Hidden Costs When Investing in Your Dream Home

Buying a property is a large financial undertaking. Most payments for homes are not done upfront, but rather, spread out over a period of years in the form of a home loan. Planning to make such massive financial commitments for a long stretch will involve understanding all the costs involved in buying a home. There are several costs that you may neglect to factor into your planning and in the long run, this may disrupt your finances significantly.

Priya Sunder, co-founder of the award-winning wealth management company, PeakAlpha Investments has a few tips on hidden costs to look out for when investing in a home.

When Securing a Home loan

A home loan is large and expensive and usually comes with an interest rate of 10% to 12% attached to it. But here are a few things you may not have budgeted for:

• Depending on the loan amount sanctioned, you will be paying Rs 15,000 to Rs 20,000 as loan processing fees.
• Every home loan provider today bundles home loan insurance with your loan, which is an additional Rs 80,000  to Rs 1 lakh, dependent on the loan amount. This is a single premium that is bundled into your home loan and will reflect in the EMIs you pay .
• Another thing to consider is that this additional bundling is not taken into consideration for your 80C tax deduction and it will cause an increase in your premium.
• Home loan vendors do not finance your contribution to the sinking fund, khata and any legal charges applicable to your purchase of a home.

Expenses you may incur along the way:

• If you are planning on investing in a built-up bungalow you will need to factor in the fees of a property valuer. The cost for this is approximately Rs 20,000
• All papers related to your property must be vetted by a lawyer, irrespective of the reputation of the builder you may be dealing with. At this point you will incur expenses for a lawyer and a notary authority. A notary is required to verify that he has seen the original documents and the signatures on the documents are whose they claim to be. So several documents like a POA need to be notarized.
• Doing up the interiors of your home is a cost many of us do factor in, but it is always a good idea as to what your budget is and set that aside. It is a personal decision. People spend anything between 10 % to 30 %of the property cost.
• When you invest in a home, a large part of your investment portfolio, almost 95% of your assets get stuck. It is therefore imperative that you have home structural insurance in place to safeguard the value of your investment. This insures the structure against damage. It also covers reconstruction of the property. Usually it also covers architect, surveyor and engineer’s cost.

Recurring costs

• When you buy an apartment, you will have to pay an upfront cost in terms of maintenance fees. This goes towards the larger maintenance works of the building and is normally applicable only for 2-3 years. Besides this, you will also be paying a monthly maintenance fee ranging between Rs 3000 to Rs 15,000 depending on the kind of apartment you are staying in.
• Property tax is usually between Rs 7000 and Rs 10,000 depending on several factors put down by the government.

Related Expenses you may not have planned for

• A delay in the construction of your new home/apartment will mean an additional cost in terms of the monthly rent you may be paying for your current residence. If the renewal of your rental agreement is close on hand, you will end up paying the yearly appreciation on rent as well.
• If you plan to sell your home at any stage, you will also have to factor in the cost of a broker whose services will come at about 2% to 5% of the property cost. This will be above the costs of repair and home beautification you will undertake.
• Selling your home also means your income will be subject to long term capital gains tax which may be rather high as it is subject to indexation and the figure is rather high depending on the sale price.