The dream of buying a house is shared by countless people and is seen as a landmark moment in an individual s journey to attain financial freedom. A home can be many things a symbol of freedom, a booster of identity, a family s nest, a smart financial step, an earner of income but a home is always one of the biggest investments of our lifetime. And if you too are planning to buy a home with the help of a home loan, ensure you leave no stone unturned while you research to find your best property and home loan match.
Remember, smart and informed financial planning lies at the heart of any prudent investment strategy. And in a bid to help you evaluate the actual cost of purchasing a home through a home loan, here s the lowdown on different expenses involved: from loan-linked charges to mandatory costs beyond the loan ambit.
1. Down payment fund
No lender will sanction a home loan that s more than 75%-85% (at times even 90%) of the property value. As a result, every aspiring homeowner must arrange for the remaining 15-25% of the value, which is called the down payment fund. Best is to set up a financial goal to raise the down payment fund within a fixed number of years and channelize your savings and investment returns accordingly to meet the target in a timely manner. You ll also be well-advised to check your credit score beforehand (and work to improve on it if it s lower than 750 by being disciplined with all your existing repayments) and your home loan eligibility to help set a clear budget for your property. At times co-applying for a home loan with an earning spouse also helps raise the loan eligibility limit among other advantages like additional tax benefits.
2. Memorandum of Deposit of the Title Deed (MODT) charges
Expenses that require self-funding do not stop at the down payment fund. Once a borrower submits all the property related documents to the lender, he/she needs to pay the MODT charges to the bank. The MODT charges range between 0.1% to 0.5% on the home loan amount (depending on the lender and the property). The government also levies stamp duty charges to register the title deed according to the applicable state laws.
3. Stamp duty and registration charges
A homebuyer also needs to pay the stamp duty and registration charges to the government at the time of registering the sale deed. These charges comprise of stamp duty (could be 5-5.6% of the property guidance value), registration fee (could be 1% of the property guidance value), surcharges (2-3% of the stamp duty) and cess (10% of the stamp duty). However, do note that registration charges vary greatly depending on the state, location, amenities and purpose of the property, age of the property, age and gender of homeowner, among others. Don t forget to do ample research about the property valuation and applicable laws that determine the registration charges on your chosen property.
4. Brokerage charges
If you ve sought a registered broker s help to get a property, you ll also have to shell out a brokerage fee which can be up to 2% of the property value (plus applicable GST). Usually, the brokerage charge percentage is lesser for expensive properties and more for medium-priced ones. Check for the brokerage fees before signing on the dotted line.
5. Other home loan-linked charges
There are a number of other charges and fees linked to your home loan depending on your lender. Some of these include:
# Interest charges (differs according to the type of loan fixed or floating and the loan provider, loan amount, borrower s age, gender and creditworthiness, among other considerations): According to the latest data compiled by Bankbazaar, floating rates range anywhere between 8.65% and 11.65% and fixed rates between 9.4% and 12.65%. Do note that floating interest charges can vary according to the lender s MCLR rates.
# Loan processing fee: This usually non-refundable fee can be anywhere between 0.25% and 2% of the loan amount plus applicable taxes.
# Prepayment charges: There are usually no prepayment charges for borrowers with floating rates. However, borrowers with a fixed rate can be charged up to 4% of the outstanding amount plus applicable taxes, depending on the lender s policies.
# Late payment charges: This can be up to 2% per month on the outstanding loan amount.
# Application fee, administration fee, legal fee and technical evaluation fee: These are other types of fees that can be charged by the loan provider depending on the loan product and the property type. For example, some lenders can charge between Rs 1,000 and Rs 5,000 as a non-refundable loan application fee, and an additional administration fee, technical evaluation fee (mainly for high-value properties) and legal fee (to engage legal firms to scrutinize property documents).
# Loan conversion and repayment mode swap charges: There s a charge to convert a loan from fixed to floating, fixed to hybrid, floating to fixed, etc. that can range between 0.5% to 2% of the principal outstanding amount plus applicable taxes. Repayment swap mode charges can also be around Rs 500 depending on the loan provider.
6. Property amenities, floor rise and maintenance charges
Builders are likely to charge separately for amenities that come with the property like parking, swimming pool, gyms, sports activity courts, clubhouse, generators, etc. Normally they charge a floor rise fee linked to the floor on which you re buying the property. They also charge for maintenance, which is usually a monthly payout, to pay for things like salaries of security, housekeeping and garden staff, water-tankers, etc. Keep in mind that additional amenities can also increase the registration charges of the property.
7. Overhead charges
These are also major expenses that are borne by the homeowner to make the property livable. These include interior decoration charges, woodwork and carpentry charges, water connection and electrification expenses, piped gas connection, flooring and furnishing charges, painting and waterproofing expenses, etc. depending on the homeowner s budget and requirements and the quality of products and services used.
As such, you ll be well-advised to closely evaluate the costs associated with all these charges and fees and allocate a budget for each of those before taking the plunge. Thorough plans and smart research will be your guiding lights in this significant journey to buy your dream home.
(The writer is CEO, Bankbazaar.com)