[ecis2016.org] Read this guide and leave no scope for any silly mistake when purchasing you first home.
Easy access to housing finance and an average increase in salaries, have made it possible for people to buy their first homes in their 20s. As home-buying decisions taken at a young age may be more sentiment-driven than anything else, we bring you at least 11 golden rules related to home-buying so that you do not regret your decision later.
Rule 1: Do not use all your savings
Property is an asset but an illiquid one. This means, it cannot be treated as a replacement for money. Do not spend all your savings to make the down-payment, as you will need cash even after the purchase.
Rule 2: Borrow from family
If possible, borrow some amount from your family members. This will lower your EMI burden and reduce the overall cost of buying the property.
Rule 3: Choose a credible lender
Do not be swayed merely by low interest rates. You should choose a lender, only after ascertaining its credibility and history of passing on rate cut benefits to borrowers.
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Rule 4: Try not to take the maximum loan amount
Your bank would state an amount, which it will be willing to grant you as a home loan. Just because the bank is willing to give it, there is no need to take all of it. Remember, every single penny that you have borrowed, has to be returned with interest.
Rule 5: Borrow solo
For a single buyer, securing a home loan will not be difficult if he/she gets a considerable pay cheque. This will be true, even if you have no credit history so far (although banks have started considering credit scores seriously while evaluating home loan applicants). The bank may ask you to apply jointly for a home loan, probably with your parents, primarily to guard their own interest. While one can opt for it as a matter of choice, co-borrowing is not recommended if you can secure the loan on your own. Think of it this way – sole borrowing is one’s sole responsibility, but it is also sole ownership.
Rule 6: Do not go for a long loan tenure
Although you practically have your entire working life to repay the home loan amount, it is advisable not to choose the longest possible loan repayment tenure. With time, you would have other financial requirements to be taken care of. Try to finish the home loan payment in a maximum of 15 years.
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Rule 7: Register the property in your name
Most states offer incentives in the form of lower stamp duty for women. For example, in Delhi, women pay only 4% stamp duty on purchase of a property while the rate is 6% for men. This might encourage a buyer to register the property in the name of a woman in the family. However, it would be a short-sighted decision, if other legal aspects are not considered.
Rule 8: Be ready for more expenses
Apart from the additional financial burden of EMIs after acquiring a property, you will also be responsible for other costs involved in managing the property. House ownership is expensive and comes at a great cost.
Rule 9: Start keeping a track of housing and the housing finance market
If you want to upgrade to a new house, you may have to sell the existing one. If your bank cuts the lending rate, you may have to approach it to implement the new rate on your EMI (strange as it may sound, banks most often do not do that on their own). This means, you have to be up to date about changes in the monetary policy and property market.
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Rule 10: Switch lenders
In case you think your bank is slow in passing on the rate cut benefits and quick in effectuating all increases, you may consider switching to a more reasonable lender. Do proper research, before selecting your new lender.
Rule 11: Pre-pay your loan if you can
Purchasing a house is one of the goals you may have set for yourself. As your priorities and financial needs change with time, you may consider pre-paying your home loan, if it is possible. There are no pre-payment charges imposed on floating interest rate home loans.
Read more about the benefits of prepayment of home loan
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