Buying a new house in Bangalore

A well settled job, a dream house, a car, and a loving wife...that's the dream of the middle class in India. Anything over and above this is a bonus :) We talked about marriage in the last post. Let's talk about the dream house in this post. I've tried to compile the info I gathered in the last few days by reading through some online material and through discussions with a lot of people. See if you find the following info useful while buying a new house in Bangalore.

Time:

When should one buy a house? Well, the simplest answer would be: As early as possible. Real estate prices in Bangalore are shooting up day-by-day. So, if you can't afford to buy a house today, chances are very bleak that you'll be able to afford it tomorrow. Contrary to the common misconception, real prices never come down. Even in the worst recession of 2008-09, the real estate prices remained leveled, to say the least. The only difference during the recession times is that it's difficult to find buyers. But that stage is generally temporary. The real estate prices in Bangalore are still half-way through the prices in  Mumbai and Delhi. I personally feel that Bangalore has a potential of reaching Mumbai or Delhi in the coming few years.

Budget:

This is the time you'll realize how you have fared so far since you started earning. The savings thus far will give you an estimate on your spending habits. While this might teach a lesson to a few, some might get a sweet little shock. The following things might help you in deciding your budget while buying a house:

• You need to pay at least 20% of the total cost from your pocket upfront. Make sure that you can manage to accumulate that much cash in a short period of time.
• Banks will give loan only up to 80% of the total cost. Public Sector Banks like SBI are very strict in this regard, whereas private banks can give even up to 85-90% of the total cost, depending upon your financial status.
• Banks will sanction loans keeping in mind that your EMI should not be higher than 50-55% of your monthly take-home (after all the deductions). Again, private banks are a little generous in this regard too. Just google for EMI calculator and you'll find tons of those available online. Try out different combinations of the loan amount, tenure, and the rate of interest, and check your affordability.

Location:

Choosing the location can be a real headache, when you begin your search. Bangalore is expanding in all the four directions and this can give you a nightmare in deciding your location. You should not decide on your house location depending on your current working location, because you never know where you might land up a few years down the line. A few things that might help you in choosing your location:

• Subscribe to the Times of India (I hate to say this), especially the Friday edition. Real estate ads is the only useful thing in ToI, which otherwise is full of crap.
• Read through some of the online resources such as blogs, real estate forums like www.indianrealestateforum.com, etc.
• Talk to people. Talk to your friends, office colleagues, acquaintances who are staying in different localities. The actual residents are the best sources of information of any locality. 
• Many builders arrange a site visit (free pick-up and drop) to the property. You can leverage those. Otherwise, you can go on your own to a particular area and see all the properties in and around that area.

Type of house:

Type:	Apartment	Independent House	Villa
Pros:	closely knit-community, common amenities, secure,  easy to put on rent, you get everything ready-made	you own your land,  you get to choose the building architecture and floor plans, more free space for gardening, playing, etc., you can control the quality of construction	you own your land, more free space for gardening, playing, etc., secure, common amenities, you get everything ready-made
Cons:	you physically own a very small land share, limited or no flexibility in choosing the floor plans, no control over the quality of construction	not very easy to put on rent, security concerns, no common amenities, more time and efforts in building your own house	generally expensive, generally in the outskirts of the city, not very easy to put on rent, limited or no flexibility in choosing the floor plans

Builder:

The prices of renowned builders could be at least 20-25% more than a normal builder. Although the prices of smaller builders are on the lower side, their projects are very prone to the following issues:

• Many-a-times, you won't get what was promised.
• Delays in completing the projects.
• Legal issues.
• Compromised quality of construction.

Some of the projects of even the renowned builders are plagued by these issues, but chances of such issues surfacing are lesser with the renowned builders, hence the premium price (same logic as for branded clothes, etc.). There's also a common belief that properties of renowned builders tend to last longer and would fetch more resale value a few years down the line. However, if budget is a constraint, you can get a good house by a smaller builder in a good locality. But do verify thoroughly on the above-mentioned aspects as much as possible before finalizing.

Renowned builder or otherwise, do bargain on the final price of the house. In most of the cases, as much as you are desperate to buy the house, the builder too is desperate to sell it.

Do make sure that the property you are buying is approved by the various renowned banks, especially SBI. These banks do a review of the legal documents, etc. of the project before giving approval. SBI is supposed to be very strict in this verification.

Loan:

A lot of options are at your disposal as far as home loan is concerned. If they find that you are capable of repaying the loan, banks will chase you like anything. I was advised to go for SBI by most of the people who had opted for private banks. SBI generally offers a lower rate of interest, and doesn't have any hidden charges. They are also pretty strict in verifying the property documents before approving the loan. However, you may have to run around a bit, if you choose SBI, whereas private banks will come to your doorstep.

Banks will try to enforce you to take home loan insurance, along with the home loan. However, as of today, there is no mandate from RBI on taking insurance for the home loan. I personally prefer taking a simple term insurance plan, which would cover even the loan amount, than going for a home loan insurance.

If the house is under-construction, you will have an option of going for either pre-EMIs or full-EMIs. For an under-construction property, the loan amount is disbursed in stages by the bank to the builder. In pre-EMIs, you pay only the interest component of the amount that's disbursed by the bank to the builder at a particular stage. So, you will need to pay smaller EMIs in the beginning until you get the possession of the house and the full-EMIs start. However, your loan tenure would generally increase if you are opting for pre-EMIs, as the repayment of the principal component of the loan starts only after you get the possession of the house. To cut a long story short, go for pre-EMIs only if you are really short on cash in the initial stages of the loan. Otherwise, always go for full-EMIs.

You almost end up paying double the loan amount by the time you repay the loan completely. So, stretch your limit as much as possible and take only the minimal required loan.

Income tax benefits:

Loads of stuff is available online on this:

http://www.raagvamdatt.com/income-tax-it-benefits-of-a-home-loan-housing-loan-mortgage
http://www.onemint.com/2011/11/30/section-24-income-tax-benefit-of-a-housing-loan/