Home Buying: A Guide to Making Smart Choices

A roof over our head that we can call our own; our “Dream Home”; is the biggest milestone in our lives. Therefore, when it comes to home buying, there are always a number of concerns and questions running through our minds. Is it too early for us to invest? We loved the property, but can we really afford it? Is the price fair? What if we come across something better later? Is home loan the best alternative to go for? Most of these thoughts are not unfamiliar to us.

Making decisions in regard to home buying requires a lot of clarity. One should never be overwhelmed or emotional when it comes down to such decisions. The emotion in relation with their dream home often overclouds people’s senses thus leading to incorrect decisions. Many home-buyers bite off more than they can chew and get in a fix later.

Here are a few tips which will save you from the remorse while investing;

Prepare a Home Buying Budget

Make a proper budget, taking into account the expenses in relation with home buying. The expense should account for the EMI, in case you plan to avail a home loan as well as the ancillary costs related to the house.

The advertised price of the property often doesn’t factor in ancillary costs like car parking charges, maintenance, and gym membership charges etc.

The home buying budget will help you to figure out the amount of money that will be left every month to meet your expenses. Ensure that the property you plan to purchase will satisfy your present requirements as well as stay within the budget. In case you feel skeptical, carry out a trial run for few months. Plan your expenses according to the budget during this time. This will help you to understand if the property is actually affordable.

Calculate your Home Loan Interest

Most people get over ambitious and do not put in enough thought into this aspect. They avail huge loans which often backfire and then they struggle to make ends meet. The home loan you avail should not have an EMI which accounts greater than 50 percent of your net household income.

A home loan at 9% interest for 25 years will incur an EMI of approx. Rs 840/- per lakh.

If you go for a home loan, ensure that you have the ability to handle an unexpected turn in the interest rate cycle. Ensure that you choose a loan that fits your capability. A huge loan will stretch your finances to its utmost limit. Also, a higher EMI may mean sacrificing other monetary goals. Such a sacrifice may later leave you in remorse. 

Additional Reading: Housing Finance in Kerala

Will this investment make you financially unstable?

Indulge in home buying only at a stage where you are confident regarding your financial stability. Since owning a home is considered a sign of achievement, many people jump into this decision way too early in life. This may seriously hamper their other financial goals like savings for children’s education, retirement etc. There is a general belief that one could easily sell off a house when in difficulty. But it is not as easy as it appears. Finding an apt buyer may take up to months. Also, considering the very high expenses in regard to registration and transfer charges, one may not earn the expected amount. Hence, it is advisable to purchase a home only if you plan to live in it for at least 10 years.

Prepare ahead of time

Expect the unexpected. Factor in the worst case scenarios and plan your finances in accordance. Consider the worst case possibility of losing your job. This would mean a stop in your regular income. Ensure that you have enough money kept aside to meet your basic requirements. You should also take an insurance cover big enough to cover all the outstanding loans. Also, have an emergency fund that can take care of your expenses for at least 6 months. Do not use this fund to pay the down payment or the EMI. When you decide to indulge in home buying, ensure that you have enough investments that can be liquidated. These investments should also be quickly accessible during emergencies.

Be aware of the Rental Rates in the neighbourhood

Another aspect that concerns home buying is the rental rates in the area. Many people invest with the idea of paying the EMI with their rental income. However, the rental rates in Indian cities are quite low. The abundance of vacant houses is causing a further drop in the rental rates. Hence, it may not be wise to completely depend on this option. Before the purchase, inquire about the rental rates in the area. It is recommended to opt for highly populated areas where a drop in rental rates is highly unlikely. Also, if the delivery of the project is delayed, then the absence of rental income could pose a trouble while paying the EMI. Ensure that you purchase from builders with a good reputation to avoid delays.

Is the Resale Value Good?

Most people focus solely on the budget of the property. They fail to consider the resale value. The resale value often decides the extent to which the investment was successful. The location of the property plays an important role in deciding the resale value. It is recommended to select a place adjacent to the prime location of a city where the chances of rising in prices are high. Another important aspect in home buying is the property value in comparison with the interest on the loan. If the price of the property does not appreciate at a rate higher than the amount paid as loan, then the investment is a loss.

A home is a lifetime investment. Therefore, it is important to make well-informed decisions regarding it. Investing without enough thought could leave you in remorse for a lifetime. It could also shatter the concept of your “Dream Home”. Investing at the right time and at the right place is of great significance.

So, invest wisely and stay happy!