Buying a home is a once-in-a-lifetime experience for most buyers. And because it involves a huge financial investment in the lives of most people, it can be overwhelming.
Fortunately, the days when the only way to own a home was through a large payment upfront are behind us. Modern builders now offer a variety of payment options, catering to a variety of financial conditions and risk tolerances. Understanding these options and choosing the right one is critical to a successful and successful home purchase.
Down Payment Plan: This traditional plan requires an initial payment of 10-20% of the total property cost, followed by up to 80% of the remaining amount within a set timeframe (usually 45-60 days). The remaining 5-10% is to be paid at the time of possession.
While offering the potential for significant discounts (8-10%), hefty upfront costs can be a barrier for many buyers. Additionally, this plan exposes you to financial burden if the possession is delayed or, in extreme cases, scrapped altogether for some legal issue.
Construction planning (CLP): This approach prioritises upfront cost reduction and protects customers against project delays. Here, the payments are directly linked to construction milestones.
Typically, you pay an initial booking amount, which is typically 10-15% of the total cost, and the remaining balance is broken into instalments that correlate to the project's growth. As an example, you could be asked to pay 20% at the time of completion of each floor. Since the payment is incumbent upon delivery, CLP places the onus on the developer to deliver on schedule to maintain cash flow.
While CLPs offer minimal risk and no upfront pressure, limitations come into play. Discounts are gone, and to many buyers, the prospect of paying a higher interest rate than paying interest on the entire loan from the outset sounds more appealing.
Flexi Payment Scheme: This hybrid approach is more dynamic, combining elements of downpayment and construction-linked plans. Here, nearly 50% has to be paid ahead of the construction phase, spread out typically over 5-6 months since making the booking. The balance amount is structured based on the CLP model of payment, with instalments scheduled against project milestones.
Buying a home with a flexible payment plan creates a balance between managing upfront costs and reducing the risk of delay. Since nearly 50% is paid off initially, typically discounts (4-6%) are on offer. However, flexi plans are generally more interest-heavy from the outset itself. Additionally, if the project comes unstuck, recovery may be a challenge.
Time-Linked Plan: This plan is not what you'd generally come across, but it is not uncommon either. Here, the payments follow a time-based schedule independent of the construction status. The advantage is that time-linked plans can get you discounts going up to 10% with a fixed payment schedule from the outset.
Despite the obvious advantage that finances in a time-linked plan can be planned out and structured ahead of time, the underlying risk of payments not tied to construction progress means you will have to stick to the payment schedule even if the project hits a stall or gets delayed.
Your payment plan is either a deal maker or a breaker. And because it's anything but a one-size-fits-all, you must choose a plan accounting for your best interests. Generally, some factors to consider are:
Conversely, if you have a financial cushion and trust the developer's track record, consider the down payment plan for the discounts it can offer.
If mitigating risk is a top priority, then CLP offers the most protection.
No matter the payment plan, due RERA diligence on the developer is absolutely essential and can never be overstated.
Go Beyond the Obvious-
Buying a home in India, or anywhere else for that matter, involves high financial stakes and complex regulatory adherences. It definitely makes sense to work with experts who could align things to your advantage.
Having a trusted real estate company in India walk you through the buying journey and tailor it to your requirements is a great starting point, especially for buying an apartment in Noida, Gurugram, Pune, or other complex micro-markets.
Finally, the importance of due diligence can never be overstated. Conduct thorough research on the property, the developer, and the overall market conditions to make informed decisions and avoid potential pitfalls.
By carefully considering all options, seeking expert guidance, and conducting thorough research, you can navigate real estate payment plans and confidently embark on the path towards owning your dream home.
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