Buying Home-Things to remember before buying home or flat or property
Buying a home is the biggest decision in your life. However, small mistakes can cost you large during this process. There are few things to be remembered before buying a house or flat or property. Generally, one would decide the property quickly, approach the banks for a home loan and close the deal. Later regret about such quick decisions. This post is based on request from Vikas on suggest a topic. In this article I would detail about some tips on buying home and things which you need to keep in mind before purchasing a flat or property.
Things to remember before buying home or flat or property
1) You should know the Purpose: Some of us would buy a place for living, purchase for investment (like plot) and some look for regular rental income from commercial or residential property. You should determine your purpose which gives clear guidance about your decision. A house purchased for the living vs house purchased for investment or rental income needs to be treated separately as several factors like commuting, the potential growth for investment etc. would alter our conclusion.
2) Carpet area Vs total area: Many builders cheat you by specifying the price for the total area. If a builder says 1,500 sft area per flat and quotes a price of say Rs 3,000 per sft, don’t get tempted. This could be total area and you need to discount 15% to 20% space which would be common area. Means builder is charging you 20% more on the rate specified by him in reality. E.g. Rs 3,000 per sft and total area is 1,500. Means you are paying Rs 45 Lakhs. However, in reality you would get 1,200 carpet area only. For Rs 45 Lakhs @ 1,200 carpet area comes to Rs 3,750 per sft. This is how you would get cheated by builders.
3) Ascertain the cost of home/flat: Builder would tell you Rs 4,000 per sft for a flat. You want to buy 2,000 sft flat. You would do a quick calculation and arrive at Rs 80 Lakhs. If you made similar calculations, then you are wrong. You need to consider the following costs before arriving the total cost of flat or property.
a) Cost of amenities or facilities: Builders would charge an extra amount of amenities for parking, water, electricity, etc. These charges would cost you anywhere between 5% to 20% of the basic flat cost indicated above. E.g. if you are buying Rs 60 Lakhs flat or Rs 80L flat, such amenities would cost you minimum of Rs 4 Lakhs+.
b) Processing fees for home loans: If you are taking flat or property on loan, you may need to pay home loan processing charges. Though some banks offer flat charges of say Rs 8,000 or Rs 10,000, some charge as a percentage of your home loan amount which includes up to 1%. Means if you are taking Rs 50 Lakhs loan, you need to pay up to Rs 50,000 as processing fees.
c) Know the current home loan rates: Banks would tempt you and offer home loans saying cheaper interest rates. Generally they offer cheaper home loan rates only for initial years. E.g. there was a comment from a reader saying he took a LIC HFL home loan which was fixed for 2 years for 10.25% and later they increased to floating rate which is above 11%. Means your monthly EMI would jump just like that. What I would feel is you should provision such things in your monthly outgoing EMI’s and choose the best home loan rates in India.
d) Your credit score determines your interest rate on home loan: If you have bad credit score, then there are higher chances of your home loan application getting rejected and banks can charge highest interest rates above 12% interest rates.
e) Flat/Property registration charges: Generally, this is ignored by the majority of individuals when buying a home or apartment. E.g. in Hyderabad what I heard is the registration charges now are anywhere between 6% to 7% of the property value which you are registering. Means if you are buying a flat for Rs 50 Lakhs and registering with this value, then you need to pay between Rs 3 Lakhs to Rs 3.5 Lakhs
f) Household Repairs / renovation / additional facilities: In case you are purchasing a second sale, house, you may need some repairs or renovation of the house. In case of flat you may want to have some additional facilities which builder would charge you separately. These things should be considered as additional costs.
g) Insurance: Generally less Indian’s prefers to insure their home. I feel one should consider if your property value is high and you have valuable things at home.
h) You want to buy furniture after possession of the house: As soon as you jump into your dream house, the next question would come to your mind is buying a good furniture at home. However, your pockets are already empty. This is a common phenomenon which every buyer of the new home experiences. If possible, make a provision upfront during the budgeting before buying the home.
Once you consider all above points, you need to arrive at the total cost of the property.
3) Use own money and less of home loan: Once you see how much your flat or home would cost you, you can quickly check your own sources of money. You might be having cash, bank balance, stocks, mutual funds, tax free bonds, etc., You should keep some money for emergency fund and then determine your home loan requirement. Shopping around for best home loan rates would be a good idea.
4) Do sufficient inquiry about the property: Once you have seen a good property, your neighbors can help you in providing feedback about the surroundings of the property. Recently I planned to buy a land where the cost was high. I still wanted to go as I liked the colony. Before proceeding further, I wanted to make inquiry with a couple of neighbors. While discussion with some of the neighbors I heard there is a water problem in that area. When I am paying a high price for such land, why should I compromise? I have done some more inquiry and took back my decision to buy such plot.
5) Check your mobile signals: There is a pathetic story of my friend who brought a premium luxury flat at Kondapur in Hyderabad. He has paid more than Rs 1 Crore to buy a 3 bedroom luxury flat. He has done house warming ceremony. Once he entered into the house after furnishing, he realized that mobile signals are very bad. Each call he needs to make it, he needs to come out to common area and have a call. While it is difficult to check the cell phone signals for under construction properties, if you are buying a built in property, ensure you check this.
6) Check for proper ventilation: When I told this to my friend who was buying a flat, he laughed at me. During summer there were severe power cuts and her family used to cook food in the dark during the early hours of the day. Of course, these days we have power back-up and inverters. However, having proper ventilation is always good for health.
7) Ask for legal documentation: Of course, this is a general practice that we would check for legal documents from the owner of the property. Generally, this should be verified with a registered office by taking Encumbrance Certificate (EC). This EC would be taken for 20-25 years and see that the EC and legal documents would match.
8) Take a few days before you take a decision: Once you see the property, you should not be hurry to confirm your decision. Inquire with neighbors take a couple of days break and visit the property again. If you still feel that is your dream home, you should then continue. When I told this tip to some of my friends, I could see surprises among them. Some said at first look they felt better, but after 2-3 days they started realizing the minus points of the property. Some indicated that the good feeling they received during their first visit continued even after one week and they went ahead for property.
9) Take sufficient time for agreement: When you give an advance to a builder or owner of property, take sufficient time before you make final payment and register the property. Ideally you should take 60 days to 90 days time so that you can complete all legal formalities, home loan processing etc.
10) Penalty from owner for delay in possession: Many of the builders or owners agree to pay a penalty in case handover of flat or home is delayed. These should be forming part of a legal document which you sign with the builder. There are several instances where these are not part of the agreement and builders delay the construction and buyers do not have rights and it keeps dragging on for years.
Conclusion: The above tips for buying home may not be exhaustive. But considering them would help you to have a basic checklist before proceeding to buy a property or flat or house.
Readers, what are your experiences on buying property? Do you feel that you have purchased your dream home, if so, what points you have considered.
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Things to remember before buying home or flat or property