ARE YOU
READY TO BUY PROPERTY?
ARE YOU
READY TO BUY YOUR 1ST HOME?
Gone are the days when Property used to bought only after
getting WELL SETTLED (married and have kids)
Now…immediately post landing a job, and after the mandatory
Apple iPhone and a Bike, the youngsters are ready to swoop in on the newest
gadget (home) and show off!
Yes..its exciting when you start scouting for that DREAM
FIRST HOME but before that there are some factors that should be compulsorily
considered.
Buying a property is a SERIOUS Decision and needs SERIOUS
INTROSPECTION. Not just financial but it has turned into even an emotional
roller coaster when it comes to buying your first home.
Property typically increases in value over time and provides
SECURITY IN RETIREMENT.
Not having to pay rent when you don’t have or steady income
in indeed a blessing.
And of course, the status you get in society when you are
living not on Rent but OWN HOUSE is something different.
Isn’t it?
But have
you checked whether you truly are ready to buy property?
Are you
ready to take such a huge financial decision?
Will you
be able to digest such a big dent in your corpus?
ANSWER THE FOLLOWING QUESTIONS YOURSELD AND YOU CAN FIND
YOURSELF WHETHER YOU ARE INDEED READY TO BUY THAT PROPERTY
1. Do you have
a Steady Income?
90% of Property buyers go for EMI which means a committed
monthly expense.
If you are a salaried person, then its easier to plan for
the house but if your income is variable and volatile, you may get stuck in
financial mess when you may not be able to pay the EMI during lean periods of
income. How will you overcome that?
Even when it comes to salary, you need to answer if the job
is steady, and capable of giving you SIMILAR salary if you have to move out.
Let me reiterate that it’s not salary that makes for STEADY
income. It could be even your Dividend income, Interest Income (or even Rent
from other properties you may have)
Only thing for you to answer is WILL YOU BE ABLE TO PAY
THE MONTHLY EMI WITHOUT FAIL MONTH AFTER MONTH
2. Do you have
Emergency Fund?
Of course, once you don’t steady income, the obvious next
question would be whether you have at least the Emergency Fund.
Emergency fund ensures that you can tide over the temporary
financial crises and pay any EMI and other expenses without an issue. Medical
contingencies, job loss, salary cuts are some of the Emergencies that you MUST
be prepared for.
Ideally, 6 months of expenses is a good enough buffer to
have as an Emergency Fund. This Emergency Fund acts like a SHOCK ABSORBER and
you can easily sail through the tough periods. It is
not that you should keep 4-6 months of your Monthly Expenses in Contingency
Fund at one go. Go about it slowly. Start with 15 days of expenses, then 1
month and gradually scale up.
3. Is your Debt
manageable?
If you have any existing Loans and committed interest outgo,
you need to check whether you can manage the additional EMIs that may come up.
It is inevitable that once the new Home EMI starts hitting you, the spending
will invariably see a reduction but it should not result in NEED based spending
cut.
Debt is pleasure today and pain tomorrow.
Be honest about what you can afford
If you spend too much on a high EMI, it could hurt your day
to day expenses (especially in terms of cash crunch)
Needs are a must.
4. Do you have
a Lumpsum Corpus?
Prudent Financial Plan says that you should pay at least 50%
of the Total Property as Lumpsum from your side
The value of the property you are buying should NOT be more
than 3 times of your Annual Income.
Suppose your annual income is 50 lakhs, the value of
property you are considering to purchase should NOT cross Rs.1.5 crores.
You cannot take a Rs.80 lakh loan for a Rs.1 crore
property.
You should not even if the Loan Provider is ready to give
you.
The Higher Lumpsum from your side, lower will be the EMI.
Hence make sure you have sufficient Lumpsum for that Property
Home Loan EMI should not 30% of your take home pay.
5. Ready to
take care of your own maintenance?
When you are living in a rented home, the maintenance is
taken care by the landlord or the Association. But when it come to your own
property, you need to get your hands dirty be it fixing the Geyser, the
Electric Switch, the Leaking Tap.
And actually, there is nothing wrong in it, right?
So, either you should be mentally ready to do all this
(dirty) things or PAY someone to do this for you.
6.Have you answered the question whether it is Cheaper
to Rent than Buy?
Yes....sometimes
it may well be cheaper to stay in Rent than buy a house depending on the
Housing Market situation.
A house is an expensive investment.
Make sure that you have factored the cost of Interest
Payments, maintenance of the property, the Taxes to be paid
Suppose the house you plan to purchase is Rs.1 crore and the
annual rent you are paying is, say about Rs.3 lakhs…then the rent ratio works out
to 33 which is very expensive.
Any Rent Ratio which is above 20% means, you are better off
owning a house rather than paying rent.
BEFORE CLOSING…KNOW THIS….
Besides the above, things which are ignored by most buyers
are small small things but which can add up to tidy sums
a) The closing costs
The registration of property, the brokerage, lawyer fees, the license fees to
electricity board, Water board, Home Insurance, etc all these add up to quite a sum.
Also, you need to understand that the property you purchase will be BARE
without any furnishings and you need to provide for the same.
And of course, the Interiors cost depends on the taste you have and the cost
could well end up for 10% to 15% of the property cost.
b) Moving Expenses
Moving from your existing home to new home costs not just
the 1 time shifting transporting of stuff but also the factor of your distance
to office from the new house and also the distance for your kids to
school/college
c) RESALE VALUE:
Not exactly a point which many consider but cannot be ignore at all is the
RESALE VALUE.
Yes...you are indeed buying your first home to stay FOREVER
but you never know...future is unpredictable.
Your job may change, your kids may move out....
and I am not just talking about moving to different city
altogether but even within the city, you may be forced to relocate.
Thus, the resale value is an important factor
d) Even as you accumulate the HUGE corpus required for
purchasing your first home, consider REITs. Owning a
Real Estate is a challange both financially and legal hassles, REITS is an easy
simplified asset class to own the same without owning it Physically.
c) Your
future family size
must be definitely considered before purchasing.
You may have kids in future or maybe your parents may join
you. Consider all these things before zeroing on an property
And, before saying YES to going ahead with your purchase of
your FIRST HOME, make sure your credit history is in good shape. Build up the
score beforehand.
The Interest could go up or down steeply depending on your
credit score. Make sure you have a good CIBIL score.
Your Cibil score is a measure of how trustworthy you are and
hence higher the score, the better it is.
Remember unlike earlier days, your first property could well
be your LAST property in life.
So, make sure that you are zeroing in on the right property
in all aspects
Cost is only 1 factor.
Your need to look at the distance to work, the neighbours,
the facilities nearby, etc
And without missing, also read our article on MAKING YOUR HOME
LOAN INTEREST FREE!
https://srikavimoney.blogspot.com/2021/04/make-your-home-loan-interest-free-heres.html
Finally, You don’t have to buy a house just for society
sake. There is no rule that ONE MUST HAVE OWN HOUSE.
Buy only if YOU WANT to not because the society is asking
you questions.
Ultimately what matters is WHETHER YOU ARE COMFORTABLE in
where you are
Buying a property should result in satisfaction and not
Tension!
Enjoy the experience of getting your First Home and all the
very Best.
Wish you all the very best
Srikanth Matrubai
Author - DONT RETIRE RICH
All the best,
Regards,
Srikanth Matrubai
https://t.me/joinchat/AAAAAELl4KUnaJzi-JJlDg/
excellent write up and clear explation , can be well planned before buying home..
ReplyDeleteThank you very much Sujay
DeleteTruly appreciate
Very simple & practicle advice. Anyone who is planning to buy home should read this article first.
ReplyDelete