The most significant financial activity of our lives might be to buy a home. It also takes years of preparation planning and another 10-30 years to clear the home loan dues. The stakes cannot be raised if that humble financial contribution defines a large part of our lives (and that of our family members).
But if you assume that you will start investigating properties while deciding to purchase a house first, you could be mistaken. You might not be able to buy, or if you are, to damage another vital objective with a financial burden, for instance, if you’re sure of purchasing a 3 BHK apartment in a major metro town but have not paid much attention when figuring out if you’d be able to afford it. Instead, the first step should be to set a genuine budget for a new home intelligently matched with your financial resources and home needs.
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Indeed, when you have a budget, filtering properties that meet the other main criteria, such as the type, size, and position of the house, would be much simpler, and the time of purchase decided. By comparison, financial and emotional implications may be adverse because of lacking this supercritical factor.
So how are you expected to set a reasonable home budget? What are the important items to which you have to contribute? Here are a few indicators:
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Margin Money
If you intend to buy a home loan, you should realize that you will obtain the best loan deals if your income is secure and you have a strong credit value (typically over 750-800). The lender will fund up to 90% of your expenses with low-value loans. However, in most situations, you can only obtain funding up to 75-80 percent of your budget, particularly on high-value credits. In this case, a down payment would be paid for the remaining 10-25%. Your creditor never funds 100% of your home purchasing budget.
Additional costs include GST, licensing, stamping fees, brokerage, decoration, etc., for buying homes. These extra costs will vary from 10% to 30% of the base price of the house you purchase. Your creditor would typically cover GST but not the rest. Will you then be able to supply the margin money? Otherwise, how long will this be necessary? Even when you are ready, the property would not appreciate it. The answers to these questions will provide critical insights when setting your home budget.
External Funding Access
Can you access any external funds such as parental financial aid, inheritance, or returns on investment? Such external funds may help decrease the margin cost or increase your home budget. Having them available would also allow you to set a realistic home budget.
Accessibility to EMI
This is one of the most significant variables because it will help decide if long-term financial obligations are affordable. Now because your household income will increase in the future, an EMI which looks very steep at the moment could be handled a few years later; you may not be misguided. However, your costs still need to be understood as your sales rise. Moreover, there is inflation and other duties to repay. After a realistic view, you have to achieve a budget. Limiting your joint debt liabilities to 40% of your current household income is a rule of thumb. You can use the home loan EMI calculator online for further information.
Current Housing Costs
You must pay the rent of your existing house in addition to EMI loans until you have possession of your property if you plan to buy a building under construction for self-use. This might be a significant burden. You might want to avoid this, but going to a ready-to-move property might be more expensive than a sub-construction. When setting your budget, you must consider these factors.
Other Key Financial Objectives
Finally, while establishing your budget, you must ensure that your home’s costs do not undermine other key financial objectives, such as building an educational or adequate pension fund for your child. You should have enough space in an ideal budget to achieve these equally important goals.
Conclusion
If you plan to purchase a home shortly through a home loan, this would be the best time to do the same as you can benefit from the current record-low home loan interest rates; smartly setting a realistic budget would keep you in the position. Once clarity is reached, you can make the necessary changes while seeking properties, such as purchasing a house on the town’s outskirts or going for a smaller home to keep your budget.
