HomeBuyer's GuideBuyer's Guide

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Buyer's Guide

Buyer's Guide

Buyer's Guide (1)

Buyer's Guide

SO you've been thinking of moving to your 'own' home. And what's that you say, 'You have no clue where to begin?'. This start-up-kit will do just that - help you begin.


Step 1: Where to buy?

Today, young professionals are more mobile than ever. They move to where they get a job, or where their job requires them to. This does not meant that they should buy a house where they are working – rather, they would want to do so in their hometown or a city of their choice.

“Most young, well-educated professionals are likely to be doing short stints in several cities. The most important parameter when buying the first home should be ‘Is this the city I want to live in?’”


Step 2: How much to put in?

Once you have decided to join the elite homeowner group, the next step is to decide on what home should own you…oops should you own. Some factors to keep in mind:

How much house can you buy?
Being young means you are (hopefully) not at your peak income-earning level and you have not had much time to save. So, if a dream house is out of the question right now, what is affordable?

The three Ls of choosing a home
Location, location, location. Question is, do you go for a newer and aesthetically pleasing home that may need a longer commute to work, or something smaller close to the metro core?

Stretch yourself. A home is a long-term purchase and it should fulfil your requirement for the next 7-8 years. So do not scrimp on the money.


Avoid the rent v/s buy debate
The comparison between renting and buying is often done on faulty assumptions. If you rent, you do not mind a small cramped apartment. You do not spend on furniture, plus you don’t have to pay stamp duty. If you buy, you want to buy something that at least takes care of your near future needs. But you will choose a specific location, which you will not be able to change as easy as you can when renting. So choose carefully.

Step 3: How much to borrow?

You may think you know quite a lot about financing your home from the dipstick survey you have done but here is what the experts have to say:

Budget before you buy
Developing a household budget is a desirable activity before you buy a house. Doing so gives you a better focus on loan payment goals and how the new house will affect your total expenses.

When budgeting for your purchase, even if you are taking a loan you will have to consider payments such as your own contribution, the fees charged by all the financial institutions, the amount required to be paid upfront, broker’s fees, new furniture etc.

Shop for home loans
Most financiers lend upto 85% of the property value for the rest you can beg borrow and save.

Your budget for buying your home should be based on your household budget and how much money you can afford put in an EMI of the loan.

Some products assume a certain level of salary increases every year and arrive at a higher eligibility. It could be an amount higher by 30%.

Enhance your eligibility …
… to get the maximum loan amount. This will give you leg room to manoeuvre and choose your home from a wider range.

To increase the loan amount that you can get, take a loan jointly with your spouse so that both the incomes are clubbed to determine the gross repayment capacity. Generally, an HFC will permit up to 35-55% of the gross monthly income to form the monthly repayment amount.

Another option - opt for a longer repayment tenure so that the EMI amount gets reduced.

A step-up loan is a great idea
Here you will make lower repayments in the initial years and higher ones as your income increases. This, of course is available to a professionally qualified person. It gives you the advantage of making lower EMI payment initially and higher ones as your income increases.

Be ready for the unforeseen
Expect added expenses like stamp duties, transfer charges, parking charges, clubhouse membership, interiors, etc. The good news is that banks are now offering to cover at least some of these costs. Check with your bank if they can finance these extra costs too.

Compare loans
Don’t just go to the bank that your best friend took a loan from. Take quotes from several banks, do your maths and narrow it down to the two best quotes and take a sanction from both of them. This way you will have a back up plan if there might be some additional administrative cost thrown up by the financer which could mess up your interest calculation

Now don’t forge the tax breaks
If the principal component on your housing loan is Rs 1 lakh and you make no other investments; you will get the full advantage of it. You may end up getting a double benefit; a deduction of up to Rs 1 lakh on the principal amount and Rs 1.5 lakh on the interest component.