Sunday, November 29, 2015

Getting Prepped to Buy Your Dream home – Part 1

Buying a home is a “Dream” for most of us and most likely involves applying for a home loan to fund the purchase – isn’t it? Buying a house is supposed to be a pleasurable experience but applying for a loan and all of the processing associated with it as well as dealing with your builder can make the experience far from pleasurable.

Once you sign-up for a home, you are only going to focus on the cost of the house (per the agreement). Similarly, from a home loan stand point, sanctioned you will be constantly thinking about the monthly EMI and how it is going to impact your monthly cash flows. Unfortunately there are a lot of additional items that you may need to keep in mind while dealing with your bank as well as your builder.

Before we Begin: As someone who recently purchased his first home home, I can vouch for the fact that deciding on the house and the bank to apply for the loan was the easy part. The rest of the negotiations with both the builder and the banks loan agent were quite exciting. As I keep myself informed on the developments on the banking & finance side, I was able to negotiate on a lot of aspects with regards to the loan but from a home owner standpoint, I was a novice and had to learn a lot of things the hard way. The purpose of this article is to help you learn what they are and be prepared for your “Dream Home Purchase”

In Part 1, we will cover the unplanned items from the Builder side and in Part 2, we will cover the unplanned item from the Banks side.

Unplanned Fees and Charges for the House – Builder Side

The below are some of the additional costs I had to incur because either these were not part of the construction & sale agreement or the same weren’t clearly mentioned in the agreement. You would need to clearly negotiate as many items as possible before the agreement is signed. Otherwise, you may have to shell out a lot of money. 

Flooring & Tiles

If you see the house specifications in the brochure as well as in the sale agreement, you would find that the builder would’ve mentioned some leading brand of Vitrified tile for the floors and the bathroom walls. What they will conveniently exclude is the fact that, the model/version of tile they offer is the most basic one and doesn't come with very many color or pattern choices. If you actually want to choose for a nicer design for the bathroom or a better quality tile/pattern for your house floor, you would have to shell-out extra money.

This is exactly what happened in my case. We did not like the basic tiles that were being selected by the builder and this being our first house, me and my wife wanted to choose better quality tiles for the floor and tiles with pleasing designs for the bathrooms.

To make matters worse, if we had chosen the tile designs ahead of time, we could’ve at least included this extra cost in the sale agreement and tried to fund 80% of it through the home loan. Since we weren’t aware of this funda, we had to shell out a ton of money from our pocket and arranging the extra cash wasn't easy considering the fact that most of our savings were depleted after making the upfront 20% payment from our side.

Tip: Negotiate on the cost/design of the tiles that would be provided and make sure to include that in the sale/construction agreement so you could have the bank pay 80% of it.

Kitchen Cabinet and Modular Kitchen

Most indian women want a spacious kitchen and no matter how many cupboards and shelves we have in there, they would feel its insufficient. My wife wanted a modular kitchen with multiple cup boards and Chimney/Exhaust provisions. The builder wasn't going to provide this as part of the standard house package and this we knew very well when we signed up for the home. So, when we set up the cabinets/cupboards as well as the modular kitchen, we were prepared for the expenses.
Some people may not be aware of this and would be surprised to see an empty kitchen with just the granite slab for us to keep the Cooker/Hob and the washbasin/sink.

Tip: Negotiate with the builder if he offers modular kitchen as well as shelves/cabinets as part of the package. If so, add it to the construction & sale agreement so that you could have the bank 80% of the cost.

TDS Payment on your Home Purchase

When the builder sells you the house, he is earning a big sum (in lakhs) and he needs to pay taxes on his income/profits. A % of this profits has to be paid to the Government of India by the Builder as Taxes and you already know this – right?

What most people don't know is the fact that, for all home purchases worth 50 lakhs or more, a 1% up front TDS has to be paid by the buyer and this can be deducted from the payment that is being made to the builder. For ex: If your house is worth 75 lakhs, while making the payment to your builder, you can actually deduct 1% of the cost (Rs. 75,000) and only pay the remaining 74.25 lakhs.

The Government has put this rule to track all high-value real estate transactions. You as buyer are expected to deduct this money and make the TDS remittance online @ or on a good-will basis ask your builder to take care of it. My builder was generous enough to handle this activity. All he asked for was the PAN Card information of the house owner.

Tip: Irrespective of whether you make the payment or you ask your builder to do it, just remember that this 1% amount is part of the cost of the property you are buying. If your builder is asking you to pay him an extra 1% just for this TDS, you can easily figure out that he is trying to take you for a ride. The builder is anyways going to factor this 1% TDS in his tax returns and if you actually pay him the extra 1% just for TDS, its obviously going into his unaccounted (read BLACK) corpus.

Car Park, Electricity/Water Line Etc…

Some builders are quite devious in underquoting the cost of the property while trying to sell the house and then shortchange you once you pay the initial token deposit. They will add things like Car Park, getting an electricity line or water line, security deposit etc etc to the overall cost of purchase and you may end up paying for all these as unplanned expenses.

Tip: Talk to your builder clearly and make sure he includes all these charges as part of the overall package before you sign the agreement or make the initial deposit. Once you sign, your leverage to negotiate goes down considerably. You are no longer a prospective customer. You are an existing customer who has no choice but to finish the payment to get possession of the house and they very well know it.

In the next article in the Getting Prepped to Buy your Dream Home series, you will find out about the unplanned charges & fees that your bank may charge you for taking a home loan from them.
Hope you found this article useful. If you did, do share this in social media (facebook/twitter/google) so your friends and contacts could benefit from this information too…

Happy Home Buying!!!


  1. Dear Anand, i will be glad if you can write a post on various schems under which a person can apply for business loan like mudra etc.

    1. Siraj - I can try but am not the best person to advise on business loans :)


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