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4 mistakes you must avoid as a home buyer

Wednesday, February 26, 2014 by Rajiv Raj

hl128n28v2Supriya and Anmol are newlyweds and are on the lookout for a dream home. The young couple have a precise picture of what they are looking for and have a few lakhs saved up for a down payment - for the rest they plan on taking a home loan. They have been asking family and friends for advice and researching online too. They now think they have enough information to go ahead and apply for the home loan. What they do not realise is that there are some rookie mistakes they are making which will prove to be quite expensive.

Not knowing your Cibil credit score:  Your Cibil credit score is the basis on which the bank will be making its lending decisions. Seeing the view from the other end of the spectrum can help you realise the credit mistakes you have made in the past and you could take the time to correct them before applying for a home loan. A CIBIL score of 750 and above is ideal from the viewpoint of a lender.

Overstretching your budget:  Often your dream home might not be one you can actually afford even with the aid of a home loan. While the bank might be willing to lend the required amount to you, the fact remains that you have to repay the loan via EMIs month after month. For a larger loan you will either have a higher EMI or a longer period. A higher EMI is a better option as you pay a lower interest over the years but it takes away a large portion of your disposable income month after month leaving little space for luxuries or unexpected expenses. It could be a path leading to temporary high interest loans and defaults - ending up with a poorer credit score.

Forgetting to factor in the hidden costs:  The cost of becoming a property owner goes beyond the cost of the house. There are several other things that need to be added in to come to the final cost.

  • Stamp duty and registration costs forms a substantial chunk of the total costs. In most states it comes upto 6-10% of the property costs. Besides the stamp duty and the registration costs, the other costs will be service tax, VAT etc
  • Parking space in buildings costs Rs 2 lacs onwards especially in the newer housing societies, do account for this in your costs if you have a car.
  • Escalation costs of the project can also add to your home ownership costs. Builders often increase the cost of the house mid way during construction to meet with increase in costs or even to cash in on the rise in prices.
  • Renovation and furnishings can costs anywhere between Rs. 50,000 for a simple paint job to Rs 10 lacs for an all-out refurbishing and interiors. So do account for this cost too.

Not researching lenders:  Not all lenders are the same. While PSU banks do offer better rates than private banks or foreign banks, they are more stringent on their lending norms. Research your lenders objectively to find out which will suit you best. 

MadanRajiv Raj

Rajiv is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India’s first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.

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