Buying your first home is an exhilarating experience, but aside from the home purchase price, stamp duty costs, and monthly mortgage (EMI), there will often be as many, if not more, hidden costs to buying a home that first-time buyers often neglect. Knowing about these costs is extremely important for budgeting as you don’t want to exceed your budget or have any loan service issues in your home buying transition.
Home Loan Processing Fees and MOD Charges
When you want to get a home mortgage, it doesn't just involve signing some paperwork. There may be processing fees, which usually range from about 0.25% of your loan amount. In other words, the larger the loan, the larger the processing fee. The buyer may also have to pay an additional fee for the MOD (Memorandum of Deposit) document, which can be anywhere between 0.1% and 0.5%. The fees are along with any unexpected fees associated with the buying process that is considered an upfront fee and should at least be in your overall estimate.
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Upfront Maintenance Charges
It is normal for individuals buying a house to pay monthly maintenance fees if they are purchasing in high-rise or gated communities. However, some housing societies require an advance fee that is equal to six months to a year’s worth of monthly maintenance fees as a one-time payment. Once again, this payment can be large and is usually one of the major unpredictable costs of buying a home. Even though the advance fee will be deducted against your monthly fees, it can make an immediate impact on your overall monthly costs.
Penalties for Payment Delays
It is common practice for builders to set up payment schedules in installments triggered by various construction milestones. Failing to pay according to the schedule may result in stiff penalties, contributing to unexpected expenses when purchasing a home. Failing to pay may also result in extra fees or even legal fights resulting in an added expenditure for the home purchase. In order to move forward with an addendum to the sales agreement and avoid these additional expenses, it is critical to adhere to the payment schedule outlined by your builder.
Additional Legal and Documentation Fees
In addition to processing costs, other legal and document fees can catch new buyers off guard. These will include fees for title searches, legal clearance, and document notarization. While these fees are considered part of the legal process of securing ownership of your property, many people do not consider them when planning the budget for their home. Being aware of unexpected home-buying costs can help in the planning stage of your financials.
Utility Connection and Renovation Charges
After you purchase a house, there are usually several extra costs to get it ready to live in. You will incur utility connection fees for water, electricity, gas, and internet services. If your new home needs repairs or even some renovations, those expenses will add to your surprise costs associated with home buying. It is wise to have contingency funds for those expenses after buying the property is to make sure it is usable from day one.
Budgeting for the Unexpected
To manage these unexpected home buying costs effectively, create a comprehensive budget that includes all potential expenses. Here are a few tips:
- Do Your Research: Speak with financial advisors and real estate experts to understand the full scope of the costs involved.
- Maintain a Contingency Fund: Set aside 5-10% of your budget to cover unforeseen expenses.
- Review Your Loan Terms: Ensure you know all fees associated with your home loan and negotiate where possible.
- Stay Organized: Keep all documentation and receipts to track your expenses. This will make it easier to manage your finances after the purchase.
Conclusion
Though buying your first house is an exciting achievement, if you don't plan for the unexpected costs of home buying, you will not have a stress-free experience. While loan processing fees and maintenance advances certainly aren't unexpected costs in buying an average home, they are still part of a lot of hidden costs, which is an important piece of the financial puzzle. With a little forethought and planning to address these unforeseen costs, you will be better informed and equipped to enjoy your home without unnecessary financial surprises.
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Ans 1. Unexpected home buying costs refer to additional expenses that may not be immediately apparent during the initial budgeting of a home purchase. These include fees such as home loan processing charges, MOD fees, upfront maintenance advances, legal and documentation fees, utility connection costs, and even penalties for delayed payments.
Ans 2. Most banks charge around 0.25% of the loan amount as a processing fee. Additionally, there can be an extra charge of 0.1% to 0.5% for the MOD (Memorandum of Deposit) document. It’s important to check with your lender for precise details.
Ans 3. Upfront maintenance charges are often required by developers or housing societies in high-rise or gated communities. Buyers may need to pay a lump sum equivalent to several months or even a year's maintenance fee before possession, which can significantly impact your initial budget.
Ans 4. Yes, if you miss a payment milestone under a construction-linked payment plan, builders may levy penalties as outlined in your agreement. These penalties can add substantially to your overall home buying costs.
Ans 5. Absolutely. Besides the processing fees, buyers often face additional legal and documentation charges for title verification, notarization, and obtaining necessary legal clearances, which are part of the unexpected home buying costs.
Ans 6. After buying a home, you may encounter costs such as utility connection fees (for water, electricity, gas, and internet) and potential renovation or repair expenses to get the property ready for occupancy.
Ans 7. It’s wise to maintain a contingency fund—typically 5-10% of your overall home budget—to cover unforeseen expenses. Additionally, thorough research, consulting with financial advisors, and reviewing all loan terms can help ensure that you are well-prepared for any extra costs.
Ans 8. To avoid surprises, conduct thorough research and prepare a detailed budget that includes all potential expenses. Consult with real estate experts, compare lender fees, and carefully review all contract details. Setting aside a contingency fund for unforeseen costs is also a smart strategy.