I know many friends who save up and invest diligently with one main goal in sight - the dream of buying a house. I’ve often dug deeper and asked them why they’re so keen on having their own place, mainly because they don’t plan to retire in the city they currently live in and because most have plans to work abroad. The answer has always been unanimous - ‘If I have my own home, I don’t have to pay rent’.
Well, I can’t disagree with that. But there’s no denying that home ownership, while eliminating rent, comes with steep costs. And many of these are not evident at first glance.
Let’s break down the actual cost of owning a home.
This price tag is the introductory purchase price of the house you’re looking at. And it is the most obvious expense associated with buying a home. A few years later, if I ask you the price at which you purchased your dream home, this is the first number that may pop up in your head.
Like a 2BHK flat for sale in Bangalore for ₹50 lakhs. Or a 3BHK in Noida for ₹1 crore. Or even a villa for sale in Mumbai for ₹1.5 crore.
But is it truly the cost of your home? No.
At least not, unless you pay the entire house cost upfront.
In India, stamp duty charges are typically around 5% to 7% of the property’s market value, while the registration charges come in at 1%. So, here’s how that would go for a house with a market value of ₹50 lakhs:
That means you’ll have to pay at least ₹3 lakhs upfront - over and above the purchase price.
For most of us, coughing up a massive amount like ₹50 lakh or above may not be practical. Here’s where a housing loan can prove to be the new best friend on the block. But you cannot avail of a loan to cover the entire cost of your house. Lenders generally require that you pay a portion of the cost of the house upfront - as a down payment.
Typically, this is around 15% to 20% of the price of the house. So, for a house costing ₹50 lakhs, your down payment would be around ₹7.5 lakhs to ₹10 lakhs.
A home loan makes it easier to achieve your dream of home ownership. But it comes with its own cost - the big, bad interest. Home loan interest rates in India are typically 7% to 9% per year. If you're worried about all the nuances of the Indian home loan, take a tour of the 2022 home loan guide to be better informed.
Here are the interest costs associated with homeownership for a ₹50 lakh house, assuming a down payment of ₹10 lakhs, a loan of ₹40 lakhs spread over 20 years, and an affordable interest rate of 7% per annum.
Yes, that is the correct number. To repay your home loan amount of ₹40 lakhs over 20 years, you must pay ₹34 lakhs as interest alone.
Property tax, or house tax, is important to understand when buying a house in India. It is collected by state governments, and the amount varies depending on the state where the property is located. Even if you rent out your house, you are responsible for paying this tax as the owner. There are different methods used to calculate property tax, which vary by location.
There are three methods used to calculate property tax. The method chosen varies from one place to another.
Buying a house is a one-time thing. But maintaining it is an everyday affair. When we talk of maintenance costs, there are two kinds you should account for - the expected and the unexpected.
Gated communities offer various amenities like parks, gyms, and play areas. The maintenance costs for these facilities are divided among homeowners and billed monthly or quarterly. The charges are typically calculated per unit, such as ₹2, ₹3, or ₹4 per sq. ft. For a ₹50 lakh home with a carpet area of 1,000 sq. ft and maintenance costs of ₹3 per sq. ft, the monthly maintenance would amount to ₹3,000.
Unexpected maintenance costs for a house, such as repairs, damages, and renovations, cannot be accurately predicted. However, you can estimate and set aside funds for these expenses. A general rule is to allocate around 1% to 2% of the house's cost for maintenance. For a ₹50 lakh home, you can assume an annual maintenance cost of ₹50,000.
A fully furnished house. A modular kitchen. A comfortable sofa in the living room. All the newest appliances in town. Some quaint, charming patio furniture. And a quirky accent chair in your favourite corner. This paints quite a fine picture, right? But it also comes with its price tag.
These expenses can be easily overlooked when buying and owning a home. The cost of interior and furnishings is subjective, ranging from ₹15 lakhs to ₹20 lakhs for some, while others may spend ₹30 lakhs or more.
What’s the first rule of the homeowners’ club? Get your property insured. Despite being a country with a penchant for having their ‘own house,’ home insurance penetration in India is remarkably low, at around 1%. All the money spent on buying, building and making a house into a home becomes futile without a home insurance plan.
Some factors that determine the cost of home insurance are the amount and type of coverage, the duration of coverage, the type of construction used for your house, the value of the assets in your house and the age of your house.
So, what is the true cost of owning a 1000 sq. ft. house with a price of ₹50 lakhs - for around 20 years? Well over ₹1 crore.
There's a lot you need to decide on before you buy a house or tap into a loan; looking into how you can best plan to buy a house should be your first step once you decide on buying one. Know that you can take all the time with your decision here because it's crucial.
While there isn't a one size fits all answer to this, it's always good to calculate where you stand. Fi has a rent vs buy calculator that can quickly help you assess which decision would be better for you in the long term.
From job security debt, there are many things you should consider before buying a house. A few of these are:
Buying a house can be a good investment because it adds up to your wealth and as a personal asset. But it also depends on location, market conditions, and individual circumstances.
The city with the cheapest houses in India can vary, but some cities known for relatively affordable housing include Jaipur, Ahmedabad, Bhopal, Pune, Ghaziabad, Coimbatore and Lucknow.