Highlights
- Buying home for the first time? Check out the tips here
- Direct transaction with the seller, PMAY to save your hard-earned money
Planning to buy a home for the first time? Search for the one that is within your budget while having the amenities one seeks in an own home. As this is your first time, you must be sweating on loan amount, interest rate, margin money and stuff alike. All these concerns are genuine as a home loan is a long-term commitment stretching to up to 30 years of repayment. And so, you need to prepare in advance to be in a good stead. You can prepare best by following the tips explained in this article.
Transact Directly with the Seller
Resale flats are mostly sold through property developers, which further collaborate with small agents to execute a transaction. These players combine together and do not allow buyers to contact with the seller directly. Now what happens is the price shoots up by a couple of lakhs as the seller would have to pay a commission to these intermediaries.
For example, you transacted a deal of ₹45 lakhs, involving a share of the property owner, builder and agents. Had you transacted straight with the property seller, you could have had the deal at ₹42 lakhs. Now, if property value assessed by the officer falls to say ₹40 lakhs, you could get a loan of ₹32 lakhs, assuming 80% finance to be granted in your case.
On dealing with the intermediaries, you would need to shell out ₹13 lakhs from your end as opposed to ₹10 lakhs when transacting straight with the seller. With the rise in down payment amount, your dream home ambition can come to a halt. You can get the seller contacts by asking the same from the people residing in the location of the property.
Save for Down Payment
As you would know a home loan is not 100% financed, it calls for a homework that could lead to an amount needed for down payment. Yes, you need to pay 10%-25% of the property from your end before the loan comes your way. Kindly check the table below showing the loan to value ratio defined by the Reserve Bank of India (RBI).
| Loan Amount | Loan to Value | Property Value |
|---|---|---|
| Upto 30Lac | 90% | 33,33,333 |
| Above 30Lac- 75Lac | 80% | Above 33.33Lac to 93.75Lac |
| Above 75Lac | 75% | Above 93.75Lac |
So, if you are seeking a property worth ₹35 lakhs, you must have ₹7,00,000 for down payment. All good, if you have those savings. You can, however, accumulate that over 3 years by investing in assets like equity mutual funds and maintain savings via recurring deposit to reach around that mark. If you invest in MFs via an SIP of ₹10,000 on a monthly basis, you could accumulate ₹4.4 lakhs, assuming an annual return of 13%.
Another ₹10,000 investment in recurring deposits to accumulate ₹4.01 lakhs (approx.) at an assumed interest rate of 7% per annum. You see the down payment amount is ready with these two investments.
Shop for Best Interest Rates
A home loan journey is smooth when the EMI is comfortable to pay. The EMI, which stand for Equated Monthly Installment, is largely based on the interest rate charged to your loan. Lower the interest rates lesser will be the EMI payout and vice-versa. You, therefore, must go online, compare and grab the best rates on offer. You can compare and choose the right home loan deal at Wishfin, a premier online marketplace which has helped many realize their home wish. Interest rates, as of now, range from 8.50%-9.20% per annum across leading banks in India.
Table Showing Interest Rates of Top Lenders
| Lenders | Interest Rates (In % p.a.) |
|---|---|
| State Bank of India (SBI) | 8.05%-8.55% |
| HDFC Limited | 8.65% - 9.95% |
| LIC Housing Finance | 8.65% - 10.25% |
| ICICI Bank | 8.75% - 9.80% |
| DHFL | 9.05% - 9.95% |
| Indiabulls Housing Finance | 8.65% Onwards |
| Axis Bank | 7.60% - 8.05% |
| Bank of Baroda (BoB) | 7.45% - 8.80% |
As the rates are clear now, you can thus switch on the calculator to compute the installment. Enter loan amount, interest rate and tenure to compute the installments and interest outgo. The calculator will help you make those adjustments to accommodate the EMI to your budget.
Take Advantage of PMAY CLSS – The Interest Saver
The affordable housing has been given an impetus through Pradhan Mantri Awas Yojana, which offers interest subsidy benefits via Credit Linked Subsidy Scheme (CLSS) on a home loan availed from Primary Lending Institutions (PLIs), a key proponent to the flagship housing program. As much as 70 lenders including public and private sector banks, housing finance companies (HFCs), regional rural banks, small finance banks and a few others participate in the scheme. The good thing is that the subsidy benefits are applicable to only those buying a home for the first time in India. Plus, there will be no processing fee, a win-win situation for you.
So all you having an annual income of ₹6-12 lakhs (MIG-I) and ₹12-18 lakhs (MIG-II) can apply for a loan at any of the PLIs and get subsidy benefits till March 2019. The subsidy counts to ₹2,35,000 and ₹2,30,000 for MIG-I and MIG-II, respectively. What happens is that the subsidy amount gets subtracted from the original loan amount in the beginning. The remaining amount left would then be serviced at the normal rate of interest. As much as ₹5 lakhs of interest can be saved over the course of 20 years, the period up to which the subsidy benefits are applicable. Check out the complete PMAY CLSS calculation here.
Note – PMAY CLSS scheme expired on March 31, 2022
Don’t Go for Long Tenure
A long tenure has made many reeling under the effect of massive interest repayment burden. Even though it leads to a drop in the EMI but interest refuses to come down. So, you must choose a tenure that is relatively shorter while ensuring the installment is affordable for you. Check out the table below to see the difference in interest payout on two different tenures.
| Loan Amount (In ₹) | Interest Rate (In % p.a.) | Tenure (In Years) | EMI (In ₹) | Interest Payout (In ₹) |
|---|---|---|---|---|
| 35,00,000 | 8.5 | 25 | 28183 | 49,54,884 |
| 35,00,000 | 8.5 | 20 | 30374 | 37,89,715 |
Needless to say, a higher EMI of ₹2,191 is not massive when you see a reduction of interest by ₹11,65,169 with a shorter tenure of 20 years. Imagine these ₹11.65 lakhs when invested in assets such as mutual funds, how richer you can be.
Keep in Mind the Processing Fee
Be ready with a processing fee that equals to 0.25%-1% of the loan amount plus 18% Goods and Services Tax (GST). It’s a non-refundable fee that you need to pay to the bank to process your application.
Choose a Home That Fits into Your Budget
One gets emotional with a home and so purchases a unit that has glossy interiors & exteriors besides being spacious. It’s all good when your income is solid enough to pay the EMIs that may arise with such a spacious and facility-rich flat. Else, you need to reconsider the decision and choose a flat that can fulfill your needs, yet remain within your budget.
Choose an Authorized Property in a Right Location
You must make it a point to choose a property approved by the competent authorities. The property must also have a proper chain which the lenders seek while approving a home loan.