Actual cost of buying a house with the help of a home loan

Actual cost of buying a house with the help of a home loan

 Is the purchase price of a house the only component in the total cost? No! There are various types of charges linked to it. Mentioned in this post are the cost components if you wish to buy your own house.

Owning a house is the most important objective in the life of many people. It isn't just for shelter but also for stability. While it is important to budget for the cost of the home when making a buying decision, you cannot ignore the cost of taking a loan as well.

Let’s look at your actual cost in conjunction with a home loan.

Actual Cost of a House with Home Loan

1) Cost of Purchase:

a) Margin Money:
Banks do not finance the full value of a property. The amount financed is represented by LTV Ratio.

Value of Property

LTV Ratio

Max. Loan Amount

Min. Margin Money

Up to Rs. 30 Lakhs

90%

Rs. 27 Lakhs

Rs. 3 Lakhs

Rs. 30 – Rs. 75 lakhs

80%

Rs. 24 – 60 Lakhs

Rs. 6 - 15 Lakhs

More than Rs. 75 Lakhs

75%

Rs. 56.25 Lakhs & above

Rs. 18.75 Lakhs and above

If your eligibility is less than the above table, you are required to pump in a higher margin in the beginning. How much loan can you get from a bank depends on various factors such as your monthly income and CIBIL score. You should check your home loan eligibility before applying for it.

b) Stamp Duty, Registration and Brokerage:
Usually, the stamp duty and registration fees amount to almost 5-6% of the property value. Whereas brokerage is usually charged at 0.50-1% of the property value. While banks do not finance this amount, you can opt for other loans such as personal loans to fund this amount.

c) Furnishing: You can add the cost of furnishing to your loan amount if the valuer permits.

2 ) Cost of a Home Loan:

a ) EMIs: Usually, your total EMIS cannot be more than 50% of your monthly income. The maximum loan term allowed by the bank is 30 years. You can use an EMI calculator for home loan to check your EMI amount. It comprises of 2 components:

i) Principal: The repayment of the actual loan amount.

ii) Interest: The interest charged on the outstanding loan amount is a major factor determining your EMI. It is important to look for the most suitable home loan interest rate when shopping for a home loan.

b) Processing Charges: This fee is towards processing of your loan application. It varies from bank to bank.

c) Title Investigation and Valuation Charges: This is the cost incurred by the bank for identifying the title ownership of the home and also determining its market value.

Now that you know the various charges, let's understand the total cost of buying a home, including a loan, through an example. This table shows the total cost you may have to bear for a home loan of 30 years @ 6.70%.

You should budget your monthly expenses and the cost of a home loan before applying. Though the amount looks much higher than the purchase price, most of it is spread over the loan tenure. This is justifiable with the time value of money and the property inflation over the years.

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