From ET Realty
Buying a house is a big decision and you need to be financially and emotionally ready before you take the plunge. Here are some key things that will help you determine if you are ready to buy a house.
Down payment and Savings – In case you are buying a house without any loan, the foremost and perhaps the only thing one should determine is if you have enough savings to buy the house you want. If you are taking a loan, banks and financial institutions do not provide the entire amount of loan. It ranges from bank to bank, but in no cases does the loan exceed 90 % of the value of the house. In this case you will need about 10 % of the value of the house as savings to make a down payment.
Financial health in order – The foremost criteria to fulfill to even think of buying a house is to have good financial health. Banks have their own criteria to measure how much loan you are eligible for, but that should not be the factor to base your decision on. You should be able to calculate and figure out what the added pressure of a loan would do to your monthly expenses.
It is important to maintain a healthy debt-to-income ratio to ensure you do not default on your loans, which in turn will affect your credit score. A debt load of around 35% is considered ideal for a person, but a home loan can push it up to about 45 -50%. This can be a problem, but if you have additional sources of income, for example your spouse, the ratio can be higher.
Are you buying to sell – A house can be purchased to either live in it or as another investment instrument. It is often said real estate is a good investment vehicle – one that gives handsome profits. If you are buying to for your personal use, a home loan in most cases will stretch to about 20 years. This means about half your working age will go in servicing the loan.
It is important for you to gauge if you can handle a loan that has such a long tenure. In case you are looking at the house merely as an investment opportunity, you would need to give it about five years to show any significant return. Have a long hard look to figure out if you can afford the investment for at least about five years and the associated risks that go with such investment.
Tax benefits – A house purchased with a loan also has certain tax benefits, which tries to lessen the burden. These exemptions are not permanent in nature and can change when the Budget is tabled, but current regulations state that when the house purchased with a home loan is occupied by you, your family or is vacant, up to Rs. 2 lakh can be claimed as deduction in the interest amount paid. Similarly principal repaid up to a limit of Rs. 1.5 lakh can be claimed as a deduction under Section 80C. There are some additional criteria that you as a borrower will have to satisfy to enjoy these deductions, but do calculate and factor these in while making a decision to buy a house.
Employment condition – If you are salaried, ensure you have a steady job when taking a loan. If the home loan is of a long tenure, ensure that you do not retire before you finish servicing your loan. It is of little use if you keep this uncertainty on your head. In all cases you should look to prepay your loan much before its tenure gets over.
Extra expenses – There are always extra costs associated with buying a house. These may include stamp duty, payment for parking, society registration charges among others. In some cases you may need to do the interiors of the house, build kitchen, storage units among others. Factors these expenses in your budgeting and ensure you do not stretch yourself too thin.
Market condition – Lastly, have a look at the market condition, especially if you are buying a house as an instrument of investment. The real estate market is fickle and is often the first to be impacted in the case of an economic downturn. Have a careful look at the prevailing real estate market conditions and also the area you want to buy a house in.