First-Time Home Buyer Guide: A beginner’s guide to Buying a Home

A home represents financial independence, long-term investment potential, and quite unbeatable as a security for the future. Not surprisingly buying a home ranks as a major milestone in everyone’s life. It gives you the chance to own an important asset and an opportunity to make capital gains when the value of the property appreciates. 

If you are buying a home for the first time, it is natural that such an expensive and important purchase will give room to several questions to create doubts. Starting with, ‘Is this the right time?’ Here are the benefits of owning a home: 

• Emotional: A home creates a sense of permanence, giving a stable environment for your family. Here, you can live the way you want to, in an environment that fosters a sense of community.
• Financial: Owning a home also offers several tax advantages; long-term property appreciation and the chance to use home equity for all future investments. 

If you have decided to buy a home and if it’s your first time, use this as your comprehensive personal advisory and refer to it to know how to go about buying your first investment in a home. 

Steps for First-Time Home Buyers

Step 1: Ensure you are financially prepared and ready. 

• Assessing your financial health

Before you buy a home, review your finances. 

• Income and Expenses: Calculate your monthly income and against it, match your regular expenses like rent, bills, etc. 

• Existing Debts: Evaluate your open loans, credit card balances, and other financial obligations. 

• Credit Score: A good credit score (usually 750 or more) means your chances of securing a home loan with lower rates increases. If you have a low credit score, try and improve it by paying off all loans, avoiding new credit applications, and paying all bills on time. 

• Budgeting for Your Home:
  • Determining Affordability: You can use an online mortgage calculator to estimate monthly installments at different down payment and tenure. Banks usually lend up to 80% to 90% of the property’s value.

• Down Payment and Other Costs: This is an important step to buying your first home. A down payment ranges from 10% to 20% of the home’s price. Other additional costs like stamp duty, registration fees, GST for under-construction properties and maintenance deposits needs to be factored.

• Exploring financial assistance
  • Pradhan Mantri Awas Yojana (PMAY): Eligible first-time buyers can get interest subsidies on home loans for Economically Weaker Sections, Low-Income and Middle-Income Groups. 

• State Housing Boards: MHADA in Maharashtra, DDA in Delhi and other state housing schemes provide affordable housing options. 

Step 2: Financing Your Home

• Understanding Mortgage Options:
  • Fixed-Rate Home Loan: This offers you the chance to make stable monthly payments with a constant interest rate. 

• Floating-Rate Home Loan: Here, the interest rate starts low, but adjusts according to market conditions and the RBI’s repo rate.  

• Government-Backed Loan Schemes in India:
  • Pradhan Mantri Awas Yojana: Offers a subsidy of Rs 2.3 lakh to Rs 2.67 lakh on home loans. 
  • SBI, HDFC, LIC Housing Finance Schemes: They offer special lower interest rates for first-time buyers. 

• Home Loan Pre-Approval Process: Being pre-approved will help you determine the budget and improve the chances of your loan getting approved.
  • You will need a PAN card, Aadhaar, salary slips, bank statements and property papers. 

• Interest Rates and Loan Terms:
  
• Factors Affecting Interest Rates: 
  – RBI repo rate changes
  – Your credit score and employment stability. 

• Loan Tenure
  – 20 to 30 years: Low EMI and higher interest. 
  – 10 to 15 years: Higher EMI and lower interest. 

Step 3: Choosing the Right Property. 

• Identifying your needs and wants: 

Check if the property you are considering has: 

• Good location, number of bedrooms, connectivity and safety. 
• From a long-term perspective check if the property can be flexible for career relocation, additions in the family and resale potential. 

• Researching Neighbourhoods:  

Check if the property under consideration has:

• Safety and Amenities: Gated communities, security, schools, and hospitals nearby. 
• Infrastructure and Connectivity: Metro stations, railway stations and highways. 
• Property Value Trends: Past appreciation rates and future development projects. 

• The following types of properties are available in India:
  • Apartments or Flats: Most common and available in societies with amenities. 
  • Independent Houses or Villas: Offer privacy, but costly and require maintenance. 
  • Plots: Suitable if you wish to build your own home 
  • New v/s Resale Property: 

• New properties have modern designs but attract higher rates 
• Resale properties are often cheaper but might need repairs. 

Step 4: Work with Professionals. 

• Real Estate Agents:
  • Choose RERA-verified and the ones with good reviews. 
  • Agents usually charge 1% to 2% of the property price. 

• Mortgage Brokers and Lenders:
  • Banks V/S NBFCs: Banks like SBI, HDFC and ICICI offer lower interest rates. 
  • NBFCs (Non-Banking Financial Corporations), like Bajaj Finserv and LIC Housing have more flexible loan terms. 

• Legal Advisors:
  • Title Verification: Make sure the property has a clear title and is not involved in any legal disputes. 
  • Encumbrance Certificates: Confirm that the property is debt-free. 
  • Registration and Stamp Duty: Varies from state to state, and is 5 to 7% of the property value. 

Step 5: Navigating the Buying Process. 

• Making an Offer:
  • Price Negotiation: Compare properties that are similar to the one you are considering and negotiate with the seller accordingly. 
  • Earnest Money: Also known as the deposit money, it is typically 5 to 10% of the property’s price. 

• Home Inspections and Legal Considerations:
  • Check the construction quality: This is especially applicable for under-construction properties. 
  • Legal Clearances: Verify that your desired project is registered under RERA and has all the required municipal approvals. 

• Closing the Deal:
  • Final walkthrough: Make sure that all the terms and conditions have been met and only then, sign the agreement. 
  • Registration and Stamp Duty: Pay registration charges and get the sale deed legally recorded. 

Step 6: Long-Term Considerations. 

• Home Maintenance and Upkeep:
  • Annual Repairs: Plumbing, electrical, and exterior maintenance. 
  • Society Maintenance Charges: This usually varies for every project. 

• Building Equity and Wealth:
  • Increase Property Value: Renovations, interiors and energy-efficient upgrades. 
  • Using Home Equity: This can be used for future real estate investments. 

• Planning for Resale:
  • High-Return Improvements: Kitchen, flooring, and modular designs. 
  • Market Timing: Best resale values occur during housing booms.

Special Considerations for First-Time Buyers in India

• Real Estate Investment: Consider buying the house and renting out a portion for additional income. 
• Buying in a Buyer’s v/s Seller’s Market: Property prices will be higher in a seller’s market, while you will have more negotiating power in a buyer’s market. 
• Property Laws and State Taxes: Registration and Stamp Duty are often different from state to state. 
• Sustainable Housing: Energy-efficient homes that have solar panels will reduce electricity costs. 

FAQs

1. How to buy a home for the first time?
   Check your finances and credit score, choose a property, verify legal documents, negotiate the price, read the terms and conditions, register the property.
   
2. What are the tax benefits of owning a home?
   You will be able to avail a deduction on home loan principal under Section 80C of the Income Tax Act. You will also get deductions under Section 24 on home loan interest and additional cuts under Section 80 EEA. 

3. What is the 20/30/40 rule for buying a house?
   20% of income goes to EMI, 30% for lifestyle and 40% is for savings and investments. 

4. What is the best advice for first-time home buyers?
   Set a property budget, research the ideal location, verify all legal aspects of the property, compare all loan options you have and plan for other long-term costs. 

5. What counts as a first-time buyer?
   A first-time buyer is someone who has never owned a home or residential property before for a specified time, as mentioned in home-buying schemes. 

6. How much down payment do I need?
   Typically, around 10% to 20% of the property’s value. Although, government-backed schemes may allow for lower down payments. 

7. What is home inspection while buying a property for the first time and why is it important?
   Home inspection is a detailed check of the property’s construction quality. From structural strength, plumbing, and electrical system, to verifying the property’s legal status. This is important to avoid issues arising in the future and unexpected repair costs. 

8. What are some common hidden costs associated with homeownership?
   Hidden costs like stamp duty, registration fees, GST (applicable for under-construction properties), maintenance charges, property tax, home insurance, and legal fees. 

Conclusion: Home Sweet Home

Buying a home can be a fulfilling experience if you follow the step-by-step process as outlined in this blog:

• Financial planning
• Property Selection 
• Legal Verification. 

If you enjoyed reading this and want to experience a smooth first-time home buying process, contact us at Raymond Realty. We have residential projects in Thane and Bandra, prominent neighbourhoods of Mumbai, and our RERA registered sales experts will assist you to the best of their abilities. Make a purchase you are confident in and enjoy the long-term benefits of homeownership!