Buying a house ? Tread cautiously

It is the dream of every person to have his own house. Buying one’s dream home is certainly one of the greatest events and one of the most memorable ones.

The feeling one gets when one moves into his own house however humble it may be and spends his first day in it is difficult to describe in words.

However in today’s complicated world one should be very careful in arranging for home loan and buying a house lest one’s dream should become one’s nightmare. One should pay attention to every step involved in owning a house.

The first step is to decide how much one can afford to spend on his house. This depends on several factors- whether the person is single or married, number of children, other dependents, age, health status and how much cash one has.

While calculating the amount of money one can part with every month one should also think of the increase in other expenses-for example child’s education and marriage and medical expenses which are inevitable as one grows older. Any other existing loan (for example vehicle loan) should also be taken into account.

Next one has to decide where one wants to buy a house. Buying a house in a well developed area will certainly cost more. But buying a house in a less developed area far away from one’s workplace and other amenities like school and hospital can increase the monthly expenditure. Hence a decision should be taken only after weighting the pros and cons.

The next and the most important step in choosing a house is to make absolutely sure that there is no legal problem. Laws may very from country to country but some fundamental issues are same. One should ensure that the house is built on a legitimately purchased land.

This may sound simple and straight forward but believe me- people have purchased houses from those who have constructed their houses on lands not owned by them!

Another consideration is the plan of the house. One should decide on the number of bed rooms required and the area of the house. It is important to remember that builders often confuse people using fancy terms like built up area, super built up area etc.

A high figure for the super built up area does not necessarily mean that the house is big. One should be very careful especially if one is purchasing a flat in an apartment. The common area outside the house is included while calculating the super built up area.

What matters is the carpet area which includes the wall to wall area in every room and builders usually do not mention it in the brochure. Always find out the carpet area before you decide to buy a house. It is a very good idea to carry a measuring tape and check the dimensions if the house is partly or fully built.

The next step is to get the money. Getting a home loan is not very difficult today but here again a few important facts should be borne in mind.

Broadly there are two types of home loans-fixed interest rate and variable (also called floating) interest rate. Each has its advantages and disadvantages.

Variable interest: In this scheme the rate of interest will be lower in the beginning but the rate is reviewed at regular intervals usually once in 3 months. If the rate goes up the new rate will apply for an existing loan also. There is no protection against increase in rate of interest.

The advantage is that you can close the loan earlier without paying any extra money. But if the loan is transferred to another bank some percentage of the outstanding loan will be charged.

Fixed rate: In this scheme the initial interest rate will be higher but there will be protection against future increase in interest rate. But you should carefully read the terms before opting for this. If you are taking the loan in installments and the interest rate is increased before the entire loan amount is disbursed the new rate will apply for the amount taken after announcing the increase.

For example let us assume a person has applied for a loan of $10,000. He takes 5000 and soon after that the interest rate is hiked. For the remaining 5000 the new rate of fixed rate will apply.

Agreement with builder: If you are booking a house or flat which is still under construction you need to carefully study the terms and conditions. If you want to get a loan you will have to pay some amount to the builder or owner and sign an agreement. This agreement should then be submitted to the housing finance company to get the loan.

The builder should specify the date on which the building will be handed over. Find out what happens in case there is unusual delay in handing over the house and whether he will compensate in any way for the delay.

E M I: Stands for equated monthly installment. This is the amount of money one has to pay every month towards the home loan. With fixed rate of interest the E M I will not vary once it is fixed. With variable interest rate E M I will usually remain unaltered but in case of interest rate hike the term may have to be extended.

However if the increase in interest is so high that almost all the E M I goes towards the interest component then the finance company will either increase the E M I or ask the customer to pay part of the principal. Hence you should always be prepared to pay more at a later date. This is a major drawback with variable interest scheme.

Other expenses: Apart from the money to be paid to the builder or the owner, there will be other expenses in the form of various taxes as per the laws of the state, furniture for the house and extra fittings in the form of kitchen cabinets, wardrobes etc. Money will also be required for the house warming ceremony. Hence one should set aside some money for all these things.

To sum up buying a house requires meticulous planning and some compromises. Every step should be taken carefully.

Other considerations: Depending on your beliefs you may try to choose a house which conforms to Vastu or Feng Shui principles. While some people are obsessed with these some people completely disregard these recommendations. I suggest you take the middle path.

Modern science is yet to unravel all the mysteries of this universe. Scientists are now beginning to realize that some ancient scriptures do contain facts only recently discovered by them.

Back to good family life from buying a house