Financial Mistakes When Buying a Home

Buying a house is not the same as buying a vegetable or a flight ticket to your dream destination. It is probably one of the largest and the most important financial decisions we make in life. Buying a home is not just a financial investment for the present, but one that can pay off for years to come. From emotional to financial factors at play, purchasing a house can be a little bit overwhelming and one can easily lose sight of the bigger picture. You might just fall in love with a property because of everything it has to offer and make a snap decision without even considering all your options correctly, only to later find out that the decision was rash and one that can impact your financial security in a big way. There is no doubt that property ownership is a big deal and one that makes you feel like an adult but ensuring that you do not make any financial mistakes while buying the house is even a bigger deal.

As a buyer, you might be someone who is purchasing the first house, the second house, or the 100th house for some sort of investment. But in each case, there are some common mistakes home buyers make

• Not doing budget planning before buying a house : Now, a lot of people will say that, yes, this is the obvious first step, but you might be surprised to know how people often start hunting for a house without a budget. People come in with the attitude that, “we will explore the few opportunities, see what the market is offering, and then make a decision”. However, that is not the correct way to go. Ideally, you should always decide what you can afford in the first place. In a sense, this gives you some sort of criteria, and based on that criterion, you can choose to look at homes that fit your budget. While you can start with a reasonable budget, keeping the option of or completely relying on loans is not advisable. But yes, your budget might go up or down based on your final decision.

• Ignoring your credit health : A lot of first-time buyers resort to taking a home loan to finance the purchase. However, they do not have the foresight to consider the implications of the loan on their monthly cash flow going forward. Taking a hefty loan also means paying a hefty EMI burden each month that can block maximum of your cash inflow, making it impossible to buy or fulfil any other goals such as going on a vacation or buying a new car. It is important to remember that while buying a home is important and taking a loan is always a good option, ensuring that you do not take a very hefty loan which leads to high EMI burden is also crucial. It is imperative that you look at your monthly cash flows and only then decide what loan can you actually take and then prioritise your goals accordingly.

• Not buying a RERA-approved house : Not buying a RERA approved house is not just a financial issue but also a legal issue as it helps in verification of the paperwork and legality of the building. Ensuring that your building has all the proper permits, follows all the regulations, and is RERA-approved is one of the most important things that you should consider while buying a house. Buying a non-RERA-approved house is dangerous because it offers you no legal sanctity or resort if anything wrong happens in the future.

• Ignoring builder due diligence : The real estate market can be very tricky for first-time buyers. And in the hurry and excitement to buy a new house, first-time owners often forget the most basic groundwork to check the reputation of the builder. As the real estate market is heavily built on a good reputation of the builder, buying a house from someone who is not that reputable can lead to lots of issues in the future. While you might assume that the location, amenities, and costs are the centre points when buying a house, ensuring that you buy a house from a reputable builder is also important. From land title deeds to registration, taxation, and other things, a good builder ensures that proper legality is taken care of. It also ensures that the construction is of quality and might mean frequent repairs in the coming years. While buying a house from a less reputed builder or a new builder can save you some money, it will definitely lead to quality compromise, legal issues, loan problems, possession delays, and a lot more, making your dream of buying your own house into a nightmare.

• Not reading the fine print : Whenever you buy a house, also ensure that you read the contract properly. This means not just in skimming through it but getting it verified by a lawyer and reading through the fine print. The fine print might include unfavourable terms, hidden fees, wiggle rooms in the possession dates, and a lot more. Reading the contract ensures that you are making a well-informed decision and know the terms and conditions of the transaction.

• Not checking for resale value : While many buyers focus on only the interiors and the amenities, they forget to think about the future appreciation of a property. The property you buy should not only have a good market value in the current rate but also have a resale value. The resale value of property is crucial for any home buyer as it ensures that the property can help you in the future.

• Not considering hidden costs of buying a home : Buying a house is not just a simple transaction for the value of the land. There are a lot of hidden costs that might not be explicitly told to you but should be considered in your overall budget. This includes property registration charges, stamp duty, and other legal documents that are needed, ownership details, etc. that are needed to ensure that the house is actually now your possession.

• Not doing home loan comparison : When you’re buying a home, make sure that you do not accept the first loan offer you receive or the one that is suggested to you by your property builder. You should always check between different banks, NBFCs, housing finance companies, etc. to compare costs and pick the one that suits you the best. Financial planning is critical in this because choosing the right financer for your home loans can be a game-changer.

• Not adding property maintenance cost : When you are buying a home, your budget should also foresee future expenses such as interior costing, property maintenance costs, property taxes, utility bills, etc. This means that your budget can easily increase by a few thousands or even lakhs depending on what you are planning to get.

• Not availing tax benefits : Many buyers also miss out the deductions and tax benefits that can be availed. This includes Section 24 and 80C that can help with reducing your tax burden. You can explore this with your financial advisor so that you do not lose out on these benefits.

• Not buying home insurance : As buying a house is a huge investment, it is imperative that you protect it against any casualties in the future. Almost 70% of Indian homeowners do not have home insurance just to save money. Getting a decent insurance provider for your house is very important to protect yourself from any disaster or other issues.

• Not planning for long term : Make sure that you plan for the long term when buying a house. While a 2K HK might suit your needs today, expanding families, or with the new remote working trends, your demands and needs will definitely change in the next 5-10 years. For that, always keep your future prospects in mind when you are buying a house. As buying a house is not a daily or yearly affair for most middle-class families, or first-time homeowners. Making sure that you are doing your best and thinking about future planning when buying a house is crucial.

Suggestions to avoid first-time home buyer mistakes: How to avoid common home buying mistakes?

Here are some suggestions to ensure that you do not make these home buying financial mistakes when buying a home.

• Use online calculators to estimate your total expenses.

• Opt for a ready-to-move-in house to avoid GST.

• You can always negotiate with the builders to waive amenity charges, reduce maintenance costs, etc.

• Try to limit the EMI to only 30-45% of your income and choose a shorter tenure to save on interest.

• Also try to make a down payment of at least 20-25% to reduce your loan burden.
• Ensure that the land you are buying is free of any encroachments.

• Confirm utility approvals such as water, electricity, sewage, etc. to ensure no future fines can be imposed on you.

• When taking a loan, you should also negotiate for a lower rate if you have a good credit score.

• It is also a good idea to compare processing fees, repayment penalties, foreclosure charges, etc. for different banks before you finalize your loan.

• Install energy-efficient appliances like LED lights, 5-star ACs, etc. to cut down on your bills in the future.

• Make sure that you claim the money for home loan interest and tax benefits for first-time home buyers India. You can also deduct Rs 1.5 lakh on principal renewal repayment using Section 80C.

• When you’re getting your home insurance, remember that it should cover the basic structure and contents.

• If you’re living in an area that is particularly vulnerable to certain situations like floods, add specific riders to your home insurance policy.

• Buy in developing areas that are potentially going to have a real estate boom in the future.

• You should also opt for scalable layouts. So that you can customize the home the way you want it in the future.

• Go through the RERA verification steps for homebuyers with you agent.

Now that you know the common mistakes home buyers make, choose a real estate agent who will give best real estate financial tips India!

At Bluella Realtors, we will ensure financial planning for buying a house with you and how to avoid common home buying mistakes so that you can be tension free!