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Buying Your First Home Sweet Home

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Buying Your First Home Sweet Home
Anagh Pal - 29 July 2019

‘Home is where the heart is

The saying holds true for time immemorial. However, what has changed is its target audience. Previously, couples in their late 30s or early 40s were the major target audience, but now clients as young as in their late 20s have taken over. Although many still prefer living on rent, there are many more who wish to own a house of their own at the earliest, not just as a wish but also considering it an investment to  be  worthwhile.

Pradeep Aggarwal, Founder and Chairman, Signature Global India and Chairman, ASSOCHAM National Council on Real Estate, Housing and Urban Development, said, “They are more into buying homes of sufficient size initially. Most of the couples are newly married and have no kids, and are inclined more towards 1 BHK accommodation or accommodation that is decent in size looking at their present need.”

There are several factors, which have made home buying easier than ever before. It has also helped that the government has provided a lot impetus to make home buying more affordable. “Recently, the government has also introduced a lot of stimulus to promote affordable housing. From providing interest subsidy on housing loans, to reducing tax burden on under-construction houses, the government has taken steps to make sure that affordable housing becomes attractive for new couples or first time home buyers,” said Sudhir Pai, CEO, MagicBricks.com. Shalin Raina, MD – Residential Services, Cushman and Wakefield India, added, “And with RBI’s recent rate cut, home loans are expected to become a bit cheaper. So, for people looking for buying a house for the first time, this might be just the right time,” he added.

According to Magicbricks’ data, on an average 25 per cent consumers are looking for properties with 60 sq.meter carpet area, which falls within Rs45 lakh budget as defined by the RBI. With fresh supply in the affordable segment, which has hit a sweet spot in the real estate industry, developers are also targeting the affordable housing segment since there is a growing demand for houses within the Rs45 lakh budget.

Another major aspect to consider is budget. Online real estate portals like Magicbricks have come up with innovative solutions that help home buyers to understand a host of important things around budget like – what and how much they can afford, and what would be the EMI. Thus helping first-time buyers understand how much budget would be required. Banks also have home loan EMI calculators, which will help you find the EMI once you know the amount, tenure and interest rate of the loan.

“New couples should ensure that they target properties that are affordable and ensure that they will be in a position to pay the EMIs on time. In general, one should not use more than a third of their incomes to pay home mortgages,” suggested Mani Rangarajan, COO, Elara Technologies, (Housing/ PropTiger and Makaan).

However, it is always advisable to keep a cushion of 10-20 per cent above the budget, considering registration and home décor costs.

In many cases, one finds a house which exceeds their budget, in which case necessary arrangements need to be made. “They can think of cutting down on their luxuries such as travelling, eating out, and big car. These cut downs can help them increase the size of the budget and in return will make them the owners of a profitable asset,” Aggarwal said.

With the budget sorted, the next step is to figure out the down payment. Pai said that it is very important to strike a fine balance while deciding the budget for down payment and EMI. On an average, home buyers have to keep aside 20-25 per cent of the price of the house for down payment, besides the amount for registration. “The best way to save for down payment is by building your own savings corpus, borrowing against insurance policies, PPF or a family loan. While there are benefits of a higher down payment like lower interest rates, lower processing costs and insurance premium, it also comes with challenges of lower liquidity during an emergency or a possible cash crunch for initial expenses such as home interiors. So, it is always advisable for home buyers to consider the budget, keeping in mind the down-payment and the amount for registration,” he adds.

So, if the value of a house is Rs60 lakh, you would need to have a corpus of Rs12-15 lakh for down payment. “Today, there are many avenues for one to invest their money and earn good returns. One needs to be careful about not dipping into these funds despite the temptation to do so, and earmark it exclusively for putting a down payment on a home. The more of one’s own funds a homebuyer can contribute is always better,” commented Ashish Mahajan, Co-founder, PropStory.

The next step is to identify a property. Fortunately, with a host of online portals with advanced search options backed by Artificial Intelligence, searching for property online has become a breeze.

“The entire process of home buying has undergone a sea change with the advent of real estate portals like Magicbricks. With more than 80 per cent of properties for sale being listed online, the home buyers now have a wide option to choose from and also do the right kind of research while short-listing a house or a project. Real estate portals are helping home buyers with virtual tours, 3D floor plans, map based searches, and locality wise prices to take an informed decision,” said Pai.

Further, such portals are even organising site visits wherein they arrange pick and drops for site visits. It has, thus, become convenient to shortlist properties that match your budget, size and location preferences. While real time pictures and virtual tours have started replacing the need for site visits, it is always wise to do multiple site visits before finalising a property. Physically inspecting the property and talking to people, who are staying in that locality, will understand the pros and cons.

“Physical inspection of the place is of utmost importance. In case of under construction property, the physical inspection will help you understand the quality of construction and in case of announced property, it will give you an idea of the area,” further suggested Aggarwal.

When short listing a property the location also plays an important role. “Connectivity is an important factor which determines the choice of location for a home. The ease of travelling to one’s workplace is a critical factor,” said Mahajan. Other important factors include the proximity of schools, hospitals and shopping centres or malls, and civic amenities like good roads and connecting highways, which all contribute to providing a holistic living environment.

Another very important decision to make is the choice of the developer. “How a project will turn out and how well it will be constructed, depends on who is constructing the project. It is always advisable to buy from reputed developers,” advised Pai. He further added that such properties will come at a premium due to good construction quality and they also carry minimum risk of missing deadlines of timely delivery. Home buyers can also get feedback about developers from real estate portals and social media communities.

The selection of the developer is very critical. “The track record of the developer in terms of timely delivery and quality of construction are critical aspects that should be thoroughly evaluated. The financial stability of the developer is another aspect that needs thorough study,” stated Raina.

With the budget and developer in place, the next step is availing for a home loan. You can visit a loan aggregator portal and compare the rates offered by different banks and NBFCs. While choosing the lender, one often needs to strike a balance. “Most people choose a lender based on the rates the lender offers and the length of the process of application as well as subsequent fees and charges. Some lenders offer much lower rates while also taking very long to process the application. Some other lenders are able to balance both aspects. So a homebuyer should ask around among friends and do their own homework before narrowing down on a preferred lender,” Mahajan further said.

As mentioned earlier, it is important to go for an EMI you can afford. Increasing the tenure of the loan means a lower EMI, but the total interest paid goes up. So one needs to strike a balance and take a call after studying one’s cash flow, keeping other existing EMIs and financial commitments in mind. This is a decision a couple should take after a lot of deliberation, considering both incomes, possibility of a growth in income, career breaks that either might choose to take and so on.

Also remember that a good credit score is important to get a home loan at good interest rates.

“A good credit score enables one to secure a bigger loan amount at better interest rates and better payment terms. How one manages repayments on existing loans and credit cards determines one’s credit score. The more times one ensures repayments within the due date, the more one’s score improves. An excellent score to maintain would be between 750 to 850,” added Mahajan.

Buying a home is a highly time consuming process, involving a lot of decisions to be made. But when it is handled smartly, the rewards can  be enormous.

anaghpal@outlookindia.com

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