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The Fully-loaded Costs of Buying a Home

Owning a home is a cherished dream for most people. It is also a major financial planning decision, as it involves a very big investment, perhaps the biggest investment of one’s life. But, buying a house doesn’t just mean paying for the purchase price – there are many other associated costs as well, some incidental and some mandatory. The following is a list of hidden or non-obvious costs that you ought to consider when calculating your affordability budget for purchasing a home.

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• Stamp duty and registration fees: These are mandatory fees that need to paid and are around at least 5% of the value of the property. The actual rate of the duty varies, depending upon which Indian state you buy the property in. So, on a Rs 20 lakh property, you could pay up to around Rs 1 lakh at the time of purchase. Ensure that you have enough funds left after paying for your house to pay this fee.
• Brokerage charges: If you go through a real estate broker to purchase your property you’ll have to pay a brokerage charge based on the purchase price of the property. Every city might have its own accepted norms for brokerage, but typically fees will range from between 1% to 4%.
• Loan processing fees: If you are taking a home loan in India to finance your home purchase, you will need to pay a loan processing fee and an administration fee. These can range from between a flat fee of a few thousand rupees, to about 0.5% of the loan amount, depending upon the lender.
• Legal fees: When buying a property, you will need the services of a lawyer to verify that the legal title of the property is free and clear and that the ownership of the property is not in dispute. These charges can be a flat fee per transaction, or based on an hourly rate that the lawyer will charge.
• Inspection fees: Occasionally, you might have to pay fees to a surveyor to get your property inspected. This might be required by the home loan lender, if you are taking a loan, to test the structural fitness of the home that you are buying. These fees can be a flat fee, or might be included in the fees that you pay to the lender as a part of the processing fee of the home loan application.
• Utility connection charges: If you are moving into a new space, you will have to pay the local utilities water connection charges, electricity meter charges and other such charges. Often, these might need to be paid upfront, before your connection can be started.
• Association and society fees: These are recurring charges that might have to be paid monthly basis to the local resident welfare association or housing society. These are generally fixed in nature, but are mandatory if you live in the neighbourhood, whether you use the facilities or services of the association or society.
• Home furnishings: If you are moving into a new place, it is likely that it will come unfurnished. You will be getting a bare shell. Therefore, you need to budget for furniture, fixtures, fittings, furnishings like curtains, carpets, safety grills for windows, electrical appliances like geysers, air conditioners and kitchen gadgets like ovens, water dispensers, water purifiers etc. While these can be non-recurring expenditures, you might need to spend this money upfront as it will affect your quality of life and safety in your new home.
• Moving costs: If you are moving from one city to another, you will also need to budget moving costs that include items like cargo, insurance costs for shipping and any kind of customs clearance where needed.

Hidden costs in land:

In case you intend to buy a residential plot and then construct a house on this land, there are a few costs that you will need to consider.

• In some areas vacant land tax has to be paid for a certain period. Do your research to see whether this applies to the local area where you are intending to buy land and thereafter constructing your house.
• You might have to pay a building license fee, road formation fees (where necessary), and other municipality charges.

Buying a second hand house:

• Check whether the property tax, water charges and tax, other society tax and electricity bills have been paid by the previous owner. Otherwise, you might inherit these liabilities once the title of the property passes to your name.
• Depending upon the structure and the wear and tear, you might need to plan for the renovation, repair, painting charges when you buy a second hand home. Budget these in the total purchase cost and plan for it.

Things to remember

• Buying a house does not just mean paying the purchase price – there will be other fees and charges involved.
• Ensure that you have the cashflow to afford these charges at the time of purchase because some of these charges will need to paid off at the time off the transaction.
• The mandatory charges like stamp duty and registration charges should be paid immediately. Other costs such as renovation, furnishings etc. might be deferred depending upon your budget and timing.
• Remember that with some smart financial planning you can avoid stress and improve your financial situation for a big investment such as a home purchase.

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