Mistakes To Avoid When Buying a Home
A common man goal is to buy a affordable home whether it is an apartment or an individual house. Buying a new home can be one of the most exciting time for everyone. The process of identifying home to closing your paper work, it’s not unusual for mistakes to happen. When things go wrong in buying property, it can ruin your financials. What are the mistakes a common man/woman would make while buying a home? How can you avoid such mistakes if you are buying a property?
1) Understand how much home loan you are eligible
Generally one would not understand about home loan process, identify property and then later regret as they might not be eligible for the home loan amount what they would have preferred. You should upfront know how much loan you would get so that you can plan balance from your pocket.
- Pre-approved home loan could be primary step in such case. You need to understand what a pre-approved housing loan and how you should obtain on time. A simple phone call to a bank or financial institution offering housing loan, will let you know whether you are eligible for loan or not. This is verified by them with the details like, your income and existing liabilities like housing loan, car loan, personal loan etc.. Before you go for a house it is important to get a pre approved loan. You need to submit your tax returns, bank statements etc. to get pre-approved loan.
- The pre approved loan carries two benefits. First, you'll know the price range for a home you can realistically purchase. Second, many realtors won't even let you put a offer on a house until you've completed this step.
- Before you go for home loan make a plan that how much you can spend the from your pocket and what is that you can go for a loan. Since you completed pre-approved loan process, you would easily make your plans how much you need to afford from your pocket. This will really helps in better planning before buying a home.
- Generally you would get housing loan upto 80% of the total property value and 20% need to be born from your pocket apart from registration charges. You should also keep in mind that home ownership brings extra expenses like home insurance, property taxes, repairs and maintenance costs. Factor those into your monthly budget to find out how much home you can comfortably afford.
2) Do a survey on the property you wish you buy
Don’t just buy a property because someone is buying it. There are several instances where the properties are sold to multiple buyers. To avoid such circumstances, you should consider these tips.
- One should thoroughly check with the neighbours about ownership. We should take Encumbrance Certificate (EC) for past 20 years atleast. Of course, a reliable shortcut is to buy into a project that is backed by financial intermediaries like banks.
- You can also engage a lawyer to carry out due diligence, but as a smart buyer, it's best to pore through the documents yourself. Here is a checklist of documents that you should see before signing on the dotted line. a) After the agreement is drawn, have it whetted by a lawyer to spot loopholes. b) Do not delay registration of the sale deed after signing it. c) Ask for issuance of share certificate in case of flat. d) If you are paying an advance without getting possession, document it in the form of an agreement or a memorandum of understanding. e) Contact a tax consultant to explain your tax liabilities of you apart from tax benefits (like housing loan benefit)
- The first thing one should do in the case of projects that are still under construction is to make sure that the builder has all the necessary approvals in place, without which it would be considered illegal.
- We have often come across cases where projects have been stalled midway due to lack of proper approvals. Even finished projects have been razed for the same reason. Hence, I would never advise to go for a booking unless you have taken a close look at the key documents.
- The first of these is the permission to develop land into a residential complex. Builders need to get government approval to convert agricultural land or even land specially designated for industrial purposes into a residential area. If the builder has gone ahead without securing this approval, the entire project is illegal.
- In addition, there are environmental and municipal clearances to factor in. For instance, the builder has to ensure that his project does not interfere with the urban and town planning, and that it has unrestricted road access.
- Next, you need to find out if the builder has the authority to transfer the undivided share of land to each flat owner and the entire plot to the society, on completion of the project.
- Ensure the builder do not reserve any right on your portion of the apartment, such as balconies or terraces.
- However, unless you ask the builder to incorporate all the promised features in the agreement and make provisions for penalty in case of non-fulfillment, you stand on shaky ground.
- Any sample flat that was shown to you would be demolished long before you obtain the possession of your house, leaving you with little evidence if you decide to drag the developer to court.
- Watch out for the fine print. Builders may slip in a clause in the agreement, stating that they reserve the right to alter any of the promised features.
- To be safe, take a look at the approved construction plans and ensure if they match what has been promised to you. Ask the builder to show you the requisite permits from the concerned authorities.
3) How well your property is going to appreciate in future?
Many of us buy a home, but keep cribbing that there is no price appreciation in the property. Have you done enough home work before buying home? We cannot predict the future. So clearly we cannot know the future of how our living experience will be like in the new house. But some factors would help you to how your property would appreciate in terms of price in future.
- Is your street likely to become a major or a popular rush-hour street.
- Is the national highway is nearby?
- Are there enough number of people living in the surroundings?
- If there is a lot of undeveloped land? What is likely chances that they would quickly fill and constructed in near future.
- What is the present value development in the area?
- What are the development plans expected in neighborhood in the future?
- If you are not in a position to repay the loan, will your house can be sold quickly with less hurdles?
- If you are moving out of the house due to transfer of job (or) some other reason, what are the chances that you can let it out for rent.
4) How well are you planning and choosing a low cost home loan?
Don’t just go and pay advance to your builder and accept home loan what a builder is already tied-up.
- Before you go for a home loan, better talk to your home loan adviser and go through the different types of home loans, their terms and conditions and the Rate of interest (ROI). Once you have decided on a property and are planning to take a home loan, you will have to zero in on a lender. The most important consideration here is the rate of interest. Many websites like deal4loans, bankbazaar etc., offer a comparison of interest rates. By entering your details on these sites, you can get a good estimate of the rate of return you could get. There are mortgage loans for practically every person and situation. However, if you don’t educate yourself on the various products, you may be trapped into home loan paying high interest rates.
- The interest rate you get from the market will also depend on factors like your credit score, employment status, income, and the profile of the developer and property. Decide whether you will take a floating or a fixed rate loan. With interest rates currently still on the higher side, you would, perhaps, be better off opting for a floating rate, to benefit from a possible decline in interest rates once the government and the RBI manage to bring inflation under control.
- If you are extremely risk-averse, you may opt for a fixed rate loan. This type of loan will protect you from interest rate shocks during times of rising rates. However, these loans are costlier than floating rate loans. "In case of a fixed rate loan, check whether the rate is permanently or temporarily fixed. If it is the latter, check what the rate will be after the fixed period is over.
5) Have you factored your tax gains before hand?
Don't think that you can straight away claim Rs 2 Lakhs as home loan interest for your income tax purpose and reduce tax. You can avail deductions on both interest and principal repayments on a home loan, subject to a few conditions.
- The home loan interest exemption under income tax is limited to Rs 2 lakh per year in case of a self-occupied property. However, If this property is not acquired or constructed within three years of the end of the financial year in which the loan was taken, the benefit gets reduced from Rs 2 lakh to Rs 30,000 only.
- The income tax deduction upto Rs 2 Lakhs is allowed in full in case of let-out properties. The deduction on interest is available from the year in which the construction is completed. Any interest paid earlier can be deducted in five equal annual instalments beginning from the year of completion. Such claim is also subject to the limit of Rs 2 lakh or Rs 30,000 for a self-occupied property. Section 80C also allows a deduction of up to Rs 1.5 lakh per year on principal repayments. "This is subject to the condition that the property is held for five years from the end of the year in which possession was obtained,
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This is a guest post from Ms. Priya, an emerging blogger in India. In case of any queries, you can leave your doubts or questions in below comments section