Costs Involved in Buying a House: When you finally come across a favourable mortgage offer for the perfect home, you might think that you can afford it for the price you see. You might be able to do so, but other costs are associated with buying a home that people need to know about. These costs extend beyond the mortgage payment.
If you wish to determine how much you can afford for your home, it is essential to factor in the additional expenses. These include charges such as closing costs, insurance, taxes, and these come before committing to a mortgage.
Overview of the Complete Costs of Buying a House
If you are genuinely trying to save up for a house, you need to consider all the costs and plan your monthly expense budget accordingly. The actual price goes well beyond the exact purchase amount. If it is your first time buying a home, you might feel a little extra queasy about the last line of your estimate when it turns out to be several lakh Rupees.
Real estate is one of the most meaningful investments an average person makes. Since banks do not fund the entire cost of the property, you can get up to seventy to eighty per cent of the total cost from them as a loan. If you have the required eligibility criteria depending on your income and credit score, you will get a home loan. Knowing what you are paying for when you buy a home will help you in so many ways. You can make a checklist to ease the process and make yourself ready.
Down payment is the amount of the money that you have to pay upfront rather than financing it through your mortgage. For example, if you buy a home for Rs. 200,000, you will have to put down around Rs. Forty thousand or precisely 20% of the total amount as the mortgage. You can avail of different home loans that give you the down payment you need to pay. It will depend on the property’s variety and the loan type as well.
If you go for conventional home loans, how much you get will depend on the lender and the loan type. You could get three percent, ten percent or more. You can also get home loans without any down payment involved. It is best to do your research about the property you want to buy.
To finalise the deal on your home loan and get the keys to your property, you need to pay for the closing costs. These are all the fees associated with the mortgage. It can range from two percent to five percent of the loan principal. These include the following fees.
- Application fee
- Appraisal fee
- Credit check free
- Origination and underwriting fees
- Title search fee
- Title insurance see
- Transfer tax fee if applicable
If you don’t have a lot of profits to rely upon, you can get the no closing cost mortgage option where the closing costs are added to the total loan amount or the principal, and you can pay it in the form of higher interest rates. You can save money from either of these plans according to your situation. It can be more reliable if you intend to stay in that home for a long duration.
People who wish to become homeowners need to pay their city or the government some property taxes on your home as long as you own it. They spend some percentage on the authorities, and it is not always the same price. It differs in different areas and can increase if the property gets a higher market value. If the market value increases, you will have to pay more in property tax.
Again, the property tax is generally included within the monthly mortgage, but you pay it separately from the interest and principal.
Homeowners and Mortgage Insurance
There are two kinds of insurance a new homeowner has to consider; first, the homeowner’s insurance and second, the private mortgage insurance (PMI).
The homeowner’s insurance is there to protect you from financially unexpected incidents that can damage your home. These accidents include natural disasters, theft, vandalism, etc. Most mortgage lenders require you to have the home insurance in some form, though it isn’t necessary, i.e., the law doesn’t require you to have one compulsorily. There are many options for insurance at different price points. Hence, it is best to compare the offers and keep the expenses the lowest while getting most of the benefits.
If you get a conventional loan, then the private mortgage insurance or PMI requires you to generally deposit less than twenty percent down. It is the kind of insurance that protects the lender if you happen to default on the loan. You can also know that it can substantially increase the mortgage payment. As time goes on and you pay down on your mortgage and build the equity in your home, you can eventually get rid of PMI. Home maintenance, utilities and repairs
No matter where you live, you will have to plan some amount for future home maintenance and repairs. The wear and tear of a house are natural, and it is vital to have some extra funds on hand for the future repairing or replacing of appliances, significant structures and systems. Some major maintenance charges come from repairing the roof, HVAC, etc.
Previous homeowners and experts recommend budgeting around one percent of your home’s value for repair and maintenance each year. You can also keep it as an emergency fund to address no-budgeted concerns or urgent requirements as they crop up.
Apart from maintenance, every person will have to spend some money for utilities such as water, sewer, electricity and gas. These costs will depend on your service provider and your location, but the general rule is that the larger the property, the more you will send on the utilities.
Current Home Prices
An undoubted factor in the total cost will be the actual cost of the house. It is the fundamental factor in your overall cost. If you want to buy a home now, then you should expect higher prices and more competition. The prices are always increasing than the previous year. Generally, the costs increase day today. The price you pay in the market can be high or low according to the type of property you buy.
GST for a Property Under Construction
The GST council has taken the real estate area under the GST too. These taxes will be at twelve percent under the current regime. All other indirect taxes will come under the umbrella of the GST and the buyer can purchase the property. The only additional fee is that of the stamp duty. These are only for ready-to-move-in apartments but not on other completed ones.
Process of Buying a Property in India
The typical steps involved in purchasing a property, either through agents or through direct contacts, are as follows.
- Finalise a property you want to purchase through an agent or your direct contacts.
- Hire an attorney who will lay out the draft of the Agreement of Sale. It is the legal agreement between the buyer and the seller that mentions the complete details of the property, such as the location, area, amenities, etc. and the final price you agreed upon.
- After signing the sale agreement, the seller will get a deposit of ten per cent to twenty per cent of the purchase price you will pay.
- The seller will share the legal title of the documents with you, and in due diligence, the title deeds should be conducted by the attorney.
- If you want a mortgage loan for the purchase, then you will approach the bank and present them with your property details and the agreement of sale. After they verify the documents, they will process the bank’s fees and determine your eligibility to get a loan. You will get a loan sanction letter stating that they are willing to finance your home purchase.
- After you have paid the entire amount, then you can go for the registration. The sale deed document has to be registered at the Office of Sub-registrar. You might have to spend on stamp duty and the official registration charges to the government through the office of the sub-registrar.
- In some states of India, you need to get the ‘Khatta/ Patta’ certificate from the local municipal corporation. When you obtain the Khatta, then all the details of the area, locality, the type of construction will get updated in the governmental records. A legal Khatta/ Patta certificate will identify you as the legal owner of the property. You can use it to pay for the property tax and other municipal taxes.
- If you purchase a newly constructed apartment or villa, then the builder should get an Occupancy certificate from the municipality. It would help if you had it before moving in there. As the builder receives this certificate, they are legally obliged to let you occupy the property. The certificate will also confirm that the house is suitable and safe for occupation.
Hence, as you can see, there are multiple additional expenditures you have to pay to different entities such as the government, the banks, legal advisors, etc., and most of these charges are mandatory.
Aside from these, if you buy a residential property, you will need to pay some more fees to the builder. Some of them are as follows.
- Car parking space– The builder will require a fee to let you purchase a parking space for your car. It is a separate charge from the essential construction cost you pay to the builder.
- Builder Floor Charges– The price for different apartments on different floors is extra. Some are more than others. For example, the topmost floor might cost you lesser than the rest of the floors. Again, it varies from apartment to apartment.
- Preferential Locality Charges (PCL)- PCL is an extra charge you pay to get a better view of your apartment. For example, if you want a garden-facing view, you pay extra.
Conclusion On Costs Involved in Buying a House
The cost of buying and keeping a house can quickly add up, and you can prepare yourself for the inevitable expenses. The more money you save, the better credit scores you have; you will get the best deals from the mortgages.
One of the primary human needs is shelter. It would be best if you put a lot of effort to plan for a home purchase. If you know what you need to pay for, you will not be overwhelmed by the additional charges and other fees that will keep coming your way.