Home Buying Guide – Part 1
HOW SHOULD YOU GO ABOUT BUYING A HOUSE
Oh Yes! It’s time. Many would say this is the second most important and challenging decision in their lives, i.e. deciding to buy a house and concluding the purchase. The first most important decision of course for them could be choosing one’s life partner, the soulmate!
We are assuming that you, the reader, is someone who has now taken a decision to buy a property of your own. Congratulations on your decision. You are perhaps fairly excited about it, but at the same time burdened with the anxiety as to whether you would be able to make the right choice of the house that you eventually want to buy. A little bit of such anxiety is very natural, unless of course you are a seasoned player in real estate, i.e buying and selling houses in hordes as many investors do.
We do hope that the information that we share with you in the subsequent pages, helps in minimizing that anxiety that is troubling you.
The reader may also note that, in this article, we are only covering the category of buyers who want the house for their own use. If you are investor in real estate, all these points may or may not be applicable, though you can still read this article for academic interest. Also, we are assuming that you are the kind of buyer (as most are) who has to ‘stretch & pool’ all the financial resources available to buy the house and hence will definitely need financial assistance from an institutional lender.
2. Most important consideration:
Yes of course! The house has to be at a walking distance from your child’s school. Your favorite beauty salon, even closer. Ah Yes! It would be sacrilegious to be more than 500 meters away from the multiplex and the most happening shopping mall. Office must be only so much farther – just enough to discourage your boss from visiting your house and knocking on the door asking for updates on deadlines! Yeah..Yeah..the house must be in the middle of all the cacophony and at the same time be entirely peaceful as Heaven itself.
And lastly, it must be affordable. LASTLY?
No. not really.
You can do all the jumping-in-excitement about the locational advantages, fancy specifications and every other imaginable facility that you want in the house, eventually, your decision will get entirely driven by affordability.
By affordability we mean the following:
(a) The amount of money that you have in your possession in the form of savings, cash or any other assets that you are ready to monetize and use that for buying the house.
(b) The amount of money that you can raise from your friends and relatives as a temporary assistance / gift (if you are lucky) to support your contribution to the house purchase.
(c) The amount of money that you can borrow from any of the banks or finance companies that offer loans for buying a house. This would depend on your current income in your family.
(d) The amount of money that you can pay towards instalment of your loan (Equated Monthly instalments – EMI) taken from the institutional lender.
(e) Your plan to repay your friends and relatives.
You need to have a complete understanding of the above. If you do a proper ‘affordability-check’ at this stage, you can plan and raise funds at the right price. You would have time to do research, identify the cheaper options from various institutional lenders and even get a sense of the time that they would take to give you the money.
You must give this process the time that it deserves to be able to arrive at the right conclusion.
If you do not do the ‘affordability-check’, you are likely to get stuck mid-way in the purchase and then would be forced to make hasty arrangement of funds at a higher rate. Alternatively, you may initiate a deal, but would not be able to close the deal. That would be really unwise.
3. Getting the finances ready:
Once you are ready with your ‘affordability-check’, the next thing for you is to get the finances ready so that they would be available, when you close your house deal. There are two steps here:
• Apply for the housing loan with a financier and get the sanction letter:
The lending institutions usually take some time to process your loan application and grant you the sanction letter. A sanction letter would typically mean that the lending institution has reviewed your credentials and is ready to give you a loan (equivalent to the amount mentioned in the sanction letter), subject to the property that you choose to buy having clear legal titles and an acceptable valuation. You can apply for a loan stating that you are still looking out for the property. The lenders would be happy to give you an in-principle approval.
• Liquidate your other investments / savings etc. to keep them ready to be given when required:
If one of the things that you are doing to raise funds for purchase is through sale of another property, it may be a wise idea to get that property sold first and get the funds ready. You should not wait to get into an agreement with your seller (of the new property) and then sell the old property. Property is not that liquid an asset and hence the sale of the property needs to be initiated much earlier.
If you are selling gold or any other investments such as mutual funds etc., it would be necessary to keep a market watch and sell them when the market is doing well. These are relatively liquid and can be liquidated fast.
If you are looking to arrange money from a relative or a friend, it may be a good idea to nudge them to give you the money now. You should take that money and keep it invested in some short term Fixed deposit or something, from where you can easily withdraw the amount.
If you are withdrawing money from Provident Fund, the process usually takes a little longer. Initiate this process as early as you can, so that the money is with you when you are required to pay the seller.
4. Researching the houses available and Shortlisting
Even as you are working to get your finances ready, you can parallely start researching the properties that fit your budget. You will need to do the following, in that order:
• Think through, discuss within the family and arrive at a broad sense of the location as to where you want the house. It need not be (should not be infact) the exact condominium or society, but an area covered by a 5 km radius should be good enough. This would be the area within which you want the house.
• Identify a Real Estate Broker: You might have heard harrowing stories of how real-estate brokers take naïve buyers on a ride. That could be true. And you may be personally against hiring a broker. But, we would say that, if you are diligent and serious about getting a good choice of houses to evaluate, you need to spend time in identifying a good real estate broker in that locality. Ask your friends, get references, google broker names and read customer complaints etc.
A good broker on your side, would help you get more choice of houses, within your budget, for you to evaluate. If you want to have the satisfaction of having evaluated a good number of houses, go for one or more brokers and get them to show you the house. You might end up liking one of them. The brokerage that you would pay for that would completely stand justified. Without a broker, there is no way in the world whereby you would get to know all the different houses that are available for you to buy in the area that you have identified.
In addition to showing you different properties, a broker is also useful in negotiations. Sometimes, when negotiations reach a standstill, the brokers play a good role in starting the negotiations again. With a broker inbetween, you can convey to a broker certain things that you may otherwise not feel comfortable telling the seller directly. The broker, being a neutral party, would be able to convey the message in an appropriate tone and context to the seller. He would do it either directly to the seller or through the seller’s broker.
• The broker could show you both completed and under-construction properties in the area you have identified. The question that you may want to ask is, ‘How many houses should I see, before I decide?’ We would recommend that you see and evaluate at least 10 to 12 houses (including both completed and under-construction) before you take a decision.
• Once you have completed your research on the houses, out of the 10 to 12 houses you have reviewed, you need to shortlist upto 3 properties, in the order of your preference. We will assume that all the houses meet your budget and therefore the criteria for this shortlisting could be factors other than the budget such as the location of the house, size, design etc.
• And for the shortlisted properties, you must do some research by yourself and find out the market prices from alternative sources. The alternative sources could be your friend circles, any other broker, property websites such as magic bricks, 99 acres etc. These sources would give you some indication as to the going price for the property that you have identified.
To read Part – 2 of this post, please click here