Never choose a lender till the property is identified and the lender is prima facie okay with financing the property.
Rule 2
A bird in the bank is worth two in the bush
Banks have different ways to calculate loan eligibility. Some banks will club the incomes of two siblings for the purpose of calculating the loan eligibility and some will not do it. Others may take into account, only male siblings. If the loan eligibility based on your income is likely to be an issue, then this factor becomes more important than loan rates. As a rule of the thumb, at the current rate of 10% per annum (March, 2007), the loan available as a multiple of your gross annual income will be as given in the table.
It may so happen that based on your own income, as well as your spouse’s, the amount of loan that you may require, does not work out. Then you must seek a bank that allows you to club the incomes of your other close relatives (parents, siblings, children, etc), to increase your loan  eligibility.
Lesson 2: There is no point in shortlisting a bank that will not give you the amount of loan that you are seeking.
Rule 3
Good things come for a price
This not just an old cliché - remember banks do not provide 100% finance. So, when you want your own shoe house, make sure your piggy bank can provide what is called the ‘margin money’ or down payment.
If the value of the house goes down in future, your down payment ensures that the bank’s interest is protected by ensuring that outstanding loan amount is less than the realizable value of the property. If the house costs Rs 5 lacs, the bank expects you to pay at least Rs 50, 000 to Rs 75, 000 from your own sources while the remaining Rs 4, 25,000 - Rs 4, 50,000 is provided as loan subject to your income based eligibility.
Once you find your dream property, the bank will get the cost of the property evaluated by its own personnel. Surprisingly, this evaluation can be very different (in most cases much lower) from the actual price you are paying for the property. In such cases, you will need to shell out the difference between the actual price and the bank’s valuation as additional down payment. So, again it makes sense to ask the bank to value the property (on payment of a small fee), especially if it is an old resale property. The small fee will be worthwhile to avoid hassles later.   
Lesson 3: Based on the estimate, the bank will readily provide finance for 85% (maximum 90%) of the total value as evaluated by it, so one should be ready for the balance down payment.
Rule 4
Go window-shopping then bargain and then bargain some more
Once you have shortlisted the potential banks based on the above rules, get the shortlisted banks to compete for your loan. Otherwise, if you are not careful while choosing your home loan lender, you may well have to pay through your nose. So, as they say - it is better to be safe than to be sorry.
Reduce the legwork and use the comfortable means that modern technology provides you with. In most cases, the lenders are just a call or a click away. The best place to start is the bank you normally bank with. You may have a salary account or a savings account with the bank. They will readily provide you with information. For other banks, just call up the customer care centre of the bank. They will be more than willing to send a representative to you. Nowadays, even public sector banks like Bank of Baroda and State Bank of India have got into the act. In most cities, these banks can send representatives at your doorstep, just like the private sector banks.
Interest rates offered by banks take your income and repayment profile into consideration. Of course they also depend on your negotiating abilities.
Before you award your lender the title of being the ‘Chosen one’, apart from the interest rates - check on the various kinds of fees applicable. Shop around for lenders and compare fees like processing fee, pre-payment charges, legal fees, valuation fees and other hidden costs. Agreements of most banks provide clauses relating to partial repayment of loan and pre-payment charges. Normally pre-payment penalty charges are 2% of the loan outstanding. Take all these things into account before choosing your ‘chosen one’.
Lesson 4:  Remember all terms and conditions are negotiable, so get a good deal for yourself.
Rule 5
Pay up and then borrow
Your lender will charge you a fee to get the proposal on roll. This fee is termed as the ‘processing fee’. This fee varies from bank to bank, but is usually around 0.50% to 1.00% of the total loan amount. So, when you apply for a Rs 5 lacs loan, the processing fee can be Rs 2, 500 (at 0.50%).
Paying the fee doesn’t mean that you will get the loan, but this is the fee to get the lender to even ‘take a look’ at your application. No matter what the bank representative informs you; remember that the processing fee is ‘NON-REFUNDABLE’. Don’t trust any verbal promises about not encashing the cheque if the sanction is not done or is not as per the promised terms. Get all such promises in writing. In any case, getting a refund of these fees will be difficult if not impossible.
This means that if your loan application is rejected or is sanctioned for a lower amount or at a higher rate than promised, you cannot claim the processing fee back.
Lesson 5: Be prepared to lose your processing fee.
Rule 6
The rate tells it all
Even after you have selected your lender and the interest rate, review your decision periodically to make sure you are not being taken for granted while new consumers are enjoying a better rate.
Even when opting for ‘fixed interest’, remember that in some cases, it may remain fixed only for a certain period of time, as the bank may have the right to arbitrarily change even the so called ‘fixed rate’- so probe further. Probing becomes even more important in this scenario because these loans have comparatively higher premiums. Like a majority of consumers if you have signed a floating loan , check whether the rates of your chosen lender had floated down in the years when rates were dropping like a stone.To know whether your lender offers ‘true-blue’ floating rates, ask for and check on the bank’s floating rate records from 2002-2003.
When interest rates were dropping like a stone, most banks saved good rates for new consumers, while charging high interest rates to the existing consumers. You can see the track record of some leading banks during these years on www.apnaloan.com This is a fair indicator of what you can expect as (not if) and when the interest rates start moving down and the time comes for the bank to pass on the benefit to you.
Lesson 6: Fixed or floating – there is no substitute for vigilance.
Rule 7
The seeker pays the price
You will have to pay for it, if not now - maybe later. When you take a home loan from a bank, the house is mortgaged as security to the bank. So, till the repayment of the loan, the bank has a claim on the property it has financed. This involves stamp duty charges which are payable on the creation of security in favour of the bank.
When you go window shopping for ‘your‘ bank, it may happen that the bank is offering you a loan without payment of any stamp duty. Remember, it is payable ( if not now, maybe later). If the government decides that the stamp duty is indeed payable then the stamp duty payable (at that point of time) will include the actual stamp duty, the interest and the penalty charges.
Lesson 7: Do not get swayed by savings in statutory payments. It will catch up with you soon enough.
Rule 8
Let your family inherit the house, not the home loan
Man knows little of what fate has in store for him. When you take a home loan, it is on the basis and assumption of continuing income.
We run into all kinds of risks in our daily life. Accidents and health issues like heart attacks, stroke, paralysis, kidney failure and other physically crippling ailments can cause loss of income or in some cases even your life. Home loan is a fairly long-term liability. This is why, when you take a home loan, it is advisable to take a life insurance and critical illness policy.
Life insurance policies provide monetary benefit in case of an unfortunate incident like death and ensure that your family members inherit your home not your home loan.
Critical illness policy will take care of the home loan liability if your income gets interrupted due to unforeseen, unavoidable circumstances which such conditions may create. That will be one less thing for you to worry about while you are anyway under severe stress.
Best of all, most banks will be happy to finance the one-time premium payable for both policies enabling you to get this protection at a small addition to your regular premium.
Lesson 8: Don’t be an ostrich. Prepare for all eventualities so that you do not pass on a burden to your loved ones.
This is all for now from the home loan ‘Veda’.

The author is CEO of apnaloan.com.  He can be contacted at ceo@apnaloan.com