You’ve decided to buy a house. You’ve estimated your budget and saved up enough for the down-payment. You’ve even picked out a house to buy and are going to apply for a home loan soon. Congratulations! You’ve taken the first steps to own a house. But are you sure you’ve budgeted for everything related to own a house? There are 3 main kinds of other expenses involved in home-buying:
- Bank/government charges
- Expenses on insurance
- Expenses on interiors
Let’s look at each of these in detail, so that you can decide for yourself whether you’re ready for that house yet or not.
1. Processing fee of home loan: Most banks don’t deduct a processing fee from your loan amount; you have to pay it upfront, separately. This is because the loan amount is usually disbursed directly to the builder, developer, or contractor, as the case may be. So, anything you owe the bank in the form of administrative charges must be paid separately, from your own pocket. Processing fees on home loans generally range from 0.25% to 2% of the loan amount. Also, this charge is usually non-refundable.
2. MoD charge: Memorandum of Deposit of Title Deed (MoD) is a document that confirms that you have submitted your property’s ownership papers to the bank for the loan. MoD, also known as DTD, MODTD, or MODT, is executed on a non-judicial stamp paper and establishes ownership of the property in question. It’ll be quite useful if your property, unfortunately, gets caught in legal issues. MoD charge differs from state to state and is a percentage of the cost of the property. For example, DTD charge in Karnataka is 0.1% to 0.2%—the minimum being Rs.500 and the maximum Rs.10 lakh.
3. Stamp Duty, registration charges, and government cess: These charges are associated with the legal registration of your property. The rate you have topay is different for different states. In New Delhi, for example, the stamp duty is 4% of the cost of the house for women buyers and 6% for male buyers, and the registration fee is 1% of the property’s cost. Cess and surcharge depend on the government local body.
Expenses on insurance
4. Home insurance: No, home insurance is not yet mandatory on house purchases in India. But most banks insist that you buy at least a basic home insurance plan to cover the cost of your property in case of physical damage from fire, earthquake, structural damages, etc. The beneficiary, in this case, would be the lender and not your immediate family.
The premium of a home insurance policy depends on the type of property, its age, size, etc. For example, if your house has an area of 1,000sq.ft. and an estimated market value of Rs.40 lakh, then the premium amount should be around Rs.1,800 per year (+GST). You may get a discount on the premium if you pay in bulk for a longer period.
5. Term insurance: Some banks may also recommend that you buy a term insurance policy to cover the loan amount. This is totally your choice. In fact, if you’re buying a home insurance policy with the bank as the beneficiary, then you don’t need to buy a pure life policy at all. On the other hand, you can consider buying a term insurance plan for the tenure of the loan, with your spouse or child/ren as beneficiary/ies. Only if you don’t have another life insurance policy as a protection for your family.
Expenses on interiors
These costs depend on how many things you want to buy for the new house, whether they’re brand new or used, and how much interior decoration you intend to do. The key things you might want to factor in for a new home are:
6. Furniture: You might want to swap out your existing furniture for new or refurbished ones to suit the new house. Or you might want to build your own wardrobes and kitchen cabinets. Don’t forget to factor these things into the cost of the house. Furniture costs will vary depending on the size, the kind of wood, the design, and the brand you go for. You could reduce the cost by looking up furniture designs online and then getting them made from a local carpenter. If you’ve really set your eyes on a particular brand or model, you might want to wait for sale seasons such as Diwali or Summer.
7. Appliances: This again depends on whether you want new things in the home or not. The common items you might want to consider buying are air conditioner/cooler/heater, microwave oven, kitchen chimneys, water heaters, or television.
8. Interior decoration: To make the new house your home, it needs a dash of your personality. And this can only be done with some thoughtful interior decoration. This will include fans and lights, curtains, wall décor, and bathroom accessories, among other things. The cost for these, again, will depend on the material, the brand, the size, et al. In a conservative estimate, keep aside around Rs.50,000-Rs.75,000 for these.
If you didn’t forget to consider any item from this list, kudos. But if you did forget something, add it in, and tweak your budget. All the best!