If you are living in a rented home, you are probably thinking of buying your own place. What with easy home loans and tax sops on them. If you compare home loans EMI (equated monthly instalment) to monthly rental you would hardly find any difference in the amounts.
In that case, if you have enough savings wouldn't it be better to be a homeowner than be a tenant? No, that is not enough. There are many more factors that will tell you if you are ready to buy your first home.
Here are few things, which will tell you if you are ready to be a homeowner:
Do you have a reliable and continuous source of income?
"An individual should have some accumulated savings and also steady cash flow from which he can pay a regular EMI for a particular term," says Jubin Vora, Certified Financial Planner, Sykes & Ray Equities India Ltd.
To start with, you have to be sure that you have a reliable source of income for 20 years from now. Buying a home requires a long term commitment and basically two factors can tell you if you are ready to buy a home or not.
Says home loan expert Harsh Roongta, "Firstly, a reliable income stream for the near future and secondly, it needs stability. You should be sure of staying in the same city for another five to seven years." Also, you cannot think of leaving your job or stay jobless for a long time. Your steady healthy cash flow will tell you if you are ready to buy a home or no.
Do you have enough savings to pay as down payment?
Buying a home has a host of factors to be considered. To get your foot in the door, you will need a down payment worth 20 per cent of the home price. While purchasing a home, you not only have to use a bulk of your savings, but also spend most of your working years in loan repayment.
"You should have at least 15-25 per cent of the value of the house to pay as down payment and also 10-15 per cent more as moving in cost," says Roongta.
Typically, when you think of buying a house, the values of the house should not be more than four to six times more than your combined annual income. "For example, if your annual income is Rs 300,000 then the cost of your house should not be more than Rs 12-18 lakh (Rs 1.2-1.8 million).
Therefore, to start with, you have to ensure that you have a sizeable down payment. However, down payment is only the beginning, don't forget to factor in property taxes, initial repairs, moving expenses and decorating costs.
After having decided the different parameters of buying a home, one needs to find what is the cost that is attached in buying the home. The acquisition cost should also include cost such as closing costs like stamp duty and legal fees, brokerage fees, insurance and property taxes besides operating and maintaining expenses.
"One should have a minimum savings of 15-20 per cent of the cost to be eligible to buy a home. It is always feasible to have around 25-30 per cent as savings on a safer side," says Vora.
Is the equated monthly installment within your reach?
With easy availability of loans, you have successfully been able to buy a house but that's not about it. Do not forget about the EMI, which you need to shell out every month to pay back your loan.
"In general, a very basic formula should be used. You should keep aside one-third or a maximum of 40 per cent of your salary for EMI. Again this varies from individual to individual on the income to expense ratio," says Vora. It depends on how much an individual is able to save after he deducts his basic expenses from his income.
Therefore, only if you think you will be able to save 30-40 per cent of your salary at the end of the month inclusive of your expenses, you are ready to buy a home.
Are you ready to spend on home furnishing and maintenance?
Additional expenses like furniture; maintenance cost etc are also to be considered. The cost for furniture depends on the taste of individual, as there are people who would be spending the same amount of money they spent to acquire the home.
"But to put it down in numbers, one needs to have around Rs. 1200-1300 per square feet, to get a home done completely, which includes flooring, painting, bathroom fittings and so on. If one has to spend only on the furniture front then it would cost something around Rs 400-500 per square feet," informs Vora. As there are different societies offering different amenities the cost of maintenance also varies in that proportion.
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