Financial Planning Tips – Before Buying a Home

Buying real estate is one of the biggest financial decisions of life. It requires a good amount of research and financial planning. With the increasing property prices and inflation, it is very difficult for most of us to make a lump sum payment while buying a home.

You may go for the home loan option but the challenges are many starting from the loan application to the disbursement stage. The following tips will help you understand what to look for while buying a home. 

Financial Planning Tips – Before Buying a Home

How to do budgeting?

The first step you need to do is budgeting, you need to make yourself ready with details of how much savings and investments you have for making a down payment while buying a house.

Start finding current housing rates in the locality of your choice. Visit various projects interact with real estate brokers, and go through property advertisements and real estate portals. Another way to find rates and upcoming projects is by visiting property shows/exhibitions held in your city.

How much Down payment is to be made? 

Once you come to know the average price you can decide the amount required for making a down payment. If you are planning to take a home loan make inquiries to banks about your loan eligibility. Most of banks provide home loans of around 80% of your property document value. You have to make a 20% down payment on the property’s cost.

A builder may ask for a certain amount in black. As the loan is given on white value only, you need to make a down payment considering the white value cost. This cost includes money given to the builder by cheque, stamp duty, and registration costs.

Any additional cost is involved?

Keep in mind that there are some charges for which you need to prepare your budget accordingly.

If a white component of a property document value does not suffice for the home loan amount required by you, then either you have to arrange additional money or you have to produce a bill of extra work.

Other additional costs that you need to consider are stamp duty and registration costs which depend on the location of the property and the prevailing rate (decided by government authority). You can use tools like a stamp duty calculator to estimate additional costs associated with the property purchase. This helps ensure you have a clear understanding of all expenses and can plan your finances accordingly.

You need to consider the cost of loan processing fees charged by the lender. If you are seeking a lawyer’s advice for the property due diligence or valuation you need to consider lawyer fees also.

Buying a home via a broker may cost you an additional 1% of the property cost. If you are buying a flat then it may cost you additional society share transfer fees. So in total additional cost

In general additional costs that may be incurred are:-

Before buying a home you have to check about your maximum loan eligibility and how much you should borrow. This eligibility mostly depends on your monthly income. Approach the bank you plan to borrow from and ask it to assess your loan eligibility. They will issue you a letter stating your maximum eligibility for a home loan.

Some banks also provide online modules to check this eligibility.

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Which Interest rate loan option should I select?

Home loans available from banks have two options either you can opt for a fixed interest rate option or a variable (floating) interest rate option. In fixed interest rate option rate of interest remains the same throughout a home loan. In the floating rate option rate of interest varies.

Choosing a fixed-rate home loan offers an advantage over a floating rate as the rate remains the same even if market interest rates increase, requiring the borrower to make consistent fixed monthly payments. This choice is ideal for individuals who seek to protect themselves from fluctuating interest rates and prefer consistent payments over a set amount and duration for their loan. If you wish to benefit from different home loan interest rates, you should choose the floating rate option.

Finally, after your loan is approved and payment of the black and white amount is done you have to pay the appropriate stamp duty and registration fees to get disbursement of the loan.

Don’t end up taking excessive loans; make sure you take home loans up to the amount you can afford. Your first home doesn’t have to be the home of your dreams.

Do not be afraid to ask for help from financial advisors or real estate professionals when dealing with the challenges of buying a home. They can offer valuable knowledge on the financial aspects of owning a home and assist you in making well-informed choices.

Explore government schemes and incentives aimed at first-time homebuyers, such as subsidized interest rates or tax deductions on home loan repayments. These schemes can help reduce the financial burden of homeownership and make it more affordable.

Conclusion 

Buying a home is a significant financial decision that requires careful planning and consideration. By following these financial tips, you can ensure a smooth and successful home-buying experience while safeguarding your long-term financial well-being.