8 tips for buying a new home and avoiding common mistakes

# Little Savings

We are all in mid 20's and 30's, and home is the basic commodity of everyone. I see there are so many people, have an idea of buying a home with loan but one thing make them to step backward, the total amount paid by the time to close the home loan, which is almost quadruple of asset value.

Understand that, we are all in the circle of employee group. To buy a home, we need a min of 25 to 60 lakhs, where a normal employee cannot have this huge amount in the liquid cash. For us, we have very few options, one of them is Home Loan. I do agree that we are paying huge amount, by calculating the total amount we paid towards the home loan.

But here are some tips to help to buy the home in the least value. I can't say, that you can save more amount, but my intention is to fulfill the dream of house by paying less amount.

Have in cash at 25-50% of property value : 

The first thing is to have at least 25-50% of the cash in hand, before buying the home. Let say, the value of the home is 40L, have at least 10 - 20 lakhs in your hand. I suggest, your savings, chits and gold loan will help to collect this money. Again, if you acquire this amount by personal loan, it is a bad idea, as home loan interest is the least among all type of loans.
If you meet this first step, you are very well go ahead.

Should not buy your first home in the city you live : 

If you are in late 20's, the most common mistake people do in buying home is, they bought the home in the same city they live. I think, the first home you buy, should be your home in the last days of your life, this is where you settle or atleast think about your parents, where they spend their present days.
The problem in buying the home where you live now is, you cannot claim your House Rent Allowance(HRA) and also you should not give for let-out, as it need to show in the other sources of income.

If you are in mid 30's, by this time, you would set your home nearby your office and nearby your kids school. Then you could buy the home in the city you live as for the next 10 years, you already set your place.

Under construction houses are cheaper:

The houses are available in the different ranges, hope most people, will buy the asset/property based on their funds availability. But, if you try, you could buy the home with in your range. Set your value of the home, then you could search the houses on the range. Note that, the value changes based on the place, demand etc., I suggest, the cap value shouldn't be more than 30L. And search for under construction houses as they get cheaper than already completed ones.

Tax Exemptions: 

Before availing the home loan, be aware about the tax exemptions.
Totally, you can avail 3.5 lakhs exemption under the Sec 80C and Sec 24.

Total paid interest exemption - 2 lakhs
Total principal amount exemption - 1.5 lakhs

Besides, you can also avail exemption on the stamp duty amount(for house registration).

Interest Rate: 

Usually banks will charge 8 - 10% interest rate for the home loans. I hope, State Bank of India(SBI) is the bank which charges the lesser than the other banks. A small change in the interest rate will help in huge savings.

EMI: 

Usually you are eligible for the home loan for an amount 45-50 times of your present salary. Lets say, if you are withdrawing 40K, you are eligible for 20Lakhs. And make your EMI will never go beyond 2 lakhs as you can avail tax exemption for this amount, ie., you should not spend more than 16K per month.


Assuming, by this time you bought the home, I know, the consequences after buying the home, as you will be under deficit of funds availability. This is the time where you should be strong. Wait for atleast 3-4 years to settle down yourself from the liabilities.

In this 4 years, you could see some changes.
The asset value of your home may raise.
There will be some amount residues after paying your bills. Calculate that amount.

It is the time to woke up and clear your home loan.

No charges on the pre-payment: 

Bank will never charge any fee on the partial payments you made. There are some ways, to clear your home loan soon.

a. Pay 1 lakh per year : Try to pay atleast 1 lakh per year and get tax benefits. Never forget that, you should also save for the future use. Keep some amount in retirement plans and for marriage.

b. Chit Funds: This is the good option to clear home loan. Withdraw the funds and pay for the home loan.

c. Bonus: Every year bonus can help to lower your principal amount by paying loan.

Never think about Resell your home: 

Most people will think, that we can resell the home, but there are many obligations in reselling the home.
a. Since you avail the home loan, unless you clear it, you cannot resell the asset. And you can only sell to the buyers who should have huge ready funds.
b. If you sell the home within 5 years, all the tax exemptions, will be reverse and they consider it as a gain and need to pay the taxes.

Above are my experiences in buying the home, I am glad to hear your views, experiences, suggestions.