Buying a home? Consider co-ownership, check well-connected suburbs

Prepay other loans and get a co-applicant to improve loan amount eligibility

Buying a house in a state capital has become challenging, even for those in the top 5 per cent income bracket, according to a recent media report. 

Prospective homebuyers can consider the following strategies to improve affordability. 

Real estate strategies  Shift to suburbs: Peripheral locations often offer more affordable options. “Infrastructure improvements like new Metro lines and highways mean there is no compromise on future returns,” says Ravi Shankar Singh, managing director, residential services, Colliers India.

 

However, avoid areas lacking essential amenities. “Ensure that schools, hospitals, and retail (shops) are available nearby,” says Anupam Rastogi, cofounder and chief business officer, Square Yards. 

Resale, redevelopment properties: These offer access to housing in prime areas at lower costs. “Older resale flats can be more spacious and better located, though they may require renovation,” says Singh. In cities like Mumbai, redevelopment projects in central areas are becoming common. “They may offer pricing benefits in the early stage,” says Rastogi. 

Consider co-ownership: Pooling resources with siblings or friends can help in high-cost markets. “But it requires clear legal agreements and trust among co-owners to manage ownership rights, expenses, and exit strategies effectively,” says Rastogi. 

Start small: Buying a compact home now and upgrading later may be wiser than waiting. “Entering the market early allows buyers to start building equity, benefit from price appreciation, and gain a foothold before prices climb further,” adds Rastogi. 

Financial planning tips 

Fix a target based on current prices in your preferred locality and size, and assume an annual price growth of at least 7 per cent. Work backwards to determine the monthly savings required. 

If your goal is over seven years away, consider systematic investment plans in equity funds. “This will help to compound savings, and enable you to manage a large future expenditure like home purchase,” says Rohit Sarin, cofounder, Client Associates. 

Look out for deals. “Lock in favourable terms, whether property price or interest rate, whenever available,” says Santosh Joseph, chief executive officer (CEO), Germinate Investors Services. Currently, while prices are elevated, interest rates have dropped below 8 per cent per annum for prime borrowers. 

Improving loan eligibility 

Banks generally offer home loans of up to four times your annual in-hand salary. They also cap your fixed obligation to income ratio (FOIR) at 40–45 per cent. “High existing equated monthly instalments (EMIs) — say, for personal or car loans —can reduce the home loan amount you are eligible for,” says Adhil Shetty, CEO, BankBazaar.com. 

Sarin suggests staying within the 40 per cent range so that there is enough liquidity for other essential expenses and long-term goals. Joseph warns against going beyond this range, in case interest rates rise. Start by lowering your credit burden. “Pay off as many outstanding loans as you can before you apply for a home loan,” says Shetty. Cho­osing a longer tenure can lower your EMI. “However, a red­uction in EMI will raise your ove­rall interest cost, so have a pre­payment plan in place,” says Shetty.  

Adding a co-applicant can raise your FOIR and improve loan eligibility. Also, make sure your EMIs and bills are paid on time, so that you have a strong credit score. This can help secure a better interest rate. “The difference between a good and a bad credit score can be as much as 50–100 basis points in interest cost,” says Shetty. 

Several lenders offer discounted rates for women borrowers. Many states also give women concessions on stamp duty and registration charges, provided the woman is the primary owner of the property.