Buying Your First Home in India? Here’s How to Actually Afford It

Marketing Lenditt
2 days ago
5 min read

Introduction

Buying your first home is a once-in-a-while experience that can have that is both thrilling and terrifying. Because when it is your first time buying a real estate asset, it is essential for you to know about what you should take care of, and how to be financially prepared to buy your first home in India.

This blog is going to tell you all the necessary steps you must take to make your home loan experience a smooth one!

Understand your Current Financial Situation
Before buying a house, find out if you are really prepared for the financial responsibilities it will bring.

Check your monthly cash flow: Understand your monthly cash flow to adjust the EMI amount.
Check your savings: Check how much you have saved so far for your own dream home.
Check your Credit Score: A credit score which is 650-700+ is better when you are going for a home loan. If you do not match this requirement, first work on your credit score.
Check Your Debt-to-Income Ratio: It shows how much of your monthly income is going towards your current repayments. It helps the lender identify whether you can manage additional home loan debt, or not.
Identify What You Can Afford
Once you have understood your financial standing, you can calculate how much you can afford to buy your dream house. A recommended rule for buying a house with a loan is that your total housing expenses should not exceed 30-40% of your gross monthly income.

Start saving money for the Down Payment
The banks and financial institutions in India offer you up to 80% to 90% of your property’s market value as financial funding. It means you will need to arrange the rest of the amount, like 10-20%, as a down payment.

The more you try to pay as a down payment, the fewer repayments you will need to make. It can be a good money-saving plan in the long run. While you are arranging the down payment, ensure you keep a sufficient emergency fund balance to support your other financial goals.
Understand Home Loan Options
Before finalising a property, consider exploring different home loan options, going through the terms and conditions and also comparing various loan offers and their interest rates.

Here’s a basic checklist of what to look for while comparing home loans:
Type of Interest Rate: There are two types of interest rates.
1. Fixed interest rate- These are fixed rates that offer a steady rate throughout the loan period.
2. Floating interest rate loans- They can vary based on the current marketing situations.

Loan Tenure: A Long loan tenure can give you lower monthly chunks of payments, but a higher interest rate can increase the total cost you pay. A short loan tenure gives you higher EMIs and reduces the total cost you pay at the end.

Processing fees and additional charges: Along with the interest rate, it is crucial to know other additional charges and processing fees mentioned in the document. As it can affect the total cost you pay if not considered.

Terms and Conditions: Carefully understand the terms and conditions of your home loan. In case of any doubt, do reach out to the authorised representative.

Consider Additional Charges You May Need to Pay
When buying a first home, people often overlook the hidden charges and additional costs it will take to buy the house. Closing costs are fees a buyer has to pay when finalizing a new mortgage. This cost is generally 3 - 5% of the house cost you are purchasing. It may vary from lender to lender.
Here are some extra costs it would take to buy your first home:
1. Stamp Duty and Registration Fees: The stamp duty charges and registration fees in India range from 6% to 8% of the property’s value.
2. GST for Under-Construction Property: If the property you are buying is under construction, you will have to pay the goods and services tax(GST), which is 5% for residential properties without an input tax credit.
3. Legal Process and Documentation Fees: It is preferable to hire a lawyer to verify the legitimacy of the property you are purchasing. The lawyer charges his fees for these legal charges.
4. Brokerage: If the house you are buying is bought through a broker, then you might also need to consider the brokerage charges. It is generally around 1-2% of the property value.
5. Maintenance Charges: If you are purchasing an apartment, then the cost of monthly maintenance also adds to the cost. It varies with the society and the amenities offered.
See The Big Picture of Your Finances
Buying your own home is an expensive decision, but it is also a long-term commitment. A stable source of income is a primary requirement when you are buying a home with a mortgage. Hence, it is very important for you to consider your other financial obligations such as medical emergencies, existing repayments, your child’s education and retirement savings.

Before finalizing the decision, you must check if you can really afford to buy. A home right now, along with your upcoming financial commitments.
Be financially prepared for Purchase Costs
Once you have bought the home, you may never know what costs or modifications you might need in your house. Also, furniture makes any home perfect, so be sure that you consider the interior and furnishing costs.

Also, when you finally move into the new house, it would involve moving costs such as logistics, transportation and other unpredictable costs like labour charges, etc.
Get a Home Loan
Once you have checked all of the above parameters and you are ready to buy your first home, you can apply for a pre-approved loan. In a pre-approved loan, your lender reviews your financial details and your creditworthiness to determine the maximum loan amount you should receive from the lender.
Prepare for the Application Process
To keep your home loan application smoother, prepare your documents in advance to save time. Here are the basic documents each lender usually asks for in a home loan application:
1. Identity proof
2. Income Proof
3. Financial Statements
4. Proof of Assets
5. Good Credit History
6. Other Required Documents as Stated by Your Lender
Get Subsidies and Tax Benefits
Pradhan Mantri Awas Yojana (PMAY): The Government of India offers various subsidies to buy your first home under schemes like Pradhan Mantri Awas Yojana (PMAY) and other tax benefits. PMAY provides a subsidy on the interest rate you pay on your home loan.

Tax Benefits: You can also avail yourself of tax deductions under Section 80C for the principal repayments (Up to Rs. 1.5 lacs). Under section 24(b), you get the tax benefits for interest paid on home loans up to Rs. 2 lacs annually.

Affordable Housing Benefits: The properties which are classified under the “Affordable Housing” scheme also give you finance benefits like reduced GST and PMAY benefits.
Prepare Your Loan Repayment Strategies
Once you have finally followed all these steps and are ready to go to buy your first dream home, now is the time to consider your repayment strategies. Remember, it’s a commitment you are making with your lender. Ensure you never miss a payment that helps you build a good credit score. Prepare your repayment strategies that allow you to repay on time and earlier, so that you can reach your financial freedom as early as possible!

Conclusion

Buying your first home is an unknown yet adventurous experience you have once in a lifetime. To have a smooth experience, follow these tips to financially prepare for your new home. Also, education is a must to have a fair and stress-free home loan experience.

Lenditt offers home loans that are easy to avail of and have no hidden fees. Lenditt is one of the fastest-growing digital loan platforms in India, which gives you a loan within 15 minutes with no tiring documentation process.

Do check out the official webpage for more information.