Buying Your First Home? It’s Time to Prepare Yourself!
Doing anything for the first time in life is a fantastic experience. Buying your first home indeed is one of those experiences. There was a time when the average age of a home buyer was between 45 to 50 years. Today, times have changed with people in their late 20s and early 30s venturing to purchase their first homes.
Purchasing your home for the first time can bring a flow of emotions. However, it is necessary to maintain a cool head. You need to be aware of a lot of things as buying a home is a long-term investment.
· Home First or Loan First
Banks are liberal in approving Home Loans today. You can submit your personal and income details to the bank and get an ‘in-principle’ approval for your Home Loan. Using this pre-approved loan offer, you can negotiate with real estate developers and strike a good deal. Alternatively, you can search for your dream home within your budget and finalize the property by paying a token advance. Using the sale agreement, you can Apply for a Home Loan.
The pre-approved loan has its benefits. The bank has already gone through your income documents and determined your Home Loan eligibility. You know your budget now. It is easy for you to search for a house in this budget. The real estate developers get the confidence that you have the support of the bank. You are in a better position to negotiate with the real estate developer. Hence, this method is beneficial for first-time Home Loan borrowers.
At the same time, the second method is beneficial for people who have their funds to invest. Such borrowers need to determine their Home Loan eligibility before searching for their dream home. Usually, you see such borrowers ready to contribute a higher down payment.
· Determine the size of the house you want to buy
You are opting to buy your home early in your life. How much can you afford to pay as your EMI (Equated Monthly Instalment)? Banks stipulate a minimum take-home pay of around 40% to 50% of your income. However, the thumb rule is that your EMI should not exceed 30% of your gross income. You can go for a joint Home Loan along with your spouse. Having an earning spouse can increase your Home Loan eligibility.
· Get your finances ready
First-time borrowers should opt for the pre-approved loan offers. It gives the comfort level as they have an idea about their eligibility. They know the extent up to which they can go. It enables them to make arrangements for the down payment. To get a pre-approved offer, they need to have verifiable income as well as the down payment to close the deal. Remember, that you need to have money in reserve for the following expenses –
- Processing fee – Usually, banks charge about 1% to 2% of the loan amount as processing fee.
- Stamp duty and registration – In the past, banks used to finance the payment of stamp duty and registration. Nowadays, they treat it as part of your down payment. Stamp duty can change from state to state. In Tamil Nadu, for example, the stamp duty is around 8%. Now, for a house costing 40 Lakhs, the stamp duty can go up to Rs. 3.20 Lakhs. It is a substantial amount.
- Equitable mortgage charges – You will be offering the house as security for the home loan. It entails you to create the equitable mortgage in favor of the lender. It attracts stamp duty. Registering the equitable mortgage is a necessary expense as well. (There is no stamp duty for an equitable mortgage in some states in India.)
· Keep your documents in order
When you apply for your Home Loan for the first time, you should have your documents ready. The documents include the KYC documents, income documents, property documents, and so on.
· Do your research well
There is tremendous competition in the market with banks competing with each other in offering the best interest rates to their customers. First-time Home Loan borrowers should do their research well and search for the right lender. We at MyMoneyMantra can help you through this process. You get the opportunity to compare various products of different banks on a single screen as well asproper guidance. Remember, a first-time Home Loan borrower gets additional income tax concessions. It should encourage you to go for your Home Loan as early in life as possible.
Start early to reap the benefits of the real estate prices. The more you delay, the higher is the price you have to pay for your dream home.
Also Read: Buying a Mortgaged Property in India
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