For several years, Pankaj Shastri has been wavering: should he buy a flat or should he not? Sometimes, he liked a flat but postponed a decision at the last minute thinking that the property market was overdue for a correction. The rates, however, kept on increasing. Affordability has also been an issue since he is the only earning member.
Now that he has finally decided that he is going to buy a flat, he is grappling with a separate set of problems: either the area is good but expensive, or the rates are reasobale but the flat is too small.
This is a common problem for people who are house hunting. However, harsh it may sound, one has to start with simple things like budget and stick to that. here are some key issues you need to consider in detail in order to take an informed decision:
Budget
It’s an old saying that “Cut your coat to suit your cloth”. Majority of the flats today are purchased with the help of a home loan. The banks may provide you funding of up to 85 per cent of the flat cost, but keep in mind that your EMI payments should not cross maximum of 40- 45 per cent of your take home salary and can be further less if you are a single income family with kids. That is, if you are earning a net income of Rs 75,000 per month with monthly expenses of Rs 30,000, then considering present floating home loan interest rate at 11 per cent, the EMI per lakh would be Rs 1,136 for 15 year tenure and you can take a loan up to Rs 26 lakh for an EMI of Rs 29,551.
If you are falling short of the down – payment component, then it’s better to postpone your goal and start saving to bridge that gap. Lot of first time buyers, go for a personal loan (which are offered at between 14-18 per cent interest) to meet the shortfall and then they realise later that it’s difficult to service two loans. Eventually they juggle between trying to maintain adequate balance in their bank account to meet their EMI liabilities and the shortfall in monthly expenses is then made good by the use of credit cards, which further pushes them in a vicious circle. Ideally if you can get a soft loan from your family members then too it is advisable to go ahead.
Other costs
In an under – construction / ready flat purchased from builder, you will get the breakup of the total payment to be done which includes not only the flat cost but also charges for stamp duty and registration, electricity meter, club house corpus, one year maintenance and VAT. But in a resale flat, you will also have to figure out if there are any unpaid dues owed to society, monthly maintenance cost, cost for painting, repairs, furniture, etc and not forgetting the brokerage to be paid to your broker. Take a realistic view on all the costs involved before finalising the budget.
Location
Once your budget is decided, you can then get an idea of the choice of flats available within that budget and the areas where it’s available. Sometimes it’s a reverse calculation. You fancy yourself as staying in a particular area / complex and accordingly you can set your budget. Location is important as you will be able to figure out whether all facilities such as public / private transport, Schools, Shopping malls, nearest railway stations are within accessible distance or not. The poorer the connectivity the higher will be your monthly outgo towards commuting and shopping for essential services. If your budget is low then you have to make a choice between a bigger house in a far locality and a smaller house in a well connected locality.
Ready flat / Resale / Under-construction property
Typically this depends on your budget. If given a choice, people most likely would want to buy either a ready to move in new flat or a resale flat of a new construction where all the facilities and connectivity has been provided. These flats of course come at premium over market rates. But if budget is a constraint here, then you can chose under – construction property as it is available typically at a discount over ready flats and you get an opportunity to pay according to the stage wise construction.
A word of caution here – You need to check the past track record of the builder and the prevailing market situation before booking an under-construction flat as the possession date might get postponed like it has happened in many projects launched in the year 2008, thereby increasing your cost of staying in a rented house till then.
Get your credit score
Today all financial institutions access the applicant’s credit report from CIBIL, which is the prominent credit bureau, created for assessing the individual’s credit worthiness. In short, a higher credit score indicates that the applicant has a very good credit history while a lower score can indicate vice versa. You need to get your credit score to check if you have been fairly rated by the bureau. If your rating is unfortunately lower due to your previous bank not reporting your timely payments done, then you can always ask that bank to rectify the error and resend the same to CIBIL, which might improve your score and you are then better placed to get your desired home loan as per your eligibility.
It is always better to take an informed decision since it involves your life’s biggest investment. Always involve your spouse or senior family members (if you are not married), including your financial planner in the discussion and take that confident step towards your dream house.
The writer is Chief Planner, Proficient Financial Planners.
