You’ve got the whole world in your hands. You are young and on the upswing. Earning more than Rs. 20K. Maybe just about married or thinking about it. You want to live the your life to the fullest. Your colleague who joined the company after you and is a year younger has put a down an initial payment in an upcoming construction. It makes you sit up and look around. Three months ago, so did your old school chum. Is this a good time to buy a home? Are you ready to take on the responsibilities of home ownership, including regular maintenance?
Should the swingers put down roots?
Young professional are mobile geographically. They move as their job requires. You may not want to buy a home where you are currently based but may want to buy it in your hometown or a city of your choice. “Most young, well-educated professionals are likely to be doing short stints in several cities. The most important parameter when buying the first home should be ‘Is this the city I want to live in?’” advices Devang Shah, MBA (IIM Ahmedabad), CFPR (U.S.A. & India) Right Returns Financial Planning.
Harsh Roongta, CEO, Apna Loan.com comments, “Do not buy a home until you want to live in it. For a young person, the hassles or renting out a home are too many. For investment purposes there are many more attractive avenues”
Yeh hi hai right choice
Once you have decided on joining the breed of home owners, the next step is to decide on what home should own you…oops should you own. Some factors to keep in mind:
· How much house can you buy? Being young means you are (hopefully) not at your peak income-earning level and you have not had much time to save. So, if a dream house is out of the question right now, what is affordable? “He should be looking at a property in the range of Rs.11-15 lacs with a loan component of about Rs.10 lacs” says, Pankaj Desai, Head – Retail Assets, Kotak Mahindra Bank.
· Remember the three ‘L’s of choosing a home – location location location. Do you purchase that newer, larger and more aesthetically-pleasing home that requires a longer commute, or do you opt for something which is perhaps smaller but closer to a metro core? Gaurav Mashruwala, financial consultant says, “Stretch yourself. A home is a long term purchase and it should fulfil your requirement for the next 7-8 years. So do not scrimp on the money”
· Do not go by the logic of rent v/s buy. The comparison between renting and buying is often done on faulty assumptions. If you rent, you do not mind a small cramped apartment, you do not spend on furniture and you do not pay stamp duty. If you buy, you want to buy something that atleast takes care of your near future needs and often end up paying a price for a specific location because you are not going to be able to change your home often. That rarely happens with rented property. So choose carefully.
Raising the finances
You may think you know quite a lot about financing your home from the dipstick survey you have done but here is what the experts have to say … so pay heed.
ü The development of a household budget is a desirable activity before you buy a house. By preparing a budget while you are looking at homes, you can better focus on loan payment goals and how the new house will affect your total expenses. “When budgeting for your purchase, even if you are taking a loan you will have to consider payments such as your own contribution, the fees charged by all the financial institutions, the amount required to be paid upfront, broker’s fees, new furniture etc.” says Rajiv Sabharwal, COO ICICI home Finance Ltd
ü Assuming you are one of the self-righteous individual who will not want to dip into his father’s money for buying a home, you will take a housing finance loan. Most financiers lend upto 85% of the property value for the rest you can beg borrow and save. “Given a ‘ball park’ figure of Rs. 800/- per lac as equated monthly installments towards repayment of loans (varying with the tenure of loan), its for the individual to take a calculated budgetary decision” says, Jaideep De, Sr. Business Development Manager `Narains Corp' - Property Consultants & Realtors.
ü You budget for buying your home should be based on your household budget and how much money you can afford put in an EMI of the loan. Mashruwala advises, “For a single person, the EMIs should not exceed 60-65% of your net income and for a married person, EMIs should not exceed 35-40% of your joint income”
ü A few financiers have products that assume a certain level of salary increases every year and arrives at a higher eligibility. It could be an amount higher by 30%.
ü Enhance your eligibility to get the maximum loan amount. This will give you leg room to manoeuvre and choose your home from a wider range. “To increase the loan amount that you can get, take a loan jointly with your spouse so that both the incomes are clubbed to determine the gross repayment capacity. Generally, an HFC will permit up to 35 to 55 per cent of the gross monthly income to form the monthly repayment amount. Another option - opt for a longer repayment tenure so that the EMI amount gets reduced. I.e. opting for a 20 year loan compared to a 15 year loan will make you eligible for a higher loan amount”, advices Sabharwal.
ü A step-up loan is a great idea. Here you will make lower repayments in the initial years and higher ones as your income increases. This, of course is available to a professionally qualified person. It gives you the advantage of making lower EMI payment initially and higher ones as your income increases.
ü Just when your budgeting looks like it has been beaten into shape, you are hit by the unforeseen costs. Stamp duties, transfer charges, parking charges, clubhouse membership, interiors, etc. Get the best out of your loan by combining cost with your property cost for the purpose of taking a loan. The good news is that banks are now offering to cover at least some of these costs. You should check with your bank if they can finance the extra costs too.
ü Which bring me to the next important piece of advice – compare loans. Do not go by the bank your best friend took a loan from. Take quotes from several banks, do your maths and narrow it down to the two best quotes and take a sanction from both of them. This way you will have a back up plan if there might be some additional administrative cost thrown up by the financer which could mess up your interest calculation
There is life after buying the home
Hope that your search for your home goes well. After buying a home some more loose ends have to be tied up so that you can sleep in your new bed peacefully.
Buy term insurance: It would be irresponsible to leave your loved ones with a liability if God forbid you are no more. Most insurance companies will give you term insurance which will stagger down as the amount of the loan decreases.
Buy a householder’s policy: A general insurer will sell you a basic householder policy which is a must. After the devastating Mumbai flood surely we should wake up to the benefits of insurance.
Keep a check: Keep a regular check on your home loan account. Request for a monthly/quarterly statement and develop a friendly relationship with your account manager.
Take the tax breaks: If the principal component on your housing loan is Rs 1 lakh and you make no other investments; you will get the full advantage of it. You may end up getting a double benefit; a deduction of up to Rs 1 lakh on the principal amount and Rs 1.5 lakh on the interest component.
Conservative V/s Aggressive
Choosing between an aggressive and conservative repayment plan can be tough. Here are some pointers.
Conservative
Aggressive
Pros of being conservative
Low burden to repay EMI. Even under tough circumstances, one will be able to pay EMI.
Additional disposable income in case of excess earnings can be used to make part-prepayment with no additional fees for pre-payment.
Pros of being Aggressive
Higher loan amount, hence one can buy a better house
Shorter loan tenure, hence one can repay faster
Cons of being Conservative
Lower loan amount
One could have bought a better house with a more aggressive budget
Longer loan tenure
Cons of being Aggressive
Under tough circumstances, it can become tough to repay EMI leading to defaults
Poor credit history due to default might affect other bank offerings
http://news.moneycontrol.com/india/news/property/homeloan/buyyourfirsthomeat25/14/27/article/180567
