Costs you should be aware of while buying a home in India
From the initial down payment to closing expenses and ongoing property maintenance, we have compiled a comprehensive list of all the associated costs when purchasing a home.
The question of “Can I afford a home?” might appear daunting, but essentially, you need to consider two main types of expenses: upfront and ongoing costs. Here’s a detailed breakdown of the various expenses involved, helping you determine the amount you’ll require and whether you’re prepared to move forward.
What to consider when asking, “Can I afford a home?”
Down payment
When securing a mortgage for a home, lenders typically approve a loan amount equal to 70% to 80% of the property’s value. The remaining 20% to 30%, known as the down payment, must come from your own funds. This additional sum is crucial for completing the property purchase successfully. Apart from the required down payment set by the lender, you have the option to voluntarily contribute a greater amount. Choosing to do so can lower your total repayment commitment and potentially lead to more favorable loan terms.
Basic price of house
This is actually the price that is advertised by developers and forms the main cost of the property.
Inspections and appraisals
A home appraisal determines the actual value of the home, ensuring that your lender does not finance it for an amount exceeding its worth. Meanwhile, a home inspection provides valuable insights for an informed purchase. The cost for a standard home inspection typically ranges from INR 1000 to 6000, and you can anticipate a similar cost range of INR 1000 to 6000 for a home appraisal.
Processing fees on your home loan
Processing fees represent charges imposed by financial institutions during the processing and approval of a home loan application. These fees encompass the administrative and operational costs involved in assessing and approving the loan.
The processing fee fluctuates among financial institutions. Some impose this fee on a fixed-term basis, while others calculate it as a percentage of the loan amount, such as 0.5% or 1%.
For example, in the context of LIC Home Loan, the processing fee, as per publicly available information online, stands at 0.4% of the loan amount. Likewise, for HDFC Home Loan, the processing fee constitutes 0.5% of the loan amount, with a minimum of Rs 3,000 and a maximum of Rs 10,000.
GST Tax
The Goods and Services Tax (GST) was implemented on July 1, 2017. Any under-construction property acquired within India is subject to the Goods and Services Tax. Similar to stamp duty and registration charges, GST is remitted to the government. The GST rate for under-construction properties is 12%, while affordable housing projects are exempted from GST. No GST is applied to the sale of complexes, buildings, and ready-to-move-in flats when the sale occurs after the issuance of the completion certificate.
Surcharge
In addition to the Stamp Duty, you will need to pay a cess of 10% and a surcharge of 2% for properties priced above INR 35 lakhs in urban areas, and 3% in rural areas.
Property Registration and stamp duty
Stamp duty is an obligatory fee that the buyer is required to pay to the state government for the purpose of registering the house under their name. These charges can vary from state to state, typically ranging from 5-7%. The property cannot be officially registered in the buyer’s name until the stamp duty is settled. Registration represents the conclusive and legally binding agreement between the buyer and seller, signifying the transfer of ownership. The court imposes a registration fee for this process, usually amounting to 1-2% of the agreement value.
Home buyer’s Guide on Property Registration Process in Maharashtra
Advance Maintenance charges
In contemporary times, builders often request maintenance deposits for periods ranging from 2 to 10 years in advance, providing them with a larger capital amount for operational purposes. The maintenance charges are contingent on factors such as the locality, land value, and the type of home the prospective buyer is aiming to acquire. Additionally, these charges may fluctuate based on the quality and quantity of amenities provided by the builder.
Preferential Location Charge (PLC)
If the borrower desires to acquire a property that is highly sought after, such as a villa positioned at the corner of a road or a flat within the first four floors of an apartment building, they may need to pay a higher price for such preferred locations. The Preferential Location Charge (PLC) fees typically amount to 4% of the Basic Sale Price (BSP). Therefore, if the borrower opts for a preferred location, they should factor in an additional 4% to the total cost.
Floor rise charges, commonly referred to as high-rise floor charges, represent extra fees levied by builders or developers for properties situated on upper floors of a multi-story building. These charges are distinct from the fundamental cost of the property and are designated as a premium for the elevated placement within the building. The justification for imposing high-rise floor charges often stems from the perceived benefits or superior views associated with properties located on higher floors.
Legal Charges
Legal charges encompass the costs associated with engaging a surveyor or solicitor, and a builder may at times request the client to cover these expenses. This request may arise particularly when there is additional due diligence to be conducted, extending beyond the standard registration and stamp duty costs.
Parking Charges
Parking charges involve an additional expense for securing a parking space for your vehicle, and this amount is paid in addition to the cost of your home. The charges may escalate if you own multiple cars.
Brokerage fees
Brokerage fees in the realm of real estate transactions pertain to the compensation provided to real estate agents or brokers for their services in facilitating the buying or selling of residential properties.
Interiors
Interiors costs, which encompass expenses related to customizing and enhancing the interior spaces of a home, can vary among developers. Some developers are transparent and forthright about the additional costs associated with customizing interiors according to individual homeowner preferences. However, these costs are unavoidable if you wish to expedite your move-in process. They may cover various elements such as painting, plumbing, carpentry, electrical appliances, sanitary ware, and other interior features.
Conclusion
In summary, when you factor in all these additional costs, the overall cost of your house may increase by 10-15%. It is important to note that if you are considering a home loan for property purchase, these costs are typically not considered by the lender when finalizing the loan amount. The approved loan amount is primarily based on the property’s value, and all these additional costs become out-of-pocket expenses for you. Therefore, it is crucial to account for these supplementary expenses when estimating the total cost of the house and plan for them from the outset of your planning process. This proactive approach will contribute to a smoother house purchase experience.
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