Days are gone of the unwritten rule that you can start planning your home purchase only after you are settled in life. Countless youngsters are now seeing merit in the proposition that it’s better to start early when it comes to possibly the biggest investment of their lifetime.
Buying a home early has certain advantages, you can either get to spend a major part of your working life, free from rental woes, or the house continues to provide great returns as an appreciating asset. You can also make it a great source of additional income if you want to rent it out. Here is the list of top 10 experts tips, if you are planning to buy an individual house in Chennai locality.
10 Experts tips to buy individual house in Chennai
Be Financially Disciplined to handle down-payment process
Financial discipline is the cornerstone to make the dream home affordable. You need to pay the down-payment from your own pocket. This can be anywhere between 10% and 25% of the property’s market value. If you have a 2BHK apartment that costs around Rs 60 lakh then the down-payment will cost between Rs 6 lakh and Rs 15 lakh. To build your down-payment fund, start cost-cutting, avoid unwanted spending, clear your debts and try to expand your income pool.
2. Stick to Your Budget
Question yourself where does most of your monthly income go? On rent, groceries, dining out, shopping, entertainment? Start analysing these areas. Categorise your expenses and determine how much you are spending your money and then make a budget. In this digital age, you don’t have to do anything manually as there are many apps out to help you set a budget. You can compare your income with other expenses and track how to spend your money.
This can help you cut down on frivolous expenses and save for your down-payment process. You don’t have to cut off your lifestyle expenses completely, just need to trim them. For example, if you are currently eating out 10 times a month, cut it down to 5 or 6 and save some money. Similarly, instead of buying ‘branded’ groceries for cooking at home, consider switching to house brands or generic ones that comes cheaper. The same goes for skipping expensive gym subscriptions to work out from home, taking public transport to reach workplace, so on and forth.
3. Research on Your Dream Home
We all dream of owning a home but do you have the sorted details? Are you looking to buy an residential apartment, an independent house, a condo? How many bedrooms do you want? What amenities are you willing to pay for – car parking, swimming pool or club house? Where will it be situated – in the heart of the city or on the outskirts of the locality? The cost of owning a house varies based on all factors mentioned above. For instance, a house in the outskirts costs may costs less than one in the city for the same square footage. Knowing these details means you will know exactly how much to save. However, it’s crucial to set a budget that line with your current repayment capacity. At times many decide to buy a house that they can’t really afford and struggle with the EMIs later.
4. Don’t Just Save – Invest
Simply setting aside your excess income in a savings account may not fetch you sufficient returns. Consider investing it to generate profitable income. Let’s compare a few options for clear understanding. A savings account will help you to earn you a maximum interest of 4% p.a. whereas a fixed deposit (FD) account will earn you interest starting from 6% p.a before tax. A recurring deposit (RD) account will help you to earn interest starting from 7%-8% p.a. In contrast, depending on the fund some mutual fund investments can offer between 10% and 15% (or even more).
FDs and RDs are risk-free, i.e. they are not affected by market fluctuations. Yes, mutual funds are risky and depend on market conditions but they have the potential to beat inflation in the long run process. This can be a great advantage because you are saving today for a better tomorrow. The same house will cost more tomorrow so thanks to inflation. So, higher risk = higher reward. Also, the younger you are, the more risk you can take owing to cover your fewer financial commitments.
5. Set Aside the Money for Future EMIs
Buying a home without pre-approval of home loan seems impossible today. Home loan does not cost less. You will have to pay EMIs every month and that’s likely to be way more than the rent you are paying currently. So, use an online EMI calculator to determine how much you may need to set aside each month for your home loan repayment.
Once you have structured a clear figure, it might be a good idea to start channelizing your savings and investment returns to set aside that how much amount every month you actually start repaying your EMIs. This will be a good rehearsal of how you will deal with your finances when the EMIs actually begin.
6. Prepare for Other Expenses
Apart from the down-payment procedures, there are other out-of-pocket costs involved. For instance, stamp duty (from 5% to 7% covers property value), registration cost (covers atleast 1%), memorandum of title deed charges (0.1% of the loan amount), water supply, interior decoration, electricity connection, and so on. There will be also brokerage of legal fees, home insurance, etc. While it might be difficult to accurately cover all the non-loan charges that could be estimated accordingly.
7. Improve Your Credit Score
A good credit score (of above 750) not only makes you eligible for a home loan, but also increases your negotiating power for lowering interest rates. Because of the long tenure of home loans, you can actually end up paying a lot more as interest way more than the principal amount. For example, if you borrow Rs 60 lakh for 30 years at 8.7% p.a., you will end up repaying Rs 1.09 crore in bank interest. But if you were charged at a higher interest rate you may end up paying much more due to a poor credit score.
For example, the same loan given to you at a interest rate of 10.5% will lead to a total interest of upto Rs 1.97 crore over 30 years. So, if you have been maintaining a good credit score, you could get a lower interest rate. Improve your credit score promptly by paying your outstanding dues in full, avoid applying for too many credit products within a short period, not utilising more than 30% of your credit card limit and correcting credit report errors even if you had any.
8. Compare Home Loans
Apart from researching the type of home, you wish to buy you can also compare home loans on third-party websites to narrow down your search options. Interest rates start from 8%+ p.a. which is usually pegged to the bank’s MCLR (Marginal Cost of Funds Based Lending Rate) if you choose a floating rate loan. Fixed interest rates start from 9%+ p.a. You can also consider other aspects such as processing fees (0.25% to 1.5% of the loan amount), pre-closure charges (up to 6% on fixed-rate loans) and late payment fees. Comparing all these aspects of a home loan package will give you insight into the actual cost of home loan borrowing procedures.
9. Good Time to Buy a House
Floating rates are pegged to the bank’s Marginal cost of funds-based lending rate (MCLR). The MCLR is usually dynamic and changes in tandem with prevalent to macroeconomic conditions. The Reserve Bank of India’s (RBI) Repo Rate is the policy rate that influences all loan and deposit rates in India, also influences the MCLR. A hike in the Repo Rate may lead to a hike in the MCLR and thereby increases the interest rate of the home loan. So, if you apply for a home loan today, chances will be cheaper than what it was a few months ago.
10. Wealth Tax Benefits
Home loan repayment deducts wealth tax. Under Section 24 of the Income Tax Act, if you can claim up to Rs 2 lakh per financial year on the home loan interest. Also under Section 80C, you can claim up to Rs 1.5 lakh per financial year on the principal repaid. Buying a home is not an easy task but delaying the plan may not be profitable either. However, your income will increase in future and expenses owing to more financial commitments. So, be informed and learn to manage your money as well. You might have to make certain sacrifices too to pay off those coveted keys.
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ABOUT THE AUTHOR
Cadson realty was formed in the year 2013 and is a part of the DSR group. Cadson realty deals with all kinds of properties ranging from commercial, industrial to residential and have a wide range of property specification in this range.