Buying real estate is one of the smartest investments you can make over the long term. The value of real estate will rarely decrease over time; on the contrary, they are much more likely to increase in value or, at the very least, stay the same. However, the sheer value of the funds needed to purchase land and / or property means that it remains a dream for many people regardless of their income. Costing at least several million rupees, buying real estate still requires some form of debt financing for it to be a viable investment. Fortunately, there are many service providers offering credit facilities specifically for this purpose. In fact, you might be overwhelmed with the different options available to you and you might not even know where to start.
Where do I start?
Once you have decided that you are definitely going to be buying real estate in the near future, your first step should be to simultaneously research suitable properties and start preparing your finances. Once you’ve found the perfect house / land / building / apartment, you should be able to bid on the spot and finalize the deal to make sure you secure it before a competitor.
Some of the types of real estate that you might need to borrow money to finance are:
- Buy or build a house
- Empty earth
- Different types of buildings
- Condominiums, apartments or apartments
- Sometimes even home renovations and improvements
- There are even loans to help you reconfigure an existing credit facility that you may have fallen behind on.
Choose a lender
When it comes to financing your purchase, you can choose from a variety of lenders. Most banks and financial institutions offer different types of home loans, with different payment terms, interest rates, and loan values. There is also a growing market for online loans in Sri Lanka which have proven to be extremely effective when used to finance large purchases.
Ideally, the first thing you should do is approach various lenders; start with a simple Google search to generate a list of options. This list would probably include all the major banks and financial institutes. Then you need to approach them and get the following information from each of them:
- Their interest rate
- How much you can borrow from them
- Period and terms of repayment
- Any other benefit offered by them
Once you’ve done that, don’t be afraid to get recommendations from your friends and colleagues. Their point of contact in these companies might even be able to offer you a better deal than what was originally offered to you. Some service providers even offer special packages for various professions, like academic staff, civil servants, doctors, military, etc.
What are my loan options?
There are generally two types of ways to borrow money to finance your home purchase: a regular loan or a mortgage.
A loan is when the lender gives you a sum of money that you have to repay within an agreed timeframe (sometimes up to 25 years for larger loans of this nature), with an additional interest payment that acts as the fresh lender for the provision of this service. This is the most basic type of credit facility in Sri Lanka. There is an innovative new type of loan which is the payday loans which can help you with your daily financial problems. One such company that helps in such cases is OnCredit.lk.
Mortgages are slightly different. Simply put, the lender will outright buy the item you need the money for (in this case real estate, but this also applies to vehicles) and you will have to pay the lender the value of the money. article, as well as interest over the agreed period. The advantage of mortgages over a general loan is that the interest tends to be lower because the lender has more collateral in this arrangement. If you don’t pay off the mortgage, they will get the asset back and get their money back by selling it to a buyer. Mortgages are also commonly referred to as leases in Sri Lanka.
How much can I borrow?
If you are a salaried employee or a businessman (essentially generating some form of income on a regular basis), you will be able to borrow money from a lender. However, this amount depends on a number of variable factors, such as:
- Your income level
- Your social status (level of education, place of work, etc.)
- Any outstanding debt, loan, or line of credit (including overdrafts and credit cards)
- Loan history (terminated loans and refused loans)
- Your overall credit score
- How much you pay as a deposit
- Relationship with the lender (if you have been a customer for longer, you are more likely to get approved for a loan)
If you manage to meet the above criteria exceptionally (and depending on the service provider selected), you may find that you can even borrow up to over one hundred million rupees, repayable up to twenty- five years.
What should I prepare?
Although the list of documents you need to prepare to apply for a loan depends on the lender of your choice, here are some of the most commonly required documents:
- Completed loan application form
- ID card
- Pay slips for the last three months
- Letter from your employer specifying your title, salary and length of employment
- Educational / Professional Qualifications Certificates
After you successfully submit your application, it may take a few days to a few weeks for your loan to be approved and the money deposited into your bank account. So, it is always best to start securing your finances well before you complete your transaction, otherwise you risk selling your ideal real estate to another party who has been able to make a down payment faster than you.
Things to watch out for
While the above sounds pretty straightforward, you might find that you run into some issues along the way. Here are a few things you should watch out for when applying for a home loan:
- A lender will not lend you the full amount required; Most service providers lend up to a maximum of 75% of the value of your required assets. You would need to find the remaining 25% elsewhere.
- Pay attention to variable interest rates versus fixed interest rates when applying; select what works best for you, because although you can change it later, there will be a substantial service charge.
- Find out up front about all other fees involved such as compound interest, late payment fees, service fees, processing fees.
Almost everyone finances the purchase of their home or other real estate property through some form of loan. Although this is a massive financial commitment, it is somewhat of a rite of passage to adulthood. With a little careful planning and selecting the most reliable lender, you should be able to make your dream of owning real estate come true.