Here are questions to ask before buying home in 2014

Manish Shah Bigdecisions.in

Do you understand the effective per square foot rate you’re paying?Most buyers look at the per square foot rate of a project and the total cost of the house that they want to buy. And that’s reasonable enough. However there are 2 broad rates that one should be aware of

1) Carpet rate – the actual living area of the house. Put differently, if you added up the dimensions of each room, you would get the carpet area of the house. Growing up, this is the only term that was used.

2) Built up or super built-up area – a host of other ‘common areas’ are added to the liveable area of the house and the rate at which they’re added to the carpet area is known as ‘loading’. For e.g., if an apartment with a carpet area of 700 square feet is loaded by 30%, it means the built up or super built up (as the term being used) area will be 700+210 = 910 square feet.

Things therefore, get tricky when you’re comparing 2-3 projects. Consider the following 2 options that a buyer has:

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Co-Founder & CEO|Bigdecisions.com

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Project 1:  1,000 square feet carpet loaded at 40% and a per square foot cost of Rs 10,000. Project 2: 1,000 square feet carpet area loaded at 15% and a per square foot cost of Rs 12,000

Which is the more expensive project ? On the face of it, project 2 has a higher cost per square foot. However, if you consider the differences in loading, project 2 is at Rs 1,150*12,000 = Rs 1.38 crore versus project 1 which is at 1,400*10,000 = Rs 1.4 crore. Effectively, they’re both at the same rate for the buyer (before adding any additional costs). The question to answer is, do you think project 1 is worth the additional loading?

Has your home loan interest rate crept up on you?Interest rate movements over the last few quarters have kept everyone guessing. Most home loans are at floating rates i.e. your bank can increase the rate without informing you. What’s more, the EMI would typically remain the same (the interest component that you’re paying every month will increase while principal you’re repaying will reduce). So, what might have been a 10.5% home loan might now be at 11.5% or even more without you having noticed. In the current environment, it might be worthwhile to look around for lower interest rates. Ever since the RBI disallowed prepayment fees, switching home loans has become a lot more attractive. You could look to do one of 2 things – a) reduce your EMI by keeping the loan tenure the same or b) keep the EMI the same while reducing the tenure so that your loan runs off faster – either ways, you gain. The one thing you shouldn’t do is to remain ignorant about the current rate you’re paying.

Have you crossed out under construction properties ?While we’ve all heard of instances where under-construction properties take much longer than promised to deliver, it might not be wise to shun the concept all together. And while risks always remain, the basic tenet remains, that great bargains are mostly found when buying under construction properties. So, if you’re confident of the builder’s ability to complete the project (helps to look into his reputation as gauged from past project delivery history and current market speak) it all boils down to price. If the property is available at a sufficient discount and if you’re not desperate to move into that house, even after a 1-2 year delay you might be better off buying the under construction option rather than paying a large premium for a ready property.

The author is a co-founder & CEO at Bigdecisions.in (the platform that helps take smart personal finance decisions)