Home » News » Real Estate
Source: Moneycontrol.com

Biggest blunder people make when buying a house

I have seen many examples where the dream house has become a financial nightmare.

Sanjay Matai

Author & Promoter, The Wealth Architects

Expertise : Mutual Funds ,Insurance

More about the Expert...


Yes, budget is where most people go wrong when buying a property. I have seen many examples where the dream house has become a financial nightmare.

The first payment that you have to arrange for is the down-payment. Banks will finance at most 80-85% of the property cost. So you have to put in 15-20% money from your pocket. Given the property prices, this amount itself will run into lakhs.

Therefore, how much money you can pull together to pay this up-front amount becomes your first objective. It is not uncommon to see people giving away their last rupee in down-payment or even borrow from other sources. This is a serious issue. Don't overextend yourself. You should not be paying two loans…home loan from banks and loan from other sources.

By the way, recently banks have stopped including stamp duty and registration charges in the property cost. So the entire amount on this account has to come from your pocket.

Monthly EMIs come next. These will typically run for 15-20 years. So don't repeat the mistakes that others made - they considered only their current financial obligations in fixing their borrowing capacity. You must plan your EMIs keeping in mind the future commitments too.

Remember that house is not the only financial obligation in your life. You can't compromise on children's education or medical costs. You can’t sacrifice your other desires such as mobile phones, annual vacations, electronic gadgets, car, etc. for decades.

Hence, don't go overboard with your budget. Make sure that
(a) You have some spare cash AFTER the down-payment and

(b) Your monthly loan payments DO NOT exceed 40-45% of your net take-home pay.

Beware! This is not the end of the story.

You have to account for other costs too.

One such significant expense is the annual property taxes. So before you decide on a property, find out exactly how much will be the hit every year on account of property tax.

Nowadays big societies have become a preferred option for many buyers. They offer security; they offer various facilities such a swimming pool, gym, library, etc; they offer a great ambiance. All this, of course, costs money. And hence the society charges! Make sure you also inquire about the annual maintenance charges before you buy a property.

Then you will have to buy insurance too. This will include

(a) the cost of insuring your loan and

(b) the cost of insuring the house against fire, earthquake etc.

Finally, you have to spend money on furnishing it too. From furniture for your rooms, to kitchen fittings, to ACs/fans, to interior decoration, to soft furnishing, to refrigerator/oven/microwave, to bathroom fittings, to geysers, the list is practically endless.

Account and budget for all this too beforehand itself. It shouldn't so happen that you spend your entire money in buying the house and then find yourself with nothing much to make it livable.

And yes, don't forget the house warming party!

Buying one house in one's lifetime is history. So don't overextend yourself assuming this is your first and last home purchase and hence you should buy the best even if it is beyond your budget. No. As you progress in your profession, you will find it convenient to switch to a bigger and better property. In fact, just as upgrading your gadgets, mobile phones and cars has become common, upgrading your homes too will soon become a normal affair.

Sanjay Matai is a personal finance advisor, author and online financial trainer. There's a lot more free stuff to read on his blog ( thewealtharchitects.blogspot.in ).


Personal Finance - Wealth, Budget Planning, Investing, Retirement,Loans, Property, Fixed Income
Ask the expert

previous questions

  • Q

    i want to investment in 60 lacs invest in mutual fund and i accept 16 percentage return per year my goal after 10 years 2.80crs what is possible please true guide


    Equities over a long term are expected to give a return of 14-17%. Sensex has given a return of approx. 17% since inception i.e 1979-80 till...

  • Q

    Iwant to invest rs10l free of risk ! Shd i go for bank fd's or as the bank suggest " guaranteed income plan" ? Please guide .


    Yes bank returns are fixed....

  • Q

    My daughter 18 yrs. old is studying at IIT Madras for engineering. She is a tax payer in the 20% slab. I wish to get her a LIC policy at an early age. The agent recomends JEEVAN ANAND from LIC of India. Kindly advise the best options.


    Hello, Jeevan Anand is a with-profit plan by LIC which has an insurance component as well. It is always recommended not to mix insurance and...

  • Q

    I am 40 years old working in private company. Want to invest open ended fund Rs. 2000 per month. Kindly suggest


    The scheme that you should invest into would depend upon your time horizon. If you can stay invested for long term ( 7 yrs + ) then you shou...


Mohit Gaba

Technical Analyst , tradeguruforum.com

(27 Nov- 14:00hrs)

Ask Mohit Gaba

All Schedule | Previous Transcripts


Do you see real estate prices in key metros cracking further?


Magic Of Compounding

Use this calculator to understand and apply the astounding power of compounding. After seeing the results, you'll want to try and start investing as soon as possible!

Check Now

Achieve financial freedom using goal based financial planning

Goal based planning helps us to keep an eye on the goal that you are aiming for. Your... more

Step by Step Guide

Start investing now

The only thing worse than investing late is not investing at all.


Put your finances in order

FINANCIAL planning. If that word is a put off, don't let it be. It's the all important word in your money dictionary...


Prepare to invest

Investment planning is simpler than you think, and more rewarding than you would imagine.


Asset Allocator

This tool suggests an asset allocation for you across different asset classes based on your level of risk capacity and risk tolerance.

Check Now

Volatility: The dearest friend of Mr. Value

True value investor treats volatility as a stepping stone and not as an obstacle in h... more

Step by Step Guide

Where you should invest

Where to invest for retirement?


Snapshot of investing options

Summarised below are the short-term and long-term financial investment options ...


Select your asset allocation

This tool will suggest an asset allocation for you across different asset ...

Step by Step Guide

Looking for health insurance? Use this four point checklist

One should first know his health insurance requirements and then he should find out policy coverage details...


Why do you need Insurance?

Individuals have to face many uncertainties in life. Insurance helps them as a shield that protects the financial ...


Buying life insurance cover? Do use these tips

Though there is a rule of thumb to buy at least 10 times life cover, it does not answer all issues pertaining to life ...


Step by Step Guide

Section 80 C tax saving instruments

SECTION 80C lists down the instruments, which you can invest in order to save tax.


All you wanted to know about CTC

HAVE never understood my payslip till date, it says Avni Rustagi, a native of Punjab. Avni, 25, moved to Bangalore...


Sec 80C deductions: Know the restrictions before you leap

Restriction on deductions on Section 80C of the Income Tax can curtail the tax benefits enjoyed by you ...


Retirement Planner

Understand how much life insurance you need, primarily based on analysing the expense profile and the current wealth level of your dependants/family.

Find Out Now

Should you invest in NPS?

NPS offers you to save for your golden years with tax benefits on your investments. H... more

Step by Step Guide

Retired persons must buy mediclaim, if they have not yet

There are some products offered by National, New India, Star Health and ...


Retirement planning

RETIREMENT need not be only about gardening and reading. If planned for, it can be the best stage of your life..


Where to invest for retirement?

WHOEVER said variety is good for consumers had no marketing sense.

Step by Step Guide

Home loan rates: Beware of arithmetical jugglery

OF late, home loan interest rate has been a concern for many due to its volatile behaviour ...


Decider: To loan or not

IF you want to buy a house, you have two options to fund it, Either use your own funds or take a loan. Most of us obviously...


How the bank calculates loan eligibility?

THE amount you can borrow depends on how much you can afford to repay per month in EMIs or Equated Monthly ...


Step by Step Guide

Pros and cons of a credit card

THERE are a lot of hidden costs on that credit card you own and if you aren't watchful enough, your monthly ...


How your credit card works

IT'S said that Forewarned is often Forearmed. This aphorism has given birth to a generation of knowledge seekers. Everyone wants to know ...


Various charges on credit cards

THERE are a lot of hidden costs on that credit card you own and if you aren't watchful enough, your monthly ...

Step by Step Guide

How big a flat do you really need?

Here are some guidelines to help you resolve the confusion.


Things to know before buying new property

There is a bit of work that a buyer would need to take when they buy a house ...


Taxation of house property decoded!

The income tax laws provides for taxation of your income under various heads...

Explore Moneycontrol

Copyright © e-Eighteen.com Ltd. All rights reserved. Reproduction of news articles, photos, videos or any other content in whole or in part in any form or medium without express written permission of moneycontrol.com is prohibited.