Are you planning to buy your first home? A home is more than an asset. It's a symbol of pride, comfort and accomplishment. Buying a property that they can call their own is the dream of millions of middle-class Indians all over the country. However, with skyrocketing real estate prices, buying a home is one of the most significant expenses you will make in your life.
As a first-time buyer, you are sure to feel overwhelmed. Home loans, interest rates, property type, location, cost-per-square feet, builder reputation – there are umpteen factors to consider and numerous decisions to make.
Here, in this guide, we simplify your home purchase and help you make a smart decision, with handy tips. Let’s get started.
#1: Fund your Dream Home with a Home Loan
Before you begin the search for your dream home, one of the most important things you will have to decide is – how are you going to fund the purchase? With significantly high realty prices, paying for your property out of your pocket is next to impossible. Almost all first time home buyers rely on home loans to fund the purchase.
Attractive interest rates, flexible repayment options and easy availability make home loans the top choice for first-time buyers. All major commercial banks, housing finance companies and a few NBFCs offer home loans.
However, one crucial point to note is – home loans do not pay for the entire price of the property. Generally, most home loans pay only up to 60 – 80% of the property's price. The rest has to be borne out of pocket. This brings us to the next tip.
#2: Save for Down Payment
As mentioned in the above point, home loans do not finance 100% of the property price. You need to pay from 10 – 25% of the property price from your pocket. The amount you pay for the property from your savings is known as the down payment. So, before you approach a home loan lender, make sure that you have saved the funds required for the down payment.
To give an example, let's say, you're purchasing a flat worth Rs. 60 lakhs. You need to pay around 20% of the property price, i.e. Rs. 12 lakhs out of pocket. You can save this amount by investing in equity-oriented mutual funds or recurring deposits for 3 to 5 years before you plan to purchase your dream home.
#3: Location is a Crucial Deciding Factor
Deciding the location (neighbourhood) is one of the first decisions you have to make. Properties located within the city centre are convenient but will cost more per square feet. You can see a reduction in property prices as you move to the suburbs.
Besides the cost-per-square-foot, other factors to consider include proximity to your work location and your children's school, availability of lifestyle amenities like supermarkets, malls, cinema theatres and more.
Don’t forget to consider the safety of the neighbourhood you’re choosing while deciding on the location of your dream home.
#4: Choose a Reputed Builder
The builder is the real estate company that is in charge of constructing your home and handing over the finished apartment to you within the stipulated time. There are plenty of instances where builders suffer from a financial crisis leading to incompletion of the project or delayed projects. To avoid all these stresses, it’s essential to research the builder thoroughly before you commit to the purchase.
Connect with other home buyers who have previously purchased from the builder and also check unbiased reviews of the builder online, to help you decide.
#5: Compare and Choose the Right Home Loan Provider
Just like the builder, you need to be extra cautious while choosing a home loan provider. Make sure to compare the interest rates, processing fees and other charges levied by lenders. Here are a few points to keep in mind while comparing home loan providers:
Compare the interest rates for home loans offered by different banks
Check the prepayment and foreclosure policies and charges of the lender
Compare processing fees, delayed payment penalties and other hidden charges
Check if you’re eligible for home loan subsidies like the PMAY (Pradhan Mantri Awas Yojana)
Check if the lender allows for a home loan transfer
Make sure to take your time and compare the interest rates, fees, charges, and other terms and conditions of different lenders, so that you can land the best home loan deal.
#6: Deciding on the Type of Interest Rate – Floating or Fixed
Home loans have two types of interest rates. In fixed rates, the interest rate is decided at the time of loan sanction, and it remains the same for the entire tenure. In floating rates, the interest rate of the loan varies depending on market trends.
Generally, most borrowers opt for fixed home loan rates, as they are assured of the same price until the end of the tenure. However, this may not always be a smart choice. For instance, if the prevailing interest rates are high, going for the fixed interest rate is not a smart choice, as your interest rate is fixed and you cannot benefit when the interest rates drop.
So, consider the market trends and prevailing interest rates before you decide whether to go for fixed or floating interest rates.
#7: Check your Home Loan Eligibility
Lenders check your eligibility before they sanction the home loan. The eligibility criteria vary from one lender to another. It's a good idea to go through the eligibility conditions before you approach the lender. This way, you're aware of what the lender expects, thereby boosting your chances of securing the loan.
#8: Work on Improving your Credit Score
All lenders consider your credit score and history before they sanction your loan. The higher the credit score, the better are your chances of securing the loan. Additionally, when you have a good credit score, you can negotiate strongly with the lender, thereby scoring lower interest rates. If you have a poor credit score, try to improve it before you approach the lender.
#9: Approach the Bank where you hold a Salary Account
While choosing home loan lenders, you are likely to land a better deal, if you approach a lender with whom you maintain your salary account. Since you are an existing customer of the bank, you are likely to get lowered interest rates and other benefits. Additionally, you can quickly repay the home loan EMIs by setting up an ECS facility for auto-clearance from your salary account.
#10: Don’t forget to Claim Tax Benefits
As a first-time homebuyer, you can claim up to Rs. 1.5 lakhs as tax deduction under Section 80C for the principal repayments. Additionally, you are eligible for tax deductions on the interest repayments for up to Rs. 2 lakhs under Section 24B.
Purchasing a Home Requires Strategic Planning and Commitment
A home loan is one of the biggest financial commitments of your life. Even a single mistake can lead to financial stress. So, make sure to do your research, consider the various tips mentioned above, evaluate the multiple options available and complete the purchase after careful planning and forethought.