ANALYSIS BY HOUSE-BUYER-TIPS.BLOGSPOT.COM-WHETHER TO GO FOR REVERSE MORTGAE OR NOT IN INDIA

Before going for reverse mortgage consider following factors in India:

1.You are paid only for 15 years and its not life long.

2.Rate of interst being charged is approx 12%.

3.Property is revalued every 3 years and if property prices have gone down, you may not get any money for remaining years as you may have been overpaid post evaluation of property.

4.Be ready to maintain property otherwise it will be depreciated.

5.66% of reverse mortgage goes toward payment of interest and what you receive is 33%.

6.Amount of annuity depends on your age and value of property.

Note:Let better guidelines come and only then jump into agreement and do read the fineprint.

ASSISTING BUYER TO BUY YOUR HOUSE IN HIGH INFLATION ENVIRONMENT

In a declining market, it is not easy to sell your home with a fair price.

1.The buyers have limited resources as credit tightening has created the lack of liquidity that was fueling the real estate prices.

2.You need to work with the buyers directly.

3.Do not pay a broker to sell your house. In this market a broker is really worthless. If you have to list your home, make sure you can get out of listing any time.

4.Use the Internet as much as possible and tap the relocation market. Deal with buyers directly.

5.Take a home equity loan and provide the cash to the buyer to pay for their closing costs and down payment.

6.You could even work with your bank to provide the buyer a flex mortgage.

7.Use Internet escrow services to deal with the buyers.

8.Work with buyers to get your home inspected.

9.Remember, there are plenty of buyers who want your home but they just cannot afford the same. You must work towards making it affordable for them. Let us assume that you want to sell your home for 10 LAKH. If you pay 2% to a broker, your real selling price is 20,000/- less other closing costs. If possible you should take a home equity loan or other loan (if liquid cash is not available) and offer that 20,000/- to the buyer to help they buy your house.

10.The 20,000/- can be used as a cash incentive for the buyer so that they do not have come forward with closing costs. Put that up on your signs. You can also work with your bank to make sure the buyer can get a decent mortgage. The 20,000/- you saved by getting rid of the broker can be used to pay for the down payment, points, and other closing costs for the buyer.

11.Communicating directly with the buyer with these kinds of incentives is proving far more effective than using a broker in the current market place.

HIGHEST PROPERTY PRICES:ANALYSIS BY HOUSE-BUYER-TIPS.BLOGSPOT.COM

1.The highest property prices are being seen in London followed by Morocco.

2.In India the property rices have peaked and are likely to see a drop in prices as Reserve bank of India has tightened the liquidity and thus home loan rates have gone up.As a result only genuine buyers are buying the property and speculation has reduced.

RENTAL VALUES HAVE PEAKED IN INDIA:ANALYSIS BY HOUSE-BUYER-TIPS.BLOGSPOT.COM

1.The rental values have topped in India and rates are likely to drop in near future.

2.Gurgaon is seeing a peak rental value of 80 Rs per square feet but the rentals are likely to be dropped to 50-55 Rs in 12 months time frame.

ANALYSIS WHETHER TO BUY A HOUSE OR STAY IN A RENTED HOUSE

We all need a house to live in. However, the choice that needs to be made is whether one should stay in a rented house or buy it instead. In the present scenario, the cost of living in a metropolitan city is rather high. Also, the property prices and home loan rates are moving up sharply.

Given that both buying a house and renting it have their unique set of costs attached, one must evaluate both the options closely and then make an informed choice.

If an individual stays in a rented house, he could be paying a substantial amount as rent, depending on the location and the area of the property.

On the other hand, if he buys a house by taking a loan from a housing finance company (HFC), at the end of the stipulated period, he may find that the total repayments on the loan far exceed the actual value of the house. In this article, we conduct an evaluation to help you determine whether it's better to buy or rent a house.

Let's consider an individual (say Kumar) who lives in a metropolitan city (say Mumbai) and earns Rs 45,000 per month (pm) as salary. In terms of housing, he has two options; either live in a rented premise or take a home loan and buy a property for himself.

The assumptions for the purpose of this discussion:

1. Kumar gets a 5% increment on his salary every year and he falls in the highest tax bracket i.e. 30.9 % (including education cess);

2. There is no change in the tax laws during the period considered, i.e. 20 years.

Option 1: Live in a rented house

Tenure of residency	Yrs	20
Rent per month	Rs	13,500
Annual rent	Rs	162,000
Initial deposit	Rs	100,000
Increase in rent (pa)	%	5
Result:
Total expenditure on rent (over 20 years) [A]	Rs	5,356,685
Tax benefit on house rent (over 20 years) [B]	Rs	1,103,477
Loss of interest on account of deposit (over 20 years) [C]	Rs	366,096
Total expenditure on rent after accounting for tax benefits (A-B+C)	Rs	4,619,303

In the first option, Kumar stays in a rented house for 20 years and pays Rs 13,500 pm or Rs 162,000 per annum (pa) as rent. Besides the rent, he pays an initial deposit of Rs 100,000. The house rent increases by 5% pa.

Thus, over the 20-year period, Kumar will pay Rs 5,356,685 as rent (for the initiated, this is the future value of all the rent installments). However, as per Section 10(13A) of the Income Tax Act, an individual can claim tax benefits on the house rent allowance that he receives. Therefore, we estimate that Kumar gets a tax benefit of Rs 1,103,477 on his house rent over the 20-year period.

As mentioned earlier, Kumar pays an initial deposit of Rs 100,000 (refundable once he vacates the house). We have assumed that if this amount were to be invested in an investment avenue fetching 8% return pa, then, at the end of 20 years he would have earned Rs 366,096 on his investment.

Since the Rs 100,000 is inaccessible for 20 years (as a deposit); Rs 366,096, which he could have earned by investing the deposit amount, is an opportunity loss.

Taking into consideration all these aspects, i.e. his expenditure on house rent, the opportunity loss and the tax benefit he would receive, the net expenditure for renting the house would amount to Rs 4,619,303.

Option 2: Take a home loan to buy a house

Cost of the house	Rs	2,500,000
Loan amount	Rs	2,000,000
Tenure of loan	Yrs	20
Rate of interest	%	12
EMI	Rs	22,022
Initial payment:
(a) Personal contribution (20% of property cost)	Rs	500,000
(b) Stamp duty (8% of property cost)	Rs	200,000
(c) Registration (1% of property cost)	Rs	25,000
Total initial payment (a+b+c)		725,000
Result:
EMI outgo (over 20 years) and initial payment [A]	Rs	6,010,280
Tax benefits received from EMI (over 20 Yrs) [B]	Rs	1,235,173
Loss of interest on account of initial payment (over 20 years) [C]	Rs	2,654,193
Total expenditure after adjusting for tax benefits (A-B+C)	Rs	7,429,300

Suppose Kumar decides to take a home loan and buy a house. The cost of the house is Rs 2,500,000. He takes a home loan of Rs 2,000,000 from an HFC for a tenure of 20 years at 12% rate of interest.

The balance amount will be paid as initial payment (HFCs finance around 80% of the total cost). Therefore, the total sum required as initial payment for the property is Rs 725,000 including stamp duty (8%) and registration charge (1%).

Based on the loan amount and the interest rate, his EMI (equated monthly installment) is Rs 22,022 pm. Thus, Kumar will repay Rs 6,010,280 (including initial payment) towards the home loan.

However, he can also claim tax benefits under Section 80C and Section 24 of the Income Tax Act on the home loan repayments (towards interest and principal). With this, we estimate he can claim a tax benefit of Rs 1,235,173 on the home loan.

If Kumar had chosen to live in a rented premise and not buy a property, he would not have made the initial payment of Rs 725,000.

Furthermore, he could have invested the same in an investment avenue offering 8% pa. At the end of 20 years, he would have earned Rs 2,654,193 on his investment. Effectively, this amount is an opportunity loss for Kumar.

After taking into consideration all the aspects such as total home loan repayments, tax benefits and the opportunity loss, the net expenditure on buying a house would amount to Rs 7,429,300.

On comparing the two options, one would find that over the 20-year period, the option to live in a rented house (total expenditure Rs 4,619,303) turns out to be much cheaper than buying a house on loan (total expenditure Rs 7,429,300). However, this cannot be taken as conclusive since there are other essential factors that also need to be addressed.

1. Although the option of staying on rent seems cheaper, individuals should appreciate that by buying a house they are creating an important asset for themselves.

2. While staying on rent would be a pure expenditure, buying a house should be regarded as an investment, as an asset is created for the home buyer. The asset's value is likely to increase over the course of time (a vital factor that we have not considered).

3. In our illustration, we have made some assumptions. Now, if any of these assumptions related to the interest rates, rent payable or tax laws were to change, they will have a significant bearing on the end result.

For example, if the home loan interest rate was 8%, then the net expenditure on buying the house (after adjusting for tax benefits) would be Rs 6,277,025 (as compared to Rs 7,429,300 in the current example).

Similarly, if the rent of the house were Rs 20,000 (instead of Rs 13,500; this is possible if the demand for rental properties were to increase significantly), then, the net expenditure on rent would rise to Rs 6,922,578. This clearly proves that a change in the assumptions can radically alter the end result. For instance, under the revised assumptions, buying a house would be more economical vis-�-vis staying on rent.

It should be understood that whether an individual buys a house or stays on rent is on one level largely a personal choice. There are factors, financial as well as non-financial (individual needs and aspirations), which need to be considered while determining the feasibility of options.

At this blog, we maintain that every individual must own property (for residential purpose), as the same has a vital role to play from an asset allocation perspective.

To that end, buying a property should be taken up on priority, and discretion can be used in terms of the location and size of the property.

courtesy reference.com

TIPS FOR HOME BUYERS

1. Buying a home is perceived as one of the most complicated transactions a person can make. That is why Countrywide Home Loans, is offering six home buying secrets that most first time buyers don't know. These helpful home buying tips may reduce confusion about mortgage payments and the cost of buying a house.Countrywide Home Loans understands that home buying can be a difficult and confusing process, from deciding whether homeownership is right for you to finally making the move into your new home. As a result, many people are hesitant to ever start the process, despite their desire to own a home. So, the company also offers personalized, no obligation, free home loan consultation.
2. "Consumers are becoming more educated and prepared when making major purchases," said Dan Hanson, managing director, Countrywide Home Loans. "However, buying a home is still an area that is confusing and intimidating to most people. Prospective buyers should take advantage of the wealth of information and programs out there and be aware of some common misperceptions that could deter them from becoming a homeowner."Here are six home buying tips and facts that can help you decide to buy a house, negotiate your home purchase and determine which home loan is best for your personal situation:1. Your mortgage payments might be the same or less than rent payments - The (principal and interest) monthly payment on a $200,000, 30-year, fixed rate mortgage with an interest rate of six percent (6.25%) is $1,231 -- less than what some people pay for rent (taxes, insurance and any other fees, including closing costs, are extra).
3. Buyers don't have to put 20 percent down to buy a home anymore - Many low down payment loans are available. For instance, three and five percent down payments are common, and can help buyers purchase a home without a hefty down payment. This all adds up to less money out-of-pocket to buy a home.3. Buyers may ask sellers to pay for closing costs - As part of the negotiating process when buying a house, the buyer may ask the seller to pay for a percentage of the non-recurring closing costs, sometimes saving thousands of dollars for the buyer.
4. Buyers can receive gifts or grants from relatives or nonprofit organizations - Many loan programs will allow a portion of the down payment to come from a relative. Buyers can also investigate down payment assistance programs and grants available through various nonprofit organizations and employers, as well as from many federal, state, and local governments. Many of these programs are designed for low-, moderate- and middle-income borrowers.
5. You should always get preapproved before you begin house hunting - Buyers should get a written preapproval from a reputable mortgage lender before they start shopping for a home. Preapproved buyers will not only know in advance how much home they can afford, but their preapproved status gives them clout with sellers and real estate agents when the time comes to negotiate a sale price. Lastly, preapproval speeds up the loan process after a purchase contract is signed and can help avoid last minute heartbreaks after a home is found.
6. You can protect your interest rate while you shop for your home - Some lenders, like Countrywide, offer home buyers the ability to lock in a rate, at no cost, before they select a home.