In India the profile, age and socio-economic status of the first-time home owner is gradually changing. Planning to buy a home starts very early on.
However, what remains unchanged is the hesitation and trepidation that comes with making such a major decision. First-time home buyers in India need a lot of caution and due diligence before signing on the dotted lines of a home buyer’s agreement. The following tips are intended to guide first time home buyers as they finalise one of the most crucial investments.
Financial planning
It is essential to ensure proper financial planning before you make the decision to invest in a property. The first step would be to review your current financial obligations such as student loans, life insurance or any other commitments to get an essence of your true monthly income. Your budget for buying your home should be based on your household budget and how much money you can afford to put aside for the EMI of a home loan. Besides the EMI you should have a healthy savings account that can pay for the additional incidentals such as stamp duty, registration, car parking, club house charges and other sundry charges by the builder. An important advice by financial experts is to set aside 4 to 5 EMIs as reserve funds for unforeseen circumstances such as loss of employment or any situation that exerts pressure on financial resources available at your disposal.
Assess your future needs and goals
When deciding to invest in a property, it’s important to not only have a clear picture of your present needs but also take into account your future needs and goals. Some of us are just looking for a home for our family, and some of us want capital appreciation through a long term investment. Some just want to be part of a new upcoming complex or some want to move closer to their workplace. When we invest we should be clear about our goals to ensure we make an informed choice.
For e.g. if you are planning on raising a family, investing in a bigger house, with good schools and parks in the vicinity would be an important consideration.
Learn about different interest rate options
A common dilemma for the first-time home investor is choosing between a fixed rate of interest and a floating rate of interest. A consumer has to choose between peace of mind by opting for fixed home loan where the interest rate remains constant during the entire loan tenure and does not change with market fluctuation or should they take a risk by going for floating loans. In this scenario the interest rate is dependent on the market and fluctuates according to the economic situation in the country.
A new option that is growing in popularity is the fixed-floating home loans that come with a fixed interest rate in the initial years and floating rates thereafter. This option gives customers stability on their EMI outflows for the first few years, thus helping them plan finances better and provides protection against future fluctuations in interest rates.
Improve your CIBIL score
CIBIL is India’s first credit information company, also commonly referred to as a Credit Bureau. The CIBIL TransUnion Score plays a critical role in the loan application process. After an applicant fills out the home loan application form and hands it over to the lender, the credit score and credit report of the applicant is immediately checked. If the credit score is low, the lender may not even consider the application further and reject it. However if the applicant has a good credit score, he is considered credit-worthy and this improves the chances of the loan being approved. A high CIBIL score also can make the loan available at a cheaper interest rate.
Go loan shopping
Shopping around for a home loan will give you a great market insight and help you select the best suited financing option. Comparing loans and negotiating with banks can save you a lot of money. Once you know what each bank has to offer in terms of rates and fees, negotiate for the best deal. These days, banks also offer home loan insurance as a bundled product along with your home loan that protects your family from loan liabilities in case of your unfortunate demise within the policy term.
When selecting for a lender, it is also advisable to check the prepayment penalty and foreclosure charges. You can also consider co-ownership between two family members to get a bigger loan amount.
Get a pre-approved loan
A pre-approved home loan means that the bank or financial institution has carried out their due diligence checks on your credit report and have made a virtual confirmation of the loan and the loan amount. This pre-approved home loan boosts the confidence level of the purchaser and gives him a clear idea of the budget within which he will be able to buy a house.
The buyer will also have clarity in terms of EMIs that will need to be paid and can accordingly plan their finances. However the buyer must be aware that once he gets the pre-approval for a loan, he has only a limited time-frame within which to finalise the property, failing which the pre-approval can be cancelled.
Research locations
Location is another key factor to consider before making an investment.It is always prudent to buy in a high-growth area where there is potential for growth and subsequent capital gains. Keep things like connectivity to business areas, proximity to educational institutions, malls, hospitals and other important social infrastructure in mind. It is also important to be aware of future planned developments in the area that could have a positive or detrimental effect on the future value of the property. At the same time, the location should be suited to your personal requirements and budget. A healthy mix of the above two considerations will guide you towards your ideal location.
Credibility of the builder
Before purchasing a property one should look into the credibility of the builder. This essentially means checking on the developers past projects, their previous projects, quality of construction, rate of appreciation in value, current demand in the market and number of future projects that are being undertaken. It is also an added advantage if the developer is affiliated with a governing body like CREDAI.
Site visits
Making regular site visits to your property when it is under construction is important so that you can check the status of construction and quality of materials used. If you want to make minor non-structural changes such as the layout of the kitchen or change the plumbing fixtures, this would be the best time to get it done.
Property search route
Newspapers today are cluttered with property ads, realty brokers have offices in every site and there is no dearth of property information online. But with today’s busy schedules, sieving through the market and gathering information can be a daunting task. Understanding this challenge, IndiaProperty.com has designed a special tool to guide you as you navigate the property markets. Assisted Property is a unique service that assigns a dedicated property search manager to research, review and shortlist properties suited to your requirements.
Image: ”Gomti Nagar” by Mohit – Own work. Licensed under CC BY-SA 4.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Gomti_Nagar.jpg#mediaviewer/File:Gomti_Nagar.jpg