Closing costs are the extra costs that buyers and sellers have to pay on top of the price of the property to finish the deal.
Some of these costs are discount points, appraisal fees, taxes, credit report charges, title searches, title insurance, surveys, and fees for filing deeds.
Lenders are required by law to give buyers a closing disclosure three business days before the settlement or close date.
Breakdown of Closing Costs in India:
| Closing Cost | Description | Typical Range |
| Stamp Duty | A state-imposed tax on the property transaction, serving as legal proof of ownership. Rates vary by state and property location. | 4% – 8% of property value |
| Registration Fees | Fees paid to the local sub-registrar’s office to officially record the property transaction. | 1% of property value |
| Legal Fees | Fees for legal services such as due diligence, document verification, and compliance with legal requirements. | INR 10,000 – INR 50,000+ |
| Title Insurance | Insurance to protect buyers and lenders from financial losses due to defects in the property title. | 0.5% – 1% of property value |
| Home Loan Processing Fees | Fees charged by lenders to cover the administrative costs of processing the loan application. | 0.5% – 1% of loan amount |
| Property Valuation Fees | Fees for independent property valuation required by banks before loan approval. | INR 5,000 – INR 15,000 |
| Maintenance Charges | Upfront charges required by developers or housing societies for the upkeep of common areas and amenities. | Varies (typically for 1-3 years) |
| Goods and Services Tax (GST) | Tax on the purchase price of under-construction properties. GST does not apply to ready-to-move-in properties with a completion certificate. | 5% (affordable housing); 12% (other) |
| Miscellaneous Charges | Various additional fees such as notary fees, franking charges, and society transfer charges for resale properties. | Varies |
How can one reduce closing costs?
Closing costs may influence your entire property purchase budget when you are looking for flats for sale. But there are strategies to minimize these expenses. Here is a comprehensive overview of some smart strategies for cutting closing expenses:
Negotiate with the Seller:
Negotiating with the vendor is one of the most effective methods for reducing closing costs. This tactic works particularly well in a buyer’s market, where demand for properties is lower, giving you more leverage.
Seller Concessions: Sellers might be open to covering some closing costs, such as lawyer fees, stamp tax, or registration fees, as part of the deal. This is also referred to as a seller license. If the seller is eager to close the deal quickly, they might be willing to cover the registration fee. This might help you save quite a bit of money. It’s great to discuss these options right away during our conversations. This method not only lowers your out-of-pocket costs, but it can also help you make the buy more affordable if you are about to go over your budget.
Market Timing: When there are more homes for sale than buyers, it’s easier to agree. In these cases, sellers are often more ready to give in to their demands to make a deal. Find out when the best time is to buy by researching the local market. This can help you get a better deal.
Incentives to close quickly: The buyers are willing to cover a portion of the closing fees to support the expansion of the company. If the seller has to use the proceeds from the sale to fund another investment, they may be willing to pay a few fees to speed up the transaction.
Select a loan with lower processing fees:
Home loan processing fees can differ a lot from one bank or financial institution to another. Checking out different loan terms can help you save a good chunk on closing costs.
Bundling Services: Some banks offer great packages that bundle everything you need for a home loan, including property insurance, all for one low price. If you get a home loan and home insurance from the same bank, they might give you a better deal overall! When you need these services, bundling them can help you save some cash. Be sure to check with lenders about any bundle deals or special savings that might be available.
Promotional Offers: Financial institutions often have sales around holidays or the end of the fiscal year. During these times, they may waive handling fees or offer lower rates. If you take advantage of these deals, your closing costs will go down by a lot. Banks can offer no handling fees or lower interest rates during holidays like Diwali or the end of the financial year.
Compare Several Lenders: Don’t take the first loan deal that comes your way. Compare websites and talk to a few different lenders to find the one with the best rates and the lowest processing fees. Remember that even a small difference in fees can save you a lot of money throughout your loan.
Engage in negotiations with lenders: If you are a long-standing customer of a specific bank or have a strong credit score, you may have the ability to negotiate reduced processing fees. Additionally, banks may provide discounts to their most valued clients or during promotional periods. Before agreeing to the terms, always ask if there’s room for negotiation.
Make use of government subsidies and programs:
The Indian government offers several programs and subsidies meant especially to inspire first-time homeowners to settle here. Using these programs will help you significantly cut your closing costs.
Pradhan Mantri Awas Yojana (PMAY): The PMAY initiative offers eligible homebuyers the opportunity to receive an interest subsidy on their home loan, thereby reducing the overall cost of purchasing a home. Beneficiaries in the Economically Weaker Sections (EWS) and Lower Income Group (LIG) categories may obtain a subsidy of up to 6.5% on their home loan interest rates. This subsidy may decrease your EMI, thus allowing for the allocation of funds to address supplementary closing costs.
Advantages of Affordable Housing: Affordable housing segment properties could be eligible for lower GST and reduced stamp duty rates, therefore helping to further lessen closing expenses. Properties under INR 45 lakhs, for example, are sometimes regarded as reasonably priced and could get reduced stamp duty and GST rates.
State-Specific Schemes: For first-time buyers or women, some states provide extra advantages including lowered stamp duty. States like Maharashtra, for example, grant a 1% discount in stamp duty for female purchasers, therefore drastically lowering the closing costs altogether.
Tax Deductions: Some closing costs, including stamp duty and registration fees, are tax-deductible under Section 80C up to INR 1.5 lakhs. Take these deductions to dramatically reduce your net closing costs and taxes.
Make plans for seasons off-peak:
The time of year will affect property values and related expenses. Purchasing during less peak seasons may enhance your ability to negotiate and secure more favorable deals.
Monsoon Months: Many purchasers wait until the weather improves during the rainy season, thus real estate business slows. The pause may drive sellers to negotiate closing costs and prices to close a purchase. You may negotiate a price decrease or have the seller pay the closing charges.
Festive Season Deals: During Diwali, Navratri, and Gudi Padwa, banks and real estate companies run discounts. Holiday offers, stamp duty, processing costs, and house prices could all drop. Buying at one of these periods could help you save a lot of money.
Sales at the End of the Year: As the fiscal year wraps up, developers frequently provide great deals to clear out their stock and achieve their sales targets. It could be a great opportunity to discuss improving the terms, such as reducing the closing costs.
Research on the Market: When is the conducive time to buy in the area you want? Do a full market study to find out. If you know how things change with the seasons, you can plan to buy when fewer people are looking to buy, which will give you a better chance of getting better terms.
Take a look at ready-to-move-in homes:
The Goods and Services Tax (GST) only applies to homes that are still being built, so if you buy a home that’s already set up, you won’t have to pay that tax. Saving a lot of money this way could be possible, especially for houses that cost a lot.
GST Exemption: Ready-to-move-in homes are exempt from GST payment. This means you could save up to 12% of the value of the house when compared to still-under-construction properties. Purchasing a house already built instead of one under construction might save INR 12 lakhs on a house valued at INR 1 crore.
Buying a ready-to-move-in property: Buying a ready-to-move-in property lets you start right away, so saving the need to pay rent for temporary accommodation while the building is under process. This not only reduces your overall expenses but also helps you to quickly start realizing the benefits of your new residence.
No Construction Delays: A ready-to-move-in property eliminates the possibility of building delays, which may run for months or even years. This assurance might be helpful, particularly if your move-in date is set based on rental revenue or another need.
No Additional Holding Costs: The property is ready for use, hence you also avoid paying pre-EMI interest or maintenance expenses that would develop during the building phase of an under-construction property.
It is important to look at the Total Cost of Ownership:
As you negotiate, it’s important to keep in mind the total cost of ownership. This includes the price of the home, the closing costs, and any repairs, maintenance, or changes that might need to be done in the future. In the long run, costs that seem low at first may add up to more.
Hidden Costs: Keep an eye out for hidden fees. Maintenance expenses could add up over time. It can be the costs to improve, costs to relocate to a different neighborhood, or urgent repairs. Do some research on a property before you buy it. Find out about any fixes that have been done, any fees that are coming up, and the general condition of the building. This way, you won’t be surprised later.
Long-Term Maintenance: If the home is in a gated or housing society neighborhood, find out how much the maintenance fees are and what they cover. When maintenance costs start modest but rise drastically after a few years, consider how this may influence your budget.
Property age and status: An older property may cost less to buy, but it may cost more to maintain owing to frequent repairs. The price may depend on the house’s age, condition, and repairs (painting, electricity, plumbing).
Difference between initial and ongoing costs: Investing more now may save you money on upkeep and repairs later. Update appliances to make your home more energy-efficient. Even while repairs and bills cost extra, they may save you money.
Resale Value: The total cost of ownership should include property selling value. A house in a great area or with modern features may have a higher selling value, which means it is a better investment even if it costs a little more upfront.
How Closing Costs Affect People Who Buy Homes:
Buyers of homes can lose a lot of money because of closing costs. If you don’t include these costs in your budget, you might have trouble paying your bills or even not be able to finish the transaction.
Making a budget for closing costs:
- It is important to plan for the costs of ending from the start. As a general rule, closing costs will cost you between 7% and 10% of the home’s value. For instance, if you want to buy a house that costs INR 1 crore, you should set aside INR 7 lakhs to INR 10 lakhs for closing costs.
- Contingency Planning: Always have a fund set aside in case some costs come up during the deal that you didn’t expect.
Loan-to-Value Ratio (LTV):
- An LTV ratio compares the loan amount to the property’s value. A greater LTV ratio means borrowing more of the property’s value, which might affect closing expenses. If your LTV ratio is high, lenders may charge greater upfront costs or interest rates.
- Down Payment Impact: A greater down payment can lower your LTV ratio, cutting your interest rate and loan costs, but you’ll spend more upfront, including closing charges.
Effect on Loan Eligibility:
- Closing costs could compromise your loan eligibility. When calculating your debt-to-income (DTI) ratio, lenders often factor in these costs. Should your DTI ratio be high, it could restrict your capacity to get a loan or produce less favorable loan terms.
- Pre-Approval Considerations: When seeking pre-approval for a house loan, make sure that the lender includes closing charges so that you are not surprised later.
Potential Impact on Investment Property:
- For investors, closing expenses can have a considerable impact on their return on investment (ROI). High closing costs diminish the net income earned by the property, making it a potentially less appealing investment.
- Tax Considerations: Some closing costs can be deducted when calculating capital gains tax, while others cannot. It is critical to understand which expenses might be deducted to reduce your tax liability.
A Few Pointers for First-Time Homebuyers on Closing Costs:
Many first-time homebuyers are unfamiliar with closing costs, making them difficult to navigate. These methods will help you control these costs:
1. Start saving early
Automated Savings Plan:
Consider creating an automated savings plan in which a defined amount is deposited to a designated account each month. This strategy ensures that you continuously save money without having to remember to set away dollars manually. Over time, this technique can build a substantial sum, which might be critical when it comes time to meet your closing costs. For example, if your objective is to save INR 5 lakhs over two years, an automated transfer of INR 20,833 every month can help you get there easily.
Set realistic goals:
Set realistic goals by calculating the required savings based on the estimated property cost. Divide this sum into monthly or weekly goals, and change your spending habits accordingly. Prioritize saving over frivolous spending to ensure you have enough money when needed.
2. Seek Professional Guidance
Working with a real estate consultant, lawyer, or financial advisor: can help you negotiate the complications of closing expenses. These professionals can assist you in identifying areas for cost savings and avoiding unneeded spending.
Due Diligence: Make sure that your lawyer does thorough due diligence, which includes checking the property’s title, seeing if there are any legal encumbrances, and making sure that all the necessary rights have been obtained. If you do your research, you can avoid hidden debts like unpaid property taxes or unresolved legal issues that could make your closing costs go up.
Help towards Negotiations: A real estate expert can help you work out the details of the deal, such as whether the seller will pay some of the closing costs. They can also help you learn how the market works so you don’t pay too much for services or fees.
Planning your finances: A financial planner can help you make a detailed budget that includes all of your expected costs, such as closing costs, and can also give you advice on how to best handle your money. They might also help you look into financing choices that lower the amount of money you have to pay out of pocket.
3. Leverage Online Tools
Closing Cost Calculators: There are lots of websites with closing cost calculators where you can enter info about the property, like where it is, how much it’s worth, and the loan amount to get an idea of the total closing costs.
These calculators typically break down the costs into things like stamp duty, registration fees, and legal fees. They give you a full estimate that you can use to figure out your budget.
Check out comparison sites: to see what processing fees, interest rates, and other costs different lenders have. Check out a bunch of lenders to find the one that’s easiest on your wallet. You could save a bunch of money on closing costs with this. Some sites let you check out prices for extra stuff like title insurance and property value, which can help you save some cash overall.
Budgeting Tools: There are some cool online tools out there that can help you set aside cash for various expenses, like closing costs. These tools help you keep an eye on your spending and savings, plus they’ll give you a heads-up if you’re falling short on your savings goals.
4. Consider Government Schemes
Many government and state programs, such as the Pradhan Mantri Awas Yojana (PMAY), offer funds or tax breaks to people who buy a home. These can help you save money.
Check your Eligibility Criteria: before you sign up for a plan, make sure you meet the requirements. Let’s look at the PMAY award. It’s only given to people whose family makes less than a certain amount of money and can buy their first house. Knowing these things will help you check to see if you can get the benefits.
Subsidy Application: If you are qualified, fill out the subsidy application as soon as you can. Some subsidies are given out based on first-come, first-served, so asking early makes it more likely that you will get the benefit.
Tax Deductions: Under Section 80C of the Income Tax Act, you can deduct some closing costs from your taxes. These include stamp duty and filing fees. Make sure you claim these deductions when you file your taxes so that you pay less in taxes total.
5. Negotiate and compare.
Negotiate with the seller or developer to cover some of the closing costs. Comparing offers from different sellers or developers might also help you get the greatest value.
- In a buyer’s market, sellers may be more ready to provide concessions, including covering closing costs. This can involve paying for stamp duty, registration costs, and even legal fees related to the transaction. If you’re buying a home in a competitive market, use this as leverage to get better deals.
- When acquiring numerous units in a major project or group buy, ask if the developer gives discounts for bulk orders. These savings might sometimes include closing charges, cutting your overall spending.
- To help you decide, compare offers from several developers or vendors. While some may provide advantages like reduced legal expenses or free registration fees, others may have lower house prices but higher closing charges. Examining the whole cost of ownership can help you to choose the best bargain.
- Examining both the loan packages presented by several lenders and the property price is crucial while negotiating a loan package. Certain banks could offer special discounts covering some closing expenses or lowering processing fees.
6. Understand the Fine Print
It is critical to carefully review all closing cost documents. Hidden fees or charges can add up, so reading the tiny print is critical to avoiding unexpected costs.
Reviewing a selling agreement: it’s important to pay attention to the fees and charges outlined. Ensure that you thoroughly analyze this document, ideally with the assistance of a lawyer, to detect any hidden costs or confusing clauses that may result in additional fees.
Loan Agreement Details: Your lender’s loan agreement may include hidden expenses, such prepayment penalties, late payment charges, or administration fees. Understanding these words can help you prevent costly mistakes in the future.
Check for discrepancies: Final closing expenses may differ from early estimates. Double-check all documentation for errors and clarify any charges that are unclear or unexpected. It is easier to resolve these difficulties prior to signing the final form than to challenge them afterward.
Documentation:
Keep a thorough record of everything that happens during the closing process, such as receipts, agreements, and letters. This paperwork can be very helpful in the future, especially if there are any disagreements about fees or charges. Also, you need it to claim tax deductions for certain costs.
| Tip | Description | Key Actions |
| Start Saving Early | Begin saving early as closing costs can add up to 10% of the property’s value. | Automated Savings Plan: Set up automated transfers to save consistently. – Set Realistic Goals: Calculate savings targets based on property cost. |
| Seek Professional Guidance | Engage professionals like real estate consultants, lawyers, or financial advisors to help navigate closing costs. | – Due Diligence: Ensure legal due diligence to avoid hidden liabilities. |
| – Negotiation Assistance: Get help negotiating terms to reduce closing costs. | ||
| Leverage Online Tools | Use online tools to estimate closing costs and compare different lenders’ fees and charges. | – Closing Cost Calculators: Use calculators to estimate costs. |
| – Comparison Sites: Compare lenders for the best deals. | ||
| – Budgeting Tools: Track savings and expenses. | ||
| Consider Government Schemes | Explore government schemes like PMAY for subsidies or tax benefits that can reduce closing costs. | – Eligibility Checks: Confirm eligibility for schemes. |
| – Documentation Preparation: Prepare necessary documents in advance. | ||
| – Subsidy Application: Apply early to secure benefits. | ||
| Negotiate and Compare | Negotiate with sellers or developers and compare offers to find the best deal on closing costs. | – Seller Concessions: Negotiate for the seller to cover some closing costs. |
| – Bulk Buying: Seek discounts for purchasing multiple units. | ||
| – Loan Package Negotiation: Compare loan packages and terms. | ||
| Understand the Fine Print | Carefully read all documents related to closing costs to avoid hidden fees and charges. | – Review Sale Agreement: Look for hidden costs in the sale agreement. |
| – Loan Agreement Details: Understand all fees in the loan agreement. | ||
| – Check for Discrepancies: Verify all charges before signing. |
Summing Up:
In India, closing expenses are a natural aspect of the property-buying process; knowing them helps one to avoid unanticipated financial load. You can better control these expenses by prior planning, smart negotiations, and the use of government programs. Use the tools at hand to make wise judgments and always seek advice from experts to guarantee that every element of the transaction is managed properly.
You can contact our roofandfloor team to assist you in buying a new home