5 Factors to check before being a Guarantor

RetailLending.com

Home Loan industry has changed an ocean since retail mortgage industry had taken it's first step in 1977 when HDFC Ltd. started their specialised mortgage company in India.

One among the few things which hasn't changed thus far is the 'requirement of a Guarantor' under few conditions. Though earlier in 90-s a guarantor was almost a mandatory requirement by the lenders to grant a home loan, it is not so now. A guarantor is been asked for extreme conditions like high-value corporate funding or few low value funding where the comfort is not gained by the applicant's own financial strength. To add to the comfort, a guarantor is added and the loan is disbursed to the main borrower.

However, general knowledge about who, how and what about a guarantor is not generally understood before one obliges.

The most important notes about being a guarantor is listed here:

1. Financial or Non-financial guarantor:

There are both these types of guarantors that is demanded by a credit appraiser. If you are a non-financial guarantor for simple purposes like contacting the primary borrower, then need not worry. But if your financial documents have been considered to do loan for the primary borrower, then it's a serious call you need to take before you agree to be one.

2. Obligations accepted as a guarantor:

As a financial guarantor, you are obligated to pay up the loan outstanding and/or any other dues created by the primary borrower on the mortgage, in case of a default. A recent circular dated 1-July 2014 clarifies the stance that will be taken by the court in case of a 'willful defaulter' and their guarantors.

3. How does your own loan eligibility get affected:

Being a guarantor is as good as being a borrower. The only difference would be that the guarantor will not have to pay the regular payments of interest and principal to the lender, which the regular borrower would. However, the liability of the borrower and the guarantor are considered at the same tune. In an instance where the main borrower has taken a loan of 1 crore, the eligibility of the guarantor also is reduced by the exact amount when he wants to borrow fresh loan for himself. A record of the lending, repayment and any default will be maintained with the credit scoring companies and the score of the guarantor will be affected by the repayment pattern lead by the primary borrower.

4. Duration of the loan term of the primary borrower:

The loan term play a pivotal role for the guarantor too, as he/she is obligated till that tenure is completed. If it's a short term loan then the relief is of course early. If the loan is foreclosed prior to the end of the term, then the release of the guarantor-ship should also be notified by the lender to the credit scoring authorities which will enable the guarantor to obtain higher amount of credit for his own needs. A guarantor should monitor whether such has been correctly reported on time and should also seek an NOC from the lender after such closure of the loan.

5. Repercussions in the event of default by the main borrower:

It is not only limited to the payment of the principal outstanding, but if the guarantor is unable to do so, then his own assets can also be attached by the court to realise funds to nullify the losses incurred by the lender. In case of untimely demise of the borrower, when the loan was not covered by any insurance, the guarantor will have to come forth to make the payment to foreclose such loan.

Hence, be an informed person before you 'guarantee' someone else's repayment as sometimes due to family relations or friendship, one might tend to agree and regret later

Your 'Actual' Cost of Home with a Home Loan

RetailLending.com

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Most of us borrow while acquiring a home. Gone are those days when our parents and grand parents saved throughout their lifetime with the 'dream' of constructing a house with their life's savings and retiral benefits like provident fund, gratuity funds etc. and still the house remained unfinished to some extent. They hoped that their next generation will get a stable job and help built another floor before he gets married.

Sounds so nostalgic, isn't it? In today's day, soon after getting a job, people get their credit cards, swipe it to pay down-payment for a two-wheeler, within first year buys a four-wheeler & pays the self-contribution from the sale proceed of the bike and come the end of second year, starts looking to buy a one/two Bhk flat with a home loan.

Now, our story starts here. In order to acquire an apartment in the city where you work, what is the price you pay? No, don't get me wrong. I know you can clearly understand what is the amount you are paying the seller/builder for the flat. I want you to show you here, how much you pay for getting the absolute ownership of that flat.

First, you start looking around for a suitable home. Nobody buys the first house they see. Amongst Indians, I can happily say that no one will buy a house unless they see minimum of 30 apartments over a period of 6 months to the least. Before that it seems to the first time buyer that- 'Since I am new, I need to observe and understand more.'

This time, effort and energy costs you too. You take a few off-days, call hundred brokers and builder's project sites, drive down to these places, eat outside and spend money. Now, this seems to be very natural and a must for all home-buyers. This cost of 'gaining experience' is a mandatory period for anyone. So, let's not cry over it.

Then once the house is finalised for the purchase to be made, you start talking to your credit card company, bank, family & friends to arrange for the 20% of the cost of the property which you need to accumulate for the 'self-contribution' bit of it. You break your fixed deposits, Kisan Vikas Patra(KVP), borrow from Provident Fund A/c, sell/mortgage your jewellery and accumulate say, 10 Lacs(we are assuming the home you are buying is worth 50 Lacs here). You will also have to pay a brokerage & you arrange for that too.

Then you start comparing rate of interest(ROI) of different banks online & offline, meet a lot of sales executives, hard negotiate on processing fee and finalise on one lender and apply for the loan. After some paperwork & a wait-period you receive your loan sanction letter and go to the seller/builder to sign the agreement.

Your surprises start here.

Banks told you their fee, builder told you their price, broker told you his commission amount. But no one told you the Government fees and levies. You always knew about the stamp duty & registration charges, but never knew that there are Govt. fees for taking a loan! Everyone now shakes their hands off saying that was not a fee for them! You always thought that acquiring a bank loan was about an upfront processing fee and you negotiated that best and opted for a 'nil' fee bank! But now what is this legal fees, valuation fee, administrative charges, documentation fee, franking charges on sale agreement as well as loan agreement(mortgage origination fee), intimation of registration charges.......!! Oh my God! Can someone please list out the 'charges' for you? Yes, sure we can. And mind you, after all this too, your home is still not yours, it is hypothecated with the bank. You will get the title deed once you repay the full loan amount with due interest payable in the next few years. So, let me try to chart out the actual cost of your home-buying. I am guessing that you will continue with your home loan at least for 8 years as that is the average Indian standard before someone pre-closes their home loans.

Now, please find the chart below:

Expenses	Amount
Initial cost of search for 6 months	6000
Self contribution	1000000
Loss of interest on PF,KVP,Gold etc. @12% in 10 yrs	1200000
Brokerage @1%	50000
Loan processing fee(all inclusive)	10000
Govt levy on loan acquisition	20000
Stamp duty & registration cost	250000
Loan principal	4000000
Interest over 10 years @10% on 20-year tenure loan	3553076
Cost	10089076

Now, you are reading the numbers correct. For a 50-Lac worth home to acquire completely after 10 years with a housing loan will cost you Rs.1,00,89,076/-(Rupees One Crore Eighty Nine Thousand & Seventy Six only).

Now this is a tentative projection. With interest rate & other fees and charges fluctuating, it will vary.

But not to lose heart. Your property in 10 years may be valued at 2 crores. You will happily live in it during your haydays of life, get tax relief from the Government year-on-year and have the protection on your and your family's head. So why wait till retirement and still do not fulfill your wishes? Go ahead and start searching for a home today!

Buying a house for a family with toddlers? Here are tips

sukanya kumar

Director & Co-Founder: RetailLending.com

How to Buy a Property for a family with Toddlers

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In India, most of the first-time home-buyers are of the age between 25-30. Amongst them, a lot are newly married and some having newborns and toddlers. Babies start crawling from the age of 7-8 months and roam around the house. They will start taking steps to walk as early as 9 months and if late, by 15-16 months. While buying a property, please keep this growing bundle of joy in mind and follow the steps below.

If you are lucky enough to buy from a builder who is willing to make small alterations, great. If that option isn't available or you are buying a home on resale, I recommend few alterations in the home.

1. Floor - Apart from cleanliness, you need to ensure that the floor is structurally smooth, with no protuberance which can hurt the baby's knees, palms or feet. Various types of flooring is offered by the builder which are sometimes optional too. Tiles, need to be fixed nicely and marble should be laid without any broken corners. Wooden floor quality should be of top quality and fixed evenly.

2. Electrical points - Preferably at a height where small children upto 5-6 years can not reach. Plug points should not be left open and covered with holders available in the market. babies have small fingers and they tend to put their fingers inside these small holes. Switch points which are at lower level, like nest to bed, table lamp points etc. should be covered with holders when unused & when in use, babies should not left unattended around those sockets.

3. Balcony railings - Designer railing look good and plenty have designs which are like straight steps where a child can easily climb like stairs! Please try to avoid such designs. If there's any vertical design which can not be climbed upon, that's the best. Also notice if any sharp edges are there which can cut your child. These are mostly wrought iron and if cut by these your child will need immediate medical attention.

4. Grill - Better to be careful than sorry. Cover your balcony even if you are on first or second floor. Builders will generally have a standard design of grills for all occupants to make the building look good. Take help of their vendors to fix the same kind.

5. Window - Modern day apartment building have open windows with sliding shutters and is extremely risky for children who can push them open & peep. You may not always remember to lock it and even if you do, children will quickly learn how to open it too. Window grills are a must and if builder doesn't allow it on outer facade, fix them internally for your child's safety.

6. Planter box - Penhomes, Duplex, apartment with large patio or balcony will have provision of planter box which may be hanging out of the balcony or within the square-feet area. Firstly, choose plants which are child-health friendly. Chidren tend to put everything in their mouth. So, cactus with thorns or other poisonous/harmful plantation are a big no-no. Have tulsi, marigold, hibiscus etc. instead and drop rose even if it looks more pretty.

7. Kitchen - Open kitchen is a craze these days. It looks good and living dining area seems more specious, but responsibility increases. No sharp cutters like knife etc should be left on the floor or even on the kitchen-slab close to the child's reach, the waste bin should be covered hidden inside a closed cupboard, floor should be always clean. White goods like microwave, toasters, mixed should be stored at a height. Refrigerator should be locked, washing machine and dryer should not be front loading and switches of all these high-voltage gadgets should always be at a height and covered when unused. Design your kitchen accordingly.

8. Bathroom - Always keep the door closed. Keep the water closet covered, waste basket with a lid; hair dryer, shaving kit away, plug points at a height which are out of children's reach. Water buckets etc. not to be filled with water unnecessarily. Bathtub area closed with sliding glass door(shower curtain is not enough). Not to have auto-locks which if the baby goes inside and pushes the door gets locked. If bolts are used, should be at the top of the door and not near the handle where baby can also reach.

9. Wall paint - Emission of toxic materials from fresh paints inside the house could be harmful for babies. Try not to enter the home till the smell fades away. With some low-quality paints the smell never goes. Please check with your builder as to what quality paint is being used and if there's no choice to better it, pay additional amount to get a safe paint done.

10. Fan & Air-conditioner - Children bedrooms are not only about their floor, paint and furniture. Please make sure you don't place the bed right below the fan or directly under the blow of air-conditioner. Use good quality products which require lesser maintenance and consumes lesser electricity, makes no noise.....in a nutshell, the best quality. Even better than the master suite you will use.   

11. Staircase - If you are buying a villa, row-house, penthouse, duplex or triplex there will definitely be internal staircase and sometimes a private lift. Be super-cautious. Fix small gate at the entrance of the stairs in lower floor as well as the higher floor to stop the baby from trying to crawl up or down. Spiral staircase is more risky(as there will be more gaps in between) than a three/two turn staircase with small landings. If you fix wooden planks, make sure it is fixed nicely without any uneven edges. Granites are generally more slippery, marble is extremely hard material and cold during winters. So, choose wisely.

At the end, as a parent now you are having more responsibility while choosing a home and decorating it. Your focus should be more on safety measures than the beauty of the property you choose. A builder who is understanding and co-operating with your need should be chosen. Few large developers do not want to accommodate and they should also gradually get accustomed to the new-era "children/aged parents/pet friendly" homes as the requirement is changing. 'Beautiful' homes are no more the end of requirement.