Are you like most Indians? If so, chances are that you have never bought a home before, i.e., you are a first time buyer. Buying a home is going to be the biggest investment that you will make in your life. No wonder this process is financially and emotionally draining. These tips will help you during your home buying experience.
1. Don't budge from your budget
There is too much choice in the real estate market in India – you must understand what is your budget so that you can narrow your search into a manageable process. Otherwise, your real estate broker will spin you around. Give the broker your budget and tell them that its not movable. Don't believe them when they say your budget is too low. There are properties of all types available in India today.
The budget is not just the cost of the property – it must include numerous non-obvious costs such as broker fees, lawyers fees, stamp duty, registration fees and home insurance premium. All these payments will come out of your pocket.
If you are buying a new home, you will also need furniture, fittings and gadgets for the home. Alternatively, if you are getting an old home, there might be renovation or redecoration costs involved. In either case, these are upfront costs that many people ignore during the home buying process but should be factored in.
2. Affordability – "I have a great home, but no money to eat"
There is no point in searching for the house of your dreams if you cannot afford to live there - you must also think about whether you have enough cash flow to support your lifestyle, after you have paid for the property.
Do not stretch yourself and take a personal loan to fund the down payment towards the property. This will only increase your risk exposure. Rather, you should ensure that you can naturally afford the down payment through your savings.
Additionally, don't stretch your budget to get a more expensive home because that will mean stretching your EMI payments. Remember to keep your EMI manageable so that you can continue to afford the lifestyle that you are accustomed to and to pay other bills that you will incur.
3. Location, Location and Location – the three most important rules of real estate
Location is key. It will affect the quality of life that you have in and around your home. Additionally, a better located property will get a much better resale value if you decide to sell.
Before you put in your life's saving into buying a property, you might want to consider renting in your desired location for a few months. It will give you a good flavour of what life could be like in the area.
When thinking of location you must consider the following: proximity of schools, your commuting time to and from work, modes of transport around the property, local amenities and shopping convenience, proximity to family, friends and your community, noise levels around the area and avoiding undesirable irritants (such as the proximity of garbage dumps, electrical sub-stations, sewage canals).
Finally, if you are viewing the property on a weekend, the traffic and noise situation might often be very different from the weekdays, so do check the desirability of the location at different days and times of day.
4. Define your specifications – "I want a mansion, overlooking the hills, with mango orchard around me"
Prioritize what is important to you. If you are married, collectively agree with your spouse on what you are willing to compromise on. Otherwise, smooth talking real estate salesmen will take advantage of you by showing you too many different properties on criteria that will not be important to you.
Is a large kitchen important to you? Do you need an attached bathroom to every room? Do you want lots of storage capacity? Do you need a study for your home office? Do you need a terrace or garden for the kids to play in? Do you want to buy an old home which might have old construction and aged plumbing, or you will only look at new homes which will be modern but you will pay a premium for the freshness?
5. Be patient – resist the urge to get angry and break things around you
The home buying process can be time consuming and complicated. If something can go wrong, it will. But, if you are mentally prepared for it, then you will not be surprised when delays happen. Budget at least 3 to 6 months for the process, especially keeping in mind the timing of when you absolutely need to move into the new home.
Do not get frustrated if you do not feel fully in control of the process. Remember, that you are going to be at the mercy of the real estate brokers, the developer, the home loan lenders, lawyers and other intermediaries. Money, documents, contracts and agreements need to move around all these different players in the process. Things will not always move at your pace, but at the pace that these intermediaries choose.
Just remember to keep smiling through the process - think about how much you are going to enjoy living in your own house when you finally can call it home.
6. Viewings – if you like it, see it twice!
Of course you are not going to buy a property without seeing it. But, don't make the mistake of taking your entire family with you the first time around. If they get over excited, the real estate broker is going to sense this, and then will exploit this to his/her advantage.
You must also visit the property at least a few times. After all, this is a big decision for you. You are going to be spending the next few years of your life here. Go to the property 2-3 times, at different times of day. Note how you instinctively feel about the property. Why do you feel this way? Can you really call this place home? Maybe at your second or third visit you can take the extended family with you to get their reactions as well.
Maintain a viewing checklist on which you can rank the different properties you are visiting on the criteria that you have prioritized. Remember, you do not want to regret that you were forced into a decision to buy under pressure from a real estate broker or because you had very little time to view the property.
7. Jadoo – learn how square footage can magically disappear
Get familiar with the language and conventions used in real estate. When some one gives you an area for the property, always ask them what definition of area they are using. Here is why this is important.
Typically, the area that you pay for is higher than the area that you actually get. For instance, you will pay for a 2,000 square feet flat, but your usable area might only be 1,500 square feet. You will face a reduction in the area. In this example its 25%, but it could even be more in actual cases.
No need to worry, you have not been defrauded. The square footage that you have lost is your share of the communal facilities on the floor like walls, corridors, lifts etc.). But, you will have to pay for the entire area, including the area that is lost.
Always ask what is the carpet area that you will get, i.e., the area over which you can actually spread carpet across the entire floor if you so wanted to do it. This, effectively, is the area that you will have for your end use.
8. Show me the money - review your financing options simultaneously
Just finding the right home is of no use to you if the deal falls through because you have not organized your funding. Often you will need to demonstrate that you have access to the funds to finance your purchase. Therefore, organize your funds before you need them.
If you are self-funding your purchase, ensure that you have enough funds that you can access at short notice if your deal comes through and you are required to pay immediately.
If you will need a home loan, file an application with your chosen lender and get approved for the loan. You can get approved even if you have not yet identified the property. This will save you time and emotional hassles later on in the process. Typically, such approvals last for 6 months which should give you sufficient time to identify a property.
9. Black, white and grey areas - buying directly from the developer vs. the investor
These are boom times for real estate development in India. Developers are coming up with new projects all the time. Many investors have bought many properties for investing purposes. You need to understand that there is a difference in buying directly from the builder versus from the investor in a property.
If you buy property directly from a developer in a project that is under construction or nearing completion, its likely that you will not have to pay any cash component, and the entire payment can be in cheque.
On the other hand, if you buy from an existing owner of the property (even if its under-construction), the owner will expect to earn a return on his/her investment, and might expect a large part of the payment in cash. You need to be aware whether you are capable of making cash payments. This is a reality in India and in many cases you will not be able to avoid it.
10. You are going to live long – your current purchase doesn't mean "game over"
As your you and your family grow, so will your needs. You might get married, have kids, your parents might move in with you. Some unplanned events might also occur; for instance, you might get transferred to a new city.
Don't see your current purchase as a dead end. You can upgrade to a different property in a few years. Maximise what you need to fulfill over the next few years. Nobody has seen the future - you will not be able to ascertain whether this property will suitable for your 10 years from now. Remember, you can always sell this property and use the sale proceeds to get another property.
You might feel nervous about your first home purchase. With a little bit of attention to detail and awareness, you can become more confident even before you start the process. And of course when the deal finally closes, savour the positive emotions. There is absolutely no substitute for the joy and pride that you will experience at your first home purchase.
