The Price Is Right, But…

If the cons of buying a property far outweigh the pros, then it may be a good idea to wait awhile and correct your finances first. 

Buying a house in the country’s metros has become an exercise in number crunching, for the most part. Not only is realty quite expensive today, it is often a tightrope walk to raise the money you need to finance the purchase – even with a home loan! Inexperienced buyers might not even realise how tight the fund situation is until they are actually in the midst of negotiations.

A little knowledge goes a long way in buying a house – and there are simple ways to judge if the time is right for you to buy a house or not.

Is the price right? 

Most first time buyers take only the house’s affordability into consideration. But it is also important to consider the future rate of appreciation of the property in relation with the loan.

Let us consider a situation for a first time buyer, Punit Gupta in Mumbai. Punit is buyinga Central Mumbai property at a home loan rate of 9% per annum. However, the locality is almost fully developed. There is little scope for further development – which will most certainly bring about a growth slowdown. Thus, if the growth rate is only about 5% against a home loan rate of 9%, then the purchase is an expensive one.

It is important to account for future potential when analysing the price points. This consideration is most important if you are planning to raise a home mortgage loan against the same property, or putting it up for sale to raise money for a bigger home.

If everything else is fine, but your finances are not… 

There are a number of expenses you must meet out of your own resources when you decide to buy a house. First time buyers must note that the home loan will cover only the cost of the house.Other heads of expenses you must fund include:

  • Booking amount to be paid to developer/reseller
  • First instalment on the flat
  • Stamp duty and registration cost of the house (accruing to at least 7% of the house’s cost in most States)
  • Application and processing fees payable to the housing finance agency
  • Stamp duty on the loan agreement with the lending institution
  • Pre-EMI (in all cases of loan disbursal, whether for ready properties or under construction ones)

Take a count of the above expenses and see how they stack up against your available funds. You may need to borrow a personal loan, and dip into your savings and investments.

It is easier to raise the money on a second home, since you have the first owned property that you can monetise. Most people choose to take a home mortgage loan against the house they are currently occupying, which helps raise money to fund the second home purchase. However, the home loan rates for home mortage loans may differ from those of the home purchase loan.