Owning a home is a lifelong dream for many, but it is essential to recognize the cost goes beyond the property price. Often, people focus solely on the purchase price of the property as the ultimate cost of homeownership. This is the reason why most people fail to calculate their ideal property budget before making their home purchase.
However, this perspective is misleading, especially if you are considering a home loan. The true cost of owning a home encompasses various hidden expenses that go beyond your monthly mortgage payments or EMIs.
It is imperative to account for the concealed costs to prevent financial strain.
So, let’s illuminate the key elements you must consider to determine the true cost of owning your dream home.
- Down payment
The down payment is the first major cost associated with purchasing a home.
While EMIs cover the loan, most home loans in India require the buyer to put down a significant percentage upfront. This amount usually ranges between 10-25% of the property value, depending on the buyer’s creditworthiness and the lender.
For example, if you are purchasing a ₹50 lakh home, a 20% down payment would amount to ₹10 lakh.
- Registration and stamp duty
Registration fees and stamp duty are other significant costs associated with homeownership. These are a necessity to legally transfer ownership of the property.
These fees can vary by state but generally fall between 5-8% of the property’s market value.
Most home-buyers fail to account for these fees in their overall budget, causing unexpected financial strain when it is time to finalize the transaction.
- Home loan processing fees
EMIs cover the principal and interest on a home loan. However, what most borrowers fail to account for is the loan processing fee charged by banks and other lenders.
Usually, this fee ranges between 0.5-1% of the loan amount.
- GST
If you are purchasing an under-construction property, you will have to pay GST on your purchase. As for current regulations, GST for affordable housing is 1%, while for other properties, it is 5% of the total property value.
- Property tax
Once you are the owner of the property, paying property or house tax becomes an annual obligation. The tax rate varies by state and location. Some urban areas charge significantly higher rates than rural or semi-urban areas.
For instance, in cities like Bengaluru or Mumbai, property taxes range from ₹10,000 to ₹50,000 or more per year, depending on the location and size of the property.
- Cost of interior decoration and furnishing
Most people don’t include the cost of furniture and interior decoration when calculating the price of their new home.
Once you move in, you will need to invest in the interior, including electrical work, painting, cabinetry, and plumbing, to make the home livable. Depending on the size of your home and your preferences, interior costs can range anywhere from ₹2 lakh to ₹10 lakh or more.
Although this is a variable cost, it is crucial for homeownership.
- Maintenance charges
Most new housing societies, apartment complexes, or gated communities charge residents an annual or monthly maintenance fee. These fees cover the upkeep of shared spaces, such as security systems, elevators, and gardens.
The amount varies depending on the type of property, location, and amenities offered.
- Insurance premiums
A home is a valuable asset, and safeguarding it with home insurance is critical. Home insurance policies cover damage due to theft, fire, natural disasters, and other risks.
Depending on the policy and coverage, annual premiums for home insurance can cost anywhere between ₹5,000 to ₹20,000.
- Repairs and renovations
The maintenance fees you are paying cover general upkeep and not the costs of renovations and repairs. Whether it is upgrading kitchen appliances or fixing a leaking roof, the cost of repairs can add up quickly. Renovations, especially major ones like kitchen or bathroom remodels, can cost lakhs of rupees.
It is paramount to have a contingency fund for such expenses.
- Fluctuations in home loan interest rate
The EMI is not a fixed amount throughout the loan tenure, especially if you have opted for a floating interest rate.
With a floating interest rate, EMIs fluctuate based on RBI’s repo rates. EMI increases when interest rates rise, which can impact long-term financial planning.
- Utility bills
Apart from EMIs and maintenance charges, utility bills such as water, electricity, and gas are ongoing expenses.
You must account for these expenses as well. These costs accumulate over time and contribute significantly to the overall cost of owning a home.
- Legal fees and consultation
Engaging a property consultant or lawyer is a necessary expense for verifying the property’s authenticity, checking for any legal disputes, and making sure the purchase is legitimate.
The cost of legal consultation can vary depending on the complexity of the purchase.
- Opportunity cost
Last but not least, there is an opportunity cost associated with homeownership. When you buy a home, you are committing a large amount of capital that could have been invested elsewhere, such as mutual funds, stocks, or other investment vehicles.
Over time, the potential returns from these investments could outpace the appreciation of the property.
Simply put, you need to consider the long-term implications of locking your money into a real estate asset.
Conclusion
There is a lot you need to decide on before purchasing a home or tapping into a home loan. Remember, owning a home is not just about paying off your monthly EMIs. It is also about saving up enough money to pay the down payment, registration fees and stamp duty, interior decoration costs, maintenance charges, renovations, repairs, and so on.
The true cost of owning a home is multifaceted.
If you are a first-time home buyer, you must carefully analyze all these factors to fully comprehend the financial commitment required.
By being informed and planning accordingly, you can avoid unexpected costs and enjoy the benefits of homeownership without unnecessary financial strain. So, now that the hidden costs have been unveiled, start planning and saving for your dream home.
