Things to check while buying your first house

Should I rent or buy a house ?

Subramanian
Goals
Things to check while buying your first house

Before I bought my house in 2010, I was grappling with this thought whether to buy or rent ? . I was living in a rented house and was paying Rs 8000/- as rent. My parents insisted on buying a house and the EMI was Rs 14,000/- per month. I argued that the rent amount was much lesser and insisted that we live in a rented house as the EMI is much higher than the rent. As with any middle class family, my parents had their way and we eventually bought the house.

The Checklist

There are multiple factors that you should check while buying a house. Buying a house is an emotional and a big financial activity. Your parents would feel that you have “settled” and now you are “independent” . You have a feeling that you own a piece of land in this “big city”. As you go through the process, there are so many processes and documents you go through - some from the builder / seller, some from the bank. I have provided a list of questions that you could start with but this list is by no means exhaustive.

Emotional

It is noted that majority of the buyers make their decision because of emotion . Buying a house is not easy, but at the same time we need to keep a check on our feelings and ask for help when required .

  1. Given the circumstances, rent seems to be an economical choice , but it would be nice to own a house too. What should I do ?
  2. Am I paying a huge price for this house ? My life’s earnings are invested in this, hope I am doing the right thing.
  3. What kind of community will we have ?
  4. Is this a reputed builder ?
  5. My friend bought a house with this builder and he / she had problems. Will I have problems too ?
  6. Could I have got a better deal for the house ? ( from the bank ? )
  7. Am I getting a better view / positive vibe from this house ?

Suggestions

  1. If you are young bachelor , it is easy to move houses. However, once you are more than 1, it becomes quite difficult and an own house gives you that peace of mind. You can’t put a number to peace of mind.
  2. Ask questions, reach out for help, hear everyone, but decision will be yours .
  3. Buying a house is generally once in a lifetime decision , feel comfortable and then make your decision
  4. Enquire / research about the builder or the person from whom you are
  5. Understand the guidance value / market value of the area
  6. In some cases, there is generally a WhatsApp group for buyers in a new residential area, join that ! You will have up-to-date information

Budget & Finance

You cannot spend all your savings in your first house. You need to have an emergency fund (which includes your EMI). You will still have monthly expenses after your EMI.

  1. How much downpayment do I need to make ?
  2. Is this beyond my budget ?
  3. Will I have sufficient money left after paying my EMI ? I need money for expenses as well.
  4. Which banks gives the best interest rate for this house ?
  5. How much do I intend to spend on the interiors ?
  6. How much do I have to pay for stamp duty ?
  7. What is the cost of registration ?
  8. Should I buy property insurance ?
  9. Should I buy life insurance as the bank insists to sanction the home loan ?
  10. What kind of tax benefits do I get on principal and interest ?
  11. Has the property tax been paid for this house till date?

Suggestions

  1. In case you are buying a house, ensure that your EMI is about 35 - 40 % of your net income and not more than that. We are living in uncertain times.
  2. Don’t put all your money away for downpayment , you need money for emergencies and expenses. Keep the money aside for that as well.
  3. Adjust the money for your emergency goal . Emergency goal is generally 6 times your current monthly expense. Ensure you include the EMI as part of your monthly expense.
  4. Negotiate for reduction of home loan interest rate whenever possible. Banks generally provide best rates for new customers and do not reduce it for existing customers. Crying baby gets milk.
  5. Identify your credit score from CIBIL / Experian . In case there are any anomalies , get it fixed and correct it. Better your credit score, your eligibility for loan improves.
  6. Do NOT use your emergency fund as part of downpayment of loan. If you do so, you put yourself at risk.
  7. Processing charges for loan - Try to get this reduced as far as possible. It is a bit easier in private banks than in government banks.
  8. Check for pre-closure charges . RBI has issued couple of circulars on this. See this
  9. You don’t have to keep your loan open for the entire tenure . It has been observed that home buyers are able to close the loan within 8-10 years.
  10. For your first house, whenever you have a surplus, try to pre-pay as much as possible . This will reduce your interest and thus your expense. Remember, interest that you pay , is also an EXPENSE
  11. Property insurance is taken to cover against fire, burglary, natural calamities etc… It is noted that people living in apartments do not go for individual property insurance, however, it would be a wise idea to check
  12. There is no need to buy life insurance from the bank which provides you home loan.
  13. Understand benefits you get on tax reduction on interest payment and principal payment
  14. If you prepay your principal , what is the effect on your tax amount ?

House

  1. Are the documents proper ? I have provide a list of references
  2. What kind of amenities are available ? Swimming pool, Gym, play area, club house etc…
  3. Does this property have the services that I woud look for ? Hospital, School, Supermarket, Metro etc…
  4. Do we have good public transport , or should I buy a car ?
  5. Will there be a good resale value for my house ?
  6. Is this property pre-approved by any bank ?
  7. How far is my office ? How far is my spouse’s office ?
  8. How is the water supply ?
  9. Are there any litigations against the property ?

Suggestions

  1. When you are buying a house , ensure that you have enquired thoroughly and purchasing a good house where you intend to spend , perhaps, your lifetime .
  2. Talk to multiple banks and enquire interest rates
  3. Many articles available on website to evaluate houses
  4. Read reviews of apartments on the internet
  5. In case you are uncomfortable , unsure about things , and have very less time , reach out to a reputed lawyer / real estate consultant who has experience in such matters and can help you with your purchase
  6. If this is your first house , where you intend to live for a long period of time, I would not be too concerned about resale value

Conclusion

I have stayed in my house for 13 years, thankfully been able to repay my loan within the tenure and given that I have lived in rental houses earlier, journey so far has been quite peaceful. I wish you the same peace and comfortable journey while buying your house.

References

  1. RBI - NBFC - Foreclosure
  2. RBI - Bank - Foreclosure
  3. Documents - PropTiger
  4. Documents - Common Floor
  5. Documents - Citizen Matters
Disclaimer : This post is to enable you getting started to buy a house and the advice posted is generic in nature. For specific cases, reach out to a real estate consultant