What Young Homebuyer Should Know Before Buying a Home

A new home is the dream of many. Unlike the old days, people no longer wait to get married or have a family to settle down. The new attitude is that the earlier the better. The young homebuyer in new generation is educated and ambitious and always working to have a better, happier and more comfortable life.

If you are a young homebuyer, here are some things that you should do to prepare yourself before you take the leap:

1. Have Financial Independence and Discipline

This pretty much goes without saying. It is extremely important that you know your money, where it comes from and where it goes.

Set aside savings
Track your spending
Stick to your budget
Make small lifestyle adjustments that would give big results in the long term. For example, use public transport whenever possible, carpool, work out at home instead of having expensive gym membership etc.
Most importantly, never dilute all of your savings.

2. Start Preparing Early

The benefits of owning a property at an early stage are worth the struggle. You can expect returns from it as an asset and also as an additional income if you decide to rent it out. It is not as easy as can be said for youngsters, because you need to have quite the amount in hand.

Down payments usually come to around 10%-25% of the property value. This is a pretty big amount to have ready when you are just starting off with your career and goals. Again, discipline with your finances is extremely important.
Avoid wasteful spending, clear your debts on time and expand your income channels. In this day and age, depending on a single source is not the smartest thing to do.
Set aside money for future EMI payments. This might be even more than the rent you pay every month currently, so prepare for that hurdle.

3. Just Saving is Not Enough

Invest. Saving will not give you any form of return.

An FD account will fetch you 6% interest per annum before tax and an RD account 7-8% interest per annum before tax. These are risk-free options.
You can also invest in mutual funds while being completely aware of the market risks.
Research other investment opportunities that will benefit you in the long run.

4. Research on the Property of Your Dreams

Having a clear idea of what you want and whether it is within your current financial capacity is important. In-depth research should also be done on the current market scenario, property rates, appreciation value, etc.

The following are the basic considerations

The type of property you want – an apartment, an individual house, a condo etc.
The number of bedrooms and other requirements
The kind of location do you like with respect to amenities, accessibility, and neighbourhood
Your budget
And finally, make adjustments to your requirements to fit your budget

It is best to consult experts in the field for professional and well-sort information.

5. Understand All Associated Costs

Most average people just don’t get to make a single payment, move in and get on with their lives. Hence it is important to know all the extra costs that would come along with the price of the property so that you can channel and organise your money accordingly.

The biggest expense would be the stamp duty, which comes to around 5-10% of the property value. It varies with the age and gender of the owner and the value of the property.
Goods and Services Tax (GST)
Registration fees of around 1% of the property value.
Interior decoration, electricity, water supply etc.
Brokerage fees, legal fees, home insurance etc.

As you can see, there are many additional expenses to be dealt with. So, do not just consider the down payment or EMI when you make decisions.

6. Loan Eligibility

The loan eligibility of a person depends on their income, credit score, age and the price of the property. The eligibility criteria for a loan are rough and it depends on other factors as well.

For properties of 30 Lakh INR or less, a 90% LTV can be acquired, 80% LTV can be acquired for properties worth 30 Lakh – 75 Lakh INR, and 75% for more than 75 Lakh INR.
People ages younger than 21 and older than 60 are considered a deterrent
It is important that you maintain a good CIBIL score of above 700. A score under 600 should be a serious concern.
Your credit history proves to the lenders of your capacity to repay the loan. Be careful not to apply for too many credit products within a short period of time, not use up more than 30% of your credit limits etc.
A good credit score also lowers the interest percentage.

7. Compare Home Loans

Numerous third-party websites provide information on various home loans. Compare their processing fees, pre-closure charges, late payment fees etc.

8. Make Use of Government Benefits

Research on what help you can avail from the government. For example, the Pradhan Mantri Awas Yojana gives you an interest subsidy of 3%-6.5% for people with an annual income within 18 Lakh INR, to buy their first residential property.

9. Know Your Tax Benefits

Section 80C under the Income Tax Act states that you can claim a home loan tax deduction of up to 1.5 Lakh INR from your taxable income on the principal repayment. This can be claimed only once and in the same year that they are incurred.
Section 24 states that deductions of up to 2 Lakh INR can be availed on the payable interest amount. This is applicable for construction projects completed within 5 years. Otherwise, the claim drops to 30000 INR.
Section 80EE states that first-time home buyers can claim 50000 INR on payable interest every year for home loans not more than 30 Lakh INR and property worth less than 50 Lakh INR. This section is available for people acquiring home loans under the PMAY CLSS scheme.

Read up on more information regarding the Tax Benefits on Multiple Property Home Loans

In Summary

Committing to such a huge purchase as a young homebuyer might be scary, but the end results are completely worth it. The moment the keys to your home are handed over to you, you would be stepping into adulthood as a homeowner. That is more than what most people a few years ago achieved at your age.

This confidence and pride would only make you move forward and achieve greater things in life. Just start by being aware of your finances.