The process of purchasing the first flat is exciting and, at the same time, somewhat confusing. It can be challenging, especially if you are unaware of the process. It is important to avoid common pitfalls for first-time buyers, and therefore, this blog post will help you to avoid common mistakes.
Whether seeking a residential or commercial property, the options are always overwhelming. Below, we present the 10 most frequent first-time home buyer mistakes you should avoid.
10 Common First-Time Home Buyer Mistakes
In the next 10 points, we will unravel what not to do when buying a house:
Mistake #1: Skipping the Pre-Approval Process
What is Mortgage Pre-approval?
Mortgage pre-approval is an initial credit check done by a lender to assess how much they are ready to finance a home purchase. Essentially, this is a review of your financial capacity to pay, your income, the assets you own, your debts, and your capacity to borrow as enshrined in your credit track record.
The lender has the right to issue a pre-approval letter indicating the maximum amount of credit you can obtain, subject to conditionality.
Benefits of Getting Pre-approved Before House Hunting
- Realistic Budget: During the pre-approval stage, you get a clear view of your financial strength and thus can only consider properties within your price range.
- Stronger Negotiating Position: If you are pre-approved, sellers are convinced that their products will sell out fast, thus making them likely to counter your offer.
- Faster Closing Process: Pre-approvals and similar documentation reduce the time needed to finalise the financing of the loans.
- Identification of Credit Issues: This helps you identify any credit issues that may exist when approaching a home loan.
How to Obtain Pre-approval from Indian Banks?
- Research and Compare: Search for different banks and the types of mortgages that are most appropriate for you.
- Gather Necessary Documents: In most cases, what is required is:
- Photo identity card (Aadhar/ PAN/ Voter ID/ Passport/ Driving Licence/ NREGA card/ Student Photo ID card/ Defence ID Card/ Birth Certificate & Passport/ ration card).
- Proof of address
- Income proof (pay stubs, tax credits, income-tax return for the last two to three years).
- Bank statements for the last 6 months.
- Investment proofs
- Apply: You can apply online or at the bank branch, where you must fill out the application and attach all necessary papers.
- Credit Check: Under the normal evaluation process, the bank will conduct a credit check to establish your credit status.
- Verification: For some reason, the bank can request to see your employment documents and other papers.
- Receive Pre-approval: Depending on the terms, the bank will issue a pre-approval letter containing the loan sum and conditions.
Mistake #2: Underestimating the Total Cost of Homeownership
Hidden costs beyond the purchase price are as follows:
- Stamp Duty: Varies from state to state, but on average, it ranges from 3 to 7% of the property value.
- Registration Fees: Generally, at least 1% of the property’s value; however, in some states, there is a limit.
- GST: Available on under-construction buildings at present and is 5% without Input tax credit.
- Society Maintenance Charges: This section contains the monthly charges for maintaining the shared areas.
- Utility Connections: These include the cost of installing electricity, water, and gas connections, which may be once and for all.
- Home Insurance: The sums paid periodically to guard against all such losses and others that may not have been considered.
- Brokerage Fees: If you use a real estate agent, they usually are 1-2% of the selling price of a property.
Property Tax Considerations in Different Indian States
| State | Tax Rate |
| Maharashtra | 0.1% to 1% |
| Karnataka | 0.2% to 1% |
| Delhi | 6% to 12% |
| Tamil Nadu | 0.5% to 2% |
| Gujarat | 0.1% to 0.5% |
Note: It is also important to note that the rates are not fixed and may differ yearly and across different cities. Some states may offer rebates for early payment or specific user classifications.
Read also: TDS on Sale of Property by NRI in 2024
Maintenance and Repair Expenses to Anticipate
Below are some maintenance and repair expenses you may need to account for as a homeowner:
- Annual Maintenance: It is generally recommended that 1 to 2% of the property value be spent on maintenance works.
- Painting: It is done every 3-5 years at a cost of ₹12 to ₹25 per sq. ft.
- Plumbing: For small repair works, an amount of ₹5000- ₹10,000 per annum should be saved.
- Electrical Work: Traditionally, a range of ₹3,000-₹5,000 per year can be allocated for regular maintenance.
Mistake #3: Neglecting to Research the Neighborhood
Factors to Consider When Evaluating a Locality
Below are some factors to consider when evaluating a locality for your new home:
- Safety and crime rates
- Accessibility to workplaces, schools, and other necessary facilities
- Public transportation accessibility
- Existing and potential end-users of products/commodities – parks, shopping centres, hospitals
- Community demographics and culture
- Amplitude of noise and influx of traffic
Future Development Plans and Their Impact on Property Value
Below are some future development plans and their potential impact on property value:
- Check municipal development plans
- Search for future development tracking (metro lines, highways)
- Research zoning laws and business initiations
- Think about how these impact property value and the quality of life
Mistake #4: Overlooking the Importance of a Home Inspection
What Does a Home Inspection Cover in India?
Assessment of a home in India includes examining the construction, electrical system, water supply, and roof, among other factors affecting the house’s safety. Checks involve evaluating the structural state of walls, floored and ceilinged spaces, doors, and windows.
You may also assess the property’s condition for dampness, the presence of termites or cockroaches, and whether installed appliances work well.
Common Structural Issues in Indian Homes
Some common issues include settlements arising from unstable foundations, water penetration, especially in the basement or walls, electrical problems, poor ventilation, and poor drainage systems. Updating the pipes might be difficult, repairs may be needed, or structural designs could be out of code with today’s standards.
How to Find a Reliable Home Inspector?
Finding a professional home inspector in India can be difficult because of the absence of clear certificates. First, you must contact real estate agents, architects, or engineers for references.
When searching for inspectors, look for civil engineers or architects who are more precise and well-experienced in local real estate. Get sample reports and read client feedback. Walk around the property with the inspector to get a firsthand view of how the property is being assessed.
Mistake #5: Emptying Savings for a Down Payment
More money paid upfront can mean lower monthly payments for a loan, but paying off all possible savings is reckless. The following strategies are recommended:
- Balancing down payment with emergency funds
- At least 3-6 months of expenditure should be saved in case of an emergency
- Housing the expenses for repairs and maintenance of the home that may be charged unexpectedly
- A part of this liquidity should be kept for other emergencies that may occur in life
Government Schemes for First-Time Buyers in India
- Pradhan Mantri Awas Yojana (PMAY) provides concessional rates on home loans.
- Credit-Linked Subsidy Scheme (CLSS) is given to borrowers as an interest subsidy.
- National Housing Bank (NHB) schemes provide affordable houses for the needy.
Alternative Down Payment Sources to Consider
- Gifts from family members
- Employer assistance programs
- Drawing down loans on retirement accounts (which should be done with caution)
- Crowdfunding or personal loans are the last resorts
Mistake #6: Ignoring the Resale Value
This makes first-time home buyers extremely short-sighted. Most often, they only concern themselves with the current gains instead of the future gains one could derive from the specific kind of property.
Factors Affecting Resale Value in the Indian Market
- Access to facilities, transport, and growing hubs
- Infrastructure development like highways infrastructure or smart city projects, which are to be launched shortly, and the new metro lines under construction
- Reputation of the builder and quality of construction
- Legal certainty of property deeds.
For more information, read What is a Gift Deed? Meaning, Registration, And Required Documents Explained
Mistake #7: Falling in Love with a Home Beyond Your Budget
Impulsive decisions based on feelings can cause significant pressure on one’s finances. On these matters, however, it is necessary to remain eminently practical.
Tips for Staying Within Budget During House Hunting
- Before commencing the search, setting a strict budget line is crucial
- Cut off the things that are not necessary; use what is needed only
- When it comes to decision-making, it is possible to compare the choices keenly using online tools
Mistake #8: Not Understanding the Legal Aspects
The real estate market in India is full of legal issues that must be dealt with carefully to avoid future problems.
Common Legal Issues in Indian Real Estate
- Unclear land titles
- Unauthorised constructions
- Lack of compliance with set floor space index (FSI)
- Legal proceedings involving the referred property
- Not having clearance from local authorities
- Disputes over ancestral property
Mistake #9: Rushing the Decision
Unfavourable decisions may be a critical issue arising from impulsively purchasing properties. Therefore, take a measured approach.
When to Walk Away from a Deal?
- The existence of undisclosed property concerns
- Seller’s failure to apply fair bargaining practices
- Altered personal financial circumstances
- Coercive strategies from real estate agents or sellers
Mistake #10: Neglecting to Plan for the Future
The home is a long-term asset; therefore, planning for the future is always a good idea.
Considering Long-term Family Needs
- Expect that families may grow or shrink (for example, with children or elderly parents)
- Evaluate access to schools, hospitals, and child playgrounds
- Think about the requirements for a home office
- Assess its relevance to different life phases
By avoiding what not to do when buying a house, first-time buyers stand a greater chance of achieving a successful, fulfilling property purchase.
Remember that despite the wealth of information available in forums, seminars, various online consultations, and contacts with practitioners, you should remain an avid learner. Looking for residential properties in Thane? Check out these 1-BHK and 2-BHK flats in Mumbai and Thane without being late!
FAQs
- What documents do I need for a home loan application in India?
When applying for a home loan in India, you’ll need to provide a variety of documents, including:
- Identity proof
- Income proof
- Property documents
- Residence proof
- Bank statements
- Passport-size photographs
- Identification, age verification, and signature
- How much should I budget for additional costs beyond the property price?
The cost of purchasing a home need not be confined to the price of the house alone. Other expenses include tax fees, vehicle maintenance, and any expenses incurred when moving from one location to another.
- What is RERA, and why is it important for buyers?
RERA is the abbreviation for the Real Estate Regulatory Authority. The authority began operating in 2016 in India to safeguard homebuyers and reform the real estate sector. It seeks to increase efficiency in project execution and establish order in the industry.
- How long does the home-buying process typically take in India?
Buying a home in India takes about 2-3 months; however, it depends on several parameters. Some factors include legal procedures, the time to process the loan, and the supply of properties.
- Should I choose a ready-to-move or under-construction property?
If someone urgently needs a house, they would be better off with a ready-to-move house. But if they are ready for some wait time for customisation and perhaps equally low prices, an under-construction property might be the appropriate choice.
- What difficulties are faced by first-time home buyers?
First-time buyers have two major affordability issues: saving for a deposit to acquire a home and making monthly mortgage payments. Although the amount required to make a deposit has been challenging, the rising mortgage interest rates have only made it even more difficult.
