Buying a house is a big decision for most of the people. And more so for a first time buyer. And for someone who can afford it (with home loan and associated EMIs, most of the times) it is not an uncommon investment. In fact, lot of buyers buy homes as a investment, rather than as a place of residences.
Given the amount of money one commits while buying a house which can be hefty 7 or 8 digit number (in Rupee terms) it is important to do a due diligence before taking the plunge and buying a house.
Here are some of the common mistakes to avoid as you look to buy a house for living or just as an investment.
For calculation and illustration I’ll consider price of the house as Rs. 50 Lac. Of course, if you live in a metro city, you may wonder what you’ll get for this amount!
1. Stretching too much with home loan
The fact that you are eligible for X amount of home loan doesn’t necessarily mean that you use the entire amount. Suppose your loan eligibility is Rs. 50 Lac, translating into EMI of Rs. 45,000, it doesn’t necessarily mean that you take the home loan for the entire amount. You may need to factor in you regular expenses, contingency fund, future planned expenses (e.g. getting married or school fees of kid) and see if the numbers add up. Being in a situation where you have taken a home loan for the entire amount you were eligible for, but ended up struggling with regular expenses (unless you get good raise or some windfall gain) is not something you’ll want to be.
2. Not considering the cost of add-ons
Homes often come with a basic set of fittings, which usually falls short if one is looking to move into it. You may need to get electric and plumbing installations right, get some interiors redesigned to suit your taste (they need not be extravagant, but more often than not you’ll need some work), get basic furnishings like cupboards & wardrobes ready and so on. In case you are looking to move it and not rent it out, you may also want to get air conditioning, refrigerator, kitchen cabinets, beds, washing machine etc. in place before moving in. This all may set you back by few lacs – usually more than you would have budgeted for. In addition, there may be few mandatory costs like society maintenance, clubhouse, parking charges etc.
3. Not considering the impact of taxes and registration costs
As of now, if you are buying an under construction property, you need to pay GST. In addition, you need to get the papers right and spend some amount on stamp duty and registration process. And there may be brokerage also. Depending upon different factors, these costs may even come up to up to nearly 25 percent of property cost. For a Rs. 50 lac property, your landing cost may be upwards of Rs. 60 Lac. And if you are looking at real estate as an investment, you may (incorrectly) end up calculating returns on the base price and not the landing cost.
4. Not doing due diligence before buying
Before buying a house you need to check on lot of things. Sum of these are – checking if all paperwork is proper, is the title clear and without any controversy, are all facilities like access to proper electricity, water, approach roads etc. proper etc. One may often get carried away by great location and potential price appreciation and fail to do due diligence too ensure that at least basics are in place.
5. Taking all marketing claims at face value
It is often said that, while selling a property, you are not selling a property but selling a dream – usually of an enviable lifestyle. One often tends to get carried away by the glossy images of sample apartment, clubhouse, greenery along the proposed approach roads etc, and not contemplate that things may need to be taken with a pinch of salt. To top it up, agents and salesmen often misspell the dreams of “assured” returns and rental yields. The reality may be somewhat different.
There may be chances that you do not do your homework but end up getting an amazing home. But there are higher chances that you may end up falling in one of these pitfalls.
Looking to buy your dream home?
It may pay to be not carried away by euphoria and be pragmatic about what you are entering into and ensure that avoid the common pitfalls. Unless, of course, if you have lot of money.