Mistakes first-time buyers must avoid when buying property

Hiring an experienced broker can be a smart decision for first-time buyers.

Real estate is considered as one of the most secure investment options. The growth of nuclear families and rising rental rates in many cities are some of the factors that drive people to purchase their own houses. Whether one is buying a property for end use or investment purposes, property due diligence is necessary to ensure one remains financially secure and gets the best returns on investment (ROI). However, when buying a property, some buyers get lured by the fancy offers by developers or sellers. Many first-time buyers make mistakes while buying a property mainly because they lack guidance. In this guide, we aim to address the most common mistakes made by first-time investors in real estate and how to avoid them.

 

Emotional decision-making by first-time property buyers

Although one cannot deny that emotions are attached when purchasing one’s first home, any financial decision must be backed by thorough due diligence and financial preparedness. Making major decisions like property purchases merely based on emotions may lead to challenges in future. It is normal to feel inspired and attracted to a grand-looking property in a sought-after location. Still, if it does not match one’s requirements, it is better to forego it. Many first-time buyers make the mistake of blindly purchasing a property due to such sentimental reasons. Instead, one should adopt a balanced approach by weighing one’s emotional needs and rational considerations. After all, property investment should be seen from the point of view of long-term benefits, including the price appreciation and returns it would fetch if one decided to sell it in future.

 

Lack of financial preparation

#1. Not estimating the right budget

One of the common mistakes people widely make when buying their first home is the lack of financial preparedness and a property plan in place. The foremost factor to consider is how much one can afford. Assessing one’s financial capacity to undertake the investment is crucial. Otherwise, one may end up spending too much on the purchase, depleting their savings and resulting in debts. Creating a budget and keeping within the set limits will prevent any strain on one’s finances.

 

#2. Neglecting hidden costs

Besides the down payment and home loan expenses, several hidden costs are involved during a property purchase. Stamp duty and registration charges are taxes buyers must pay to the government while registering a property. It ranges from 5% to 9%, depending on the state where the property is registered. Other expenses involved when buying a property include GST, maintenance charges, brokerage fees, home insurance, packing and moving costs, utility bills, etc. Finally, the biggest expense one is likely to incur when buying a new house is the cost of interiors. All these can lead to significant expenses ranging from a few lakhs to crore, depending on several factors.

 

#3. Spending one’s savings

Homebuyers may overlook the downpayment factor during property purchase. Banks and financial institutions do not finance the entire cost of the property. They only offer loans covering 80% of the property, as per RBI guidelines. The property buyer must bear the remaining 20% of the property cost. Usually, people make down payments using their hard-earned savings or liquidating other assets. However, for young property buyers, it is not advisable to exhaust all the savings on downpayment. The lack of financial planning can force them to shell out their entire savings towards a down payment. Savings are crucial for building emergency funds and fulfilling post-purchase costs.

 

#4. Buying more than one can afford

This aspect is closely related to the lack of budget planning by potential homebuyers. Without a proper budget in place, one is likely to spend more on a property than one can afford. It may eventually force them to take additional loans to meet their financial needs. However, prospective home buyers should realise the importance of an ideal debt-to-income (DTI), a financial metric that compares one’s monthly debt payments to gross income. Given the monthly EMIs the home buyer would have to keep servicing for some years after their first house purchase, it may not be easy to take up the burden of additional loans.

 

Lack of due diligence

#1. Overlooking home loan eligibility and pre-approval

Understanding one’s home loan eligibility helps one know the amount of loan they are likely to get from a lender and how much they would have to pay from their pocket. This helps with proper budget estimation and simplifies the home buying journey for first-timers. One can go for a home loan pre-approval even before finalising a property. This process helps in assessing one’s financial capacity to purchase a house. Further, it is crucial to remember that there are several factors based on which loans are processed. These include one’s income, credit score, debt-to-income ratio, age, etc. More importantly, maintaining a good credit score helps one get a loan at an attractive interest rate and longer tenure.

 

#2. Ignoring the home inspection

Home inspections are an essential aspect of home buying as they help identify potential issues with the property, such as plumbing or leakage issues, faulty electrical connections, safety hazards, etc. One can hire professional home inspection services. Ignoring any hidden problems can result in huge expenses in the future. Thus, home buyers should get a home inspection done and report any issue to the seller. They can even negotiate the price if significant repairs are needed.

 

#3. Choosing the wrong location

Neglecting the need to inspect a neighbourhood is the most common mistake home buyers make, especially first-timers. When choosing a location, the most important factor is accessibility to workplaces, schools, hospitals, public transportation and other essential facilities. In addition to these, one also needs to inspect the neighbourhood for any issues such as parking problems, noise or traffic, lack of parks or recreational facilities, etc. Such issues could impact the property value and quality of life and should not be ignored.

 

#4. Selecting the wrong property

Investing in a property in the initial stage of one’s career has become possible with the availability of home loans. However, the decision to purchase one’s first house should not be based only on one’s current needs. Many buyers make this mistake by not ignoring that housing needs may evolve with growing family, age, sickness and other reasons. Sometimes, people find themselves selling their first house later in life to purchase a bigger house. For instance, if one purchases a flat in a building without an elevator, it could pose problems if they happen to bring their old parents to live with them or when they grow older. Eventually, they move to a new house with better facilities. Hence, home purchase decisions should be made by factoring in these points.

Similar to the point stated above, one needs to plan their house purchase based on future space needs. For example, if one decides to get married, they may need a bigger house. It is always wise to go for a house with an additional room to accommodate a growing family.

 

#5. Ignoring legal aspects

The most common issues when ignoring legal due diligence include disputes due to unclear land titles, problems due to unauthorised constructions or disputes over ancestral property. To prevent such problems in future, it is crucial to get a legal checklist and have all the documents in place. One can approach a lawyer for guidance.

 

#6. Not verifying builder’s background

While a homebuyer may review the project before investing, many first-time buyers ignore the need to check the builder’s reputation and track record. When purchasing a property, a homebuyer should assess the developer’s track record in delivering projects on time, the quality of projects, etc. They should also check the RERA registration details as it is mandatory for property developers to register themselves with the regulatory authority under the Real Estate (Regulation and Development) Act. In the past, there have been cases of builders going into insolvency. The RERA has been introduced to protect the interests of homebuyers and regulate the real estate sector, with developers and realtors having greater accountability towards their consumers.

Prospective homebuyers must stay updated about the developers’ financial standing in the market and be aware of any litigation going on against them. They can also get relevant information through Google reviews, property forums and the official RERA website.

Click to read about key legal checklist for buying a property

 

Lack of future planning

When investing in a property, a home buyer should never neglect their evolving needs based on their different phases of life such as marriage and retirement. Purchasing a house is one of the biggest and most significant investments in one’s life. To ensure it brings sound returns in the future, one should not ignore the significance of the property’s resale value. First-time buyers often neglect this aspect as their decisions are primarily based on their present needs instead of future gains. When evaluating the resale value of a property, one can check if the property is close to any upcoming infrastructure like metro or expressway or if there are any emerging hubs in the vicinity. This way, they can hope to sell the property for an attractive price or rent it out to gain sound rental income in future.

 

Housing.com News Viewpoint

Home buying is a long-drawn process, and it may take a few months to a year to finalise a property that suits one’s needs. Hence, prior research, financial planning and proper due diligence are necessary. Hiring an experienced broker can be a smart decision for first-time buyers. Similarly, one can approach a financial advisor and lawyer to navigate through the financial and legal aspects of the home-buying process respectively.

 

FAQs

What is the right age to buy a property?

If one is financially stable, one can buy a property as early as in their 20s.

At what age do most individuals purchase their first property?

Typically, individuals in India invest in their first property in their 30s on average.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com

 

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