Your First Home
Your First Home
Everyone knows the importance of this basic need of shelter and when it comes to buying your own home it’s the time when you are full of excitement and emotions. The whole family looks for different options with estate agents or references in your locality, area or city. You tend to visit all the locations and sites on recommendation of agents, you see big and small, good and bad properties and after some time you realize that most of the properties were not the one you are searching for. Again you explain your need to the agents and again start your fresh search. For proper decision it is of more use to know yourself first before taking phone numbers of brokers and tips from different sources.
What is the prerequisite for your first home? This can’t be the money only, it is combination of many factors like, this new home is for investment or self use, budget, your and other family member’s preferred location, distance from places of daily visit of all the members of family – School/college/market/ office/ Railway station/ taxi stand/ airport, flat or independent house or want to construct your house if going for independent house. How much you would be paying for transportation from new locality cost of maintenance, saving from not paying rent after possession, how many cars do you have and how much space for car parking you need? You should also check water supply in the house and locality, roads to the site, position of water logging in the area and the gentry which will give you association for quite a long period of time. Then comes the matter of actual quality of building if you are buying on resale, you should check condition of the building, age of building, expected life, construction quality, maintenance in the society, size of the society, vacant home in the society, NRIs in the society and security. You should also check with your financial planner that how much loan you are eligible for and how much money you can part comfortably every month as monthly instalments. Many time people buy property by squeezing their liquidity for many years, which brings anxiety for the whole family for a long period, liquidity is one of the factors one should always maintain. Most importantly one must evaluate some options with one’s financial planner before starting search for the property as you must know what is suitable for you and impact of different options on your life in long run. As very expensive home would not allow you to provide for other areas of your life and if you buy small house, it may take opportunity from you to invest for your better future.
Once you have identified your need of
- Required area in square feet
- Budget including loan amount
- Locality (Distances from your places)
- Time of possession
- Social status
Now you are ready for your search, you can contact some good estate agents who actually give you after sales service also and who assist you in things like Electricity connection, Registration of property and all the necessary documentation of the property and services. At the same time he should manage in clearance of all the dues on property, which may trouble you once you are the new owner of the property. You should clearly understand his charges also before you give your specifications
A few things you should be aware of about flats. You share many things in flat as common area, lifts, stairs and gallery. The roof belongs to all or a few. If the number of vacant flats is high the maintenance of the property would be a problem because of funds. If the society is big and number of members is high again same kind of problem may rise, although there may be exceptions also. There are many good things about flats. You don’t need to care about the common area as society takes care of the same. Security is better in flats, and in days, when domestic help is costly and will not be cheap in times to come, flats are better in terms of maintenance. One must also check for the power backup and maintenance cost per month. According to the age of family members you should decide the floor carefully.
2) Independent or Row House
For a big portion of society living in independent house is the first choice. These days this wish may become more expensive because of its sky high prices especially in metro cities where it may be a dream for many. There are many likes for these but most of the people face problem in managing these with day by day increasing domestic help. You are responsible for everything in your independent house like water supply, gallery, top, pavement, parking area, electricity and many more. Moreover in independent house in many areas security is an issue. In spite of these if you are looking for investment it appreciates more if road, water, electricity and security are proper in the area. You need to check the construction quality also because it will also affect your price appreciation.
3) Construct house
This may be a tedious task to construct your own house but in this you can ensure the quality of your construction and most importantly you can get it designed as per your requirements. If you are going to buy the plot, first you must know the exact need and options. For construction of your home, your family should finalize the design first else you would be making losses because of number of alterations. This results in loss of time and money both. But this way of acquiring home gives you satisfaction of tailored home which suits all in the family. For this you should visit some good architects and make them understand your requirements clearly
4) Home for investment
You are lucky you have your place to live in, for this investment you should clearly define your goal, whether you want rental income or you are expecting capital appreciation from the investment. If you wish you should sit with your financial planner for this goal’s identification and evaluation. If you are looking for rental income only, you should not go for residential property as in India rental income is less than the interest of saving bank account. For rental income only, you should look for commercial property which gives 6% to 7% in metro cities and around 9% in non metros. For capital appreciation and tax benefits you can buy residential property flat or independent house whichever you like or whichever you can buy. If you are buying a property on loan for investment you should take care of the EMIs carefully because this is a long term debt so you need to consider the longevity of your career or profession also. As real estate investments are illiquid in nature, you should consider low market conditions also, when you may not be able to sell your property on market value easily
Cost of house
When you have identified your house you need to ascertain the exact cost of your new house. You should clearly write down all the heads that will take money out from your pocket. You should also get all the previous dues cleared by the previous owner, if you are buying in resale. Here is a list of expenses or particulars involved in transaction of property
- Cost of visits in identification of home
- Brokerage that you need to pay
- Advocate’s fee
- Cost of House (Down Payment)
- Loan processing fee
- Maintenance deposit
- Registration cost
- Development and other charges
- Renovation cost if you are buying in resale
- Electricity connection
- Water connection
- New car (may be second)
- Shifting cost
- Grah Pravesh
For buying your property if you are taking loan you should carefully compare the interest rates of some banks. You should also compare their terms and conditions carefully. You should negotiate on the processing fees, as many banks offer same type of products and processing fees can be negotiated especially if you are going for higher loan amount. For the loan you need to take care of at least 15% of the total property cost as down payment.
Loan cover term insurance
One important point is life insurance and property insurance. You should not take life insurance linked with loan as you pay interest on the premium of life insurance also, as banks club this premium with your loan amount, which increase the total actual loan. More over this kind of term insurance are costly, if you buy pure term plan, you pay less and the sum assured remains with your family, when bank takes insurance on you, the sum assured reduces with EMI payments. If you have taken loan of Rs.50 lacs and in next 5 years you pay the principal of Rs.10 lacs the sum assured will remain Rs.40 lacs only. If you had taken the same sum assured on your own, the sum assured would be Rs. 50 lacs, moreover you would have paid less for the same cover. In case something happens to you, the family would have Rs.10 lacs with them as per above mentioned example.
Impact of your first home
Your first home brings you the sense of achievement as it is of value in our society to have your own house, it is the status symbol. It affects your life in many ways. Congratulations! You have brand new neighbours for life. You have many things to do – new electricity connection, water connection, new maid, news paper, milk man, grocery store, electrician, plumber, Doctor, courier agency, chemist, gardener and many more.
Savings and Tax benefits on your first home
Now you will save more if you are saving rent, if you have taken loan, you will save interest up to Rs. 1.5 lac and the principal payment will qualify for income deduction under Section 80 C. If you have paid interest on borrowed capital before possession, 20% of the capital can also be claimed yearly for next five years. If you have paid interest of Rs.2 lacs till possession year, you can claim deduction of Rs. 40000 annually for five years.
If you are in the tax bracket of 30% you are saving directly 30% of interest up to maximum Rs. 46350 and maximum Rs. 30900 on principal payment other than deduction on borrowed capital. If you are taking loan for your first home and you take loan before 31st March 2014 you can take extra deduction of interest of 1 lac, if the loan amount is less than Rs. 25 lac. This will save Rs. 30900 additional for people falling in 30% tax bracket. More over if the additional interest payable is less than 1 lac balance interest can be claimed in Financial Year 14-15.
One should consider this tax saving at the time of planning loan because of these savings, your actual annual repayment of loan comes down, that means – you need to pay less than the fixed EMI or you can say your effective monthly instalment will be lesser than the actual. We should consider the net out flow only. This will help you determine your future cash flows. A financial planner can really help you in getting the new actual out flow.
Importance of time in buying your home
Many times we have found that families take much time in identification of property and it impacts their plan negatively, as circle rates and property rates tend to go up. Family keeps money in bank account, because for a very short period money cannot be invested at risk for higher returns and when it takes time in identification the money loses it’s buying power and it becomes difficult to identify a good property with passing time with same amount of money lying in bank. So family should clearly define their need and they should act in a certain time period only.
Plan your world's remarks
Do remember never ever buy any property in hurry. Always select more than one house because after zeroing in, you need to go far more than this. Once you get the papers of the property you should always remember not to behave like penny wise and pound foolish, give charges to a competent lawyer for verification. Check the developer’s record by talking to the end users, if possible, visit his other delivered projects. If you are buying independent house kindly check the papers more carefully for encumbrances as in India it takes lifelong years to settle the civil matters. When you construct your home you should know what exactly you want otherwise you lose money in modifications. You should prefer to buy unless you have ample amount of money to build your dream home as your home can not be taken as your liquid asset. Any value in home is a dead investment except who sell it in future. Your all the goals of life should be taken simultaneously on the drawing board for the allocation of budget as any one or two goals in isolation can lead you to hot waters. You should plan your life according to your situation with your financial planner.
Enjoy financial planning!