Other Tips
Buying a home is probably one of the single biggest investments a person makes in his lifetime. So this investment definitely needs to be made after a thorough homework. You have got to take extra precaution and evaluate the options available in the market before finalising the deal.
1. Curb your Impulsive Nature:
In the current market, with turnaround time for the transactions like buying/selling decreasing everyday, buyers are susceptible to making `mistakes' while entering into deals. The most common one is the buyer getting into the mindset of now or never and entering into a deal not so beneficial for him. You need to take your own time and evaluate a few important aspects in property buying process.
2. Which housing finance company (HFC)?:
The current housing finance market is skewed in the favor of the buyers and many homebuyers are rushing to take a housing loan without fully exploring the options available. This is because more often than not, individuals with pre-approval letters for a loan have more bargaining power while purchasing a property.
It's always advisable to chose the financer with care, compare the loan options available and always go with the financer who has a good track record. After all you are entering in a relationship with him for 10 to 15 years (home loans are typically of long term in nature) so the HFC has to be of repute and offer quality service.
You have ample choices available in the market in terms of schemes (Step up EMI, Step down EMI, Balloon payment) and interest rates (floating rate or the traditional fixed rate). Currently the floating rate for a home loan for 15 years is in the range of 9.5% to 11.0%. You even have the choice of taking a loan for tenure of up to 30 years (ICICI (ICIC.BO, news) Home Loan).
While going for a home loan, one should remember that loans of a shorter tenure (say 5 years) require higher payout from your side every month (EMI) since you are paying off your loan in a shorter time frame. The monthly outgo reduces considerably if the tenure is increased to 30 years. For example, the EMI for a 15-year loan is 20% higher than the EMI for a 30-year loan.
3. Is the monthly outgo too high?:
Buying a property, which is way beyond your price range, could affect your financial planning for other important aspects of life like retirement, children's marriage/education. True there are HFCs and banks that determine your eligibility based on your repayment capacity and tell the loan amount up front. However, the loan amount may be more than what you can actually service. So even if the HFCs are willing to finance a certain amount, you need to do your own analysis and check the impact of home loan (repayment) on your monthly expenditure. As a thumb rule your total monthly fixed liability, including your home loan (EMI), should not exceed 30% to 40% of your gross monthly income.
4. Is the location right?:
Its always better to search for a location that preferably is in line with your income and choice. The balance between the two is very important. Apart from visiting the place that you wish to purchase on weekends make sure you visit the place on weekdays also to get an idea about the connectivity of the area to the basic needs of life (hospital, entertainment, shopping etc) and of-course the people staying in the area. In short, collect as much information as possible before you buy.
5. What is the resale prospect?:
Always take into consideration the resale prospect of the property. Put yourself in the perspective of the sellers also when you are buying a property. You might be attracted/distracted to a particular construction because it has some special features but this may not be the case with other buyers when you become a seller. So, when you buy think about the day when you may need to sell the property. It's very hard to resist the urge to buy when you find a house of your choice.
6. Is it a good deal?:
The best possible way to determine if you are getting a fair deal is by comparing the cost of the property you are interested in with similar property in that area. A broker can be very useful in this regard as he can provide you with the list of few transactions that has taken place in recent past in that locality, which will give you a fair idea. Of-course this may not be conclusive as most of the property transaction in our country has black (cash) and white (cheque) component. Prices, date sold, the number of bedrooms and bathrooms, its size and extra features are some of the component which determines the quality of construction and in turn the actual value of the property.
7. Are you with the right estate agent?:
Take care not to add trouble to your home buying venture by choosing the wrong estate agent. A good estate agent is the one who works for you and understands your requirements and financial limitations clearly. There are few experienced agents who can even help you in understanding your real requirement and accordingly guide you through. References from friends and visits to some popular websites can help you find a good estate agent. Before narrowing down to any particular estate agent take care to see their past record - its very important. This will give you an idea regarding property transactions and their cost that the agent has been involved over the years. An experienced estate is always a preferred option as he would be able to judge the area that will fit in your budget..
8. Don't ignore closing costs:
The closing cost of the property transaction in India is typically in the range of 10% to 15% of the transacted value of the property. These include the cost incurred on brokerage, registration, stamp duty, insurance (now government has made it mandatory), property taxes, amenities charges and so on.
These are some of the finer aspects (though not exhaustive) of home buying process. By addressing them diligently you may be able to ensure that your journey of buying property is comfortable and hassle-free..