Tips for First Time Home Loan Buyers

It’s your choice. But did you make that choice with your eyes opened or closed?

Everybody knows that there is an enormous housing crisis in India- that land is getting more expensive by the day, that house prices are rocketing, and that it is a grim situation for first time buyers to entertain the dream of owning their own home. Even going by the general estimate, there is no doubt that only a fraction can afford to bridge this gap.

Let’s face it. Our economy is on the verge of collapse because loan providers and dealers dish out ‘white lies’ about home loan terms and conditions, making this more of a burden for the average middle class. But if you look at the picture closely, the infestation of the house loan contagion occurs because we as buyers feed them generously in our haste to own a wee bit more than a house we need.

If you are about to buy your first home, you are more vulnerable to these hidden pitfalls. It is high time we break down the old real estate standby of ‘spend more- it is other people’s money’. Let’s dismantle them one by one.

Things to keep in mind if you are a first time home buyer:

1. Going back to the basics…

   … will make sure that you emerge stronger and wiser than ever. Most banks these days ask only for a 10 percent (which can be a lot by the way) down payment. Working towards putting in a five to ten percent extra ensure that you owe lesser debt and interest to the bank. It is better to not spend more than 40 percent of your income on loans, so have the EMIs scheduled in such a way.

2. Combing through the entire home loan market…

   … is never a waste of time as there are some unbelievably viable deals out there. The cut-throat competition between loan providers have certainly worked well for potential buyers. And they do offer lowest interest rates possible coupled with irresistible cashback offers. Recently RBI too has directed banks to cut down EMIs.

3. Knowing you salary and where it goes…

   … is important for a first time home buyer (especially in your 20s and 30s). Promotions, hikes, job jumps- there are numerous ways in which your income grows. It is a fact that the size of house you are planning to build or buy is usually a smart indicator of their future income.

   Without a doubt, much of the chaos in the home loan market recently has been because of would-be buyers going for home loans without understanding it properly. They may feel that if the rates shoot up, there is always an option of refinancing. Brash calculations too have become many people's undoing as recession in job markets actually exacerbated the situation.

4. Disregarding the unexpected and unknowns of life…

   … when you ponder about buying a house is a commonly bad trend. You don’t know if you are going to escalate the same career graph or something different. You might get married and if you are already children can come to the picture. Priorities change drastically faster than a blink of the eye. Imagine living on one income (with your spouse’s income contributing towards settling the loan). Is it doable? If one partner opts to stay at home after a baby is born, will it put a strain on things? These queries will draw you a realistic picture.

5. Mapping out expenditures…

   … is one game you need to play well because loan EMI plus maintenance plus living costs are anything but trivial.

6. Settling for either the cheapest or the best…

   … can be a maxim for first time buyers. Many financial strategists strongly recommends potential buyers to either go for that idyllic dream home you covet (if within budget) or a cut-rate starter house. Half-heartedly settling for less or something midway is a bloodsucking experience. They only lose you a lot of sleep and money eventually. And if you go for a cheap option now, you can always work towards achieving what you have really wanted all along.

7. Extending the house is a possibility…

   … which you don’t want to completely disregard. Sell-buy-move-settle process is as tedious as it comes and if this can be avoided, awesome! Pay less for a house now and renovate as per your convenience and income. This way you will never even have to shift because your property has that potential to transform into the exact replica of what you have in mind.

Conclusion:

Evidently, not all the above tips apply to every buyer in every situation. People, their requirements, their income streams and home loan market in each city are as diverse as it possibly can be. A wrong turn can be easily avoided with the right amount of research. Like Chanakya quoted, you needn’t always learn by making mistakes. You can very well learn from other people’s mistakes.