Most of us borrow while acquiring a home. Gone are those days when our parents and grand parents saved throughout their lifetime with the 'dream' of constructing a house with their life's savings and retiral benefits like provident fund, gratuity funds etc. and still the house remained unfinished to some extent. They hoped that their next generation will get a stable job and help built another floor before he gets married.
Sounds so nostalgic, isn't it? In today's day, soon after getting a job, people get their credit cards, swipe it to pay down-payment for a two-wheeler, within first year buys a four-wheeler & pays the self-contribution from the sale proceed of the bike and come the end of second year, starts looking to buy a one/two Bhk flat with a home loan.
Now, our story starts here. In order to acquire an apartment in the city where you work, what is the price you pay? No, don't get me wrong. I know you can clearly understand what is the amount you are paying the seller/builder for the flat. I want you to show you here, how much you pay for getting the absolute ownership of that flat.
First, you start looking around for a suitable home. Nobody buys the first house they see. Amongst Indians, I can happily say that no one will buy a house unless they see minimum of 30 apartments over a period of 6 months to the least. Before that it seems to the first time buyer that- 'Since I am new, I need to observe and understand more.'
This time, effort and energy costs you too. You take a few off-days, call hundred brokers and builder's project sites, drive down to these places, eat outside and spend money. Now, this seems to be very natural and a must for all home-buyers. This cost of 'gaining experience' is a mandatory period for anyone. So, let's not cry over it.
Then once the house is finalised for the purchase to be made, you start talking to your credit card company, bank, family & friends to arrange for the 20% of the cost of the property which you need to accumulate for the 'self-contribution' bit of it. You break your fixed deposits, Kisan Vikas Patra(KVP), borrow from Provident Fund A/c, sell/mortgage your jewellery and accumulate say, 10 Lacs(we are assuming the home you are buying is worth 50 Lacs here). You will also have to pay a brokerage & you arrange for that too.
Then you start comparing rate of interest(ROI) of different banks online & offline, meet a lot of sales executives, hard negotiate on processing fee and finalise on one lender and apply for the loan. After some paperwork & a wait-period you receive your loan sanction letter and go to the seller/builder to sign the agreement.
Your surprises start here.
Banks told you their fee, builder told you their price, broker told you his commission amount. But no one told you the Government fees and levies. You always knew about the stamp duty & registration charges, but never knew that there are Govt. fees for taking a loan! Everyone now shakes their hands off saying that was not a fee for them! You always thought that acquiring a bank loan was about an upfront processing fee and you negotiated that best and opted for a 'nil' fee bank! But now what is this legal fees, valuation fee, administrative charges, documentation fee, franking charges on sale agreement as well as loan agreement(mortgage origination fee), intimation of registration charges.......!! Oh my God! Can someone please list out the 'charges' for you? Yes, sure we can. And mind you, after all this too, your home is still not yours, it is hypothecated with the bank. You will get the title deed once you repay the full loan amount with due interest payable in the next few years. So, let me try to chart out the actual cost of your home-buying. I am guessing that you will continue with your home loan at least for 8 years as that is the average Indian standard before someone pre-closes their home loans.
Now, please find the chart below:
ExpensesAmount
Initial cost of search for 6 months6000
Self contribution1000000
Loss of interest on PF,KVP,Gold etc. @12% in 10 yrs1200000
Brokerage @1%50000
Loan processing fee(all inclusive)10000
Govt levy on loan acquisition20000
Stamp duty & registration cost250000
Loan principal4000000
Interest over 10 years @10% on 20-year tenure loan3553076
Cost10089076


Now, you are reading the numbers correct. For a 50-Lac worth home to acquire completely after 10 years with a housing loan will cost you Rs.1,00,89,076/-(Rupees One Crore Eighty Nine Thousand & Seventy Six only).
Now this is a tentative projection. With interest rate & other fees and charges fluctuating, it will vary.
But not to lose heart. Your property in 10 years may be valued at 2 crores. You will happily live in it during your haydays of life, get tax relief from the Government year-on-year and have the protection on your and your family's head. So why wait till retirement and still do not fulfill your wishes? Go ahead and start searching for a home today!