Buying a home is probably the biggest financial commitment that one makes during their lifetime. However, the decision of buying a home needs to be taken considering all the essential parameters.
For all those thinking of finally taking the leap and becoming home owners, we’ve got some interesting that’ll definitely help you in making a sound decision. Here are 8 things that you must take care of when buying a home.
1. Purchase for the long term when buying a home
Not all the things are created equal. This applies to almost every aspect of life, and real estate is no different. Real estate, as an asset class, doesn’t give massive returns in the short term. Historically, it has been proven that the appreciation in the value of real estate takes time.
When buying a home, one must consider that an investment in real estate won’t give as much returns as the equity markets. Given that the liquidity is also very low for real estate, it will be quite a hassle to buy and sell a home in the short term as there are plenty of processing costs associated with it. Hence, it is advisable to purchase a home for the long term.
2. Buy a house to live
Although real estate is a great investment option, the house that you live in is not an investment. Why do we say so? It is because real estate is the most difficult asset to liquidate. If you need to finance some expense and wish to liquidate an investment, real estate won’t be your first choice. You’d rather choose to liquidate your deposits, mutual funds or stocks because they are easier to do so. Also, if you sell your house to make a profit, you still need a place to stay. You can’t just keep on moving from one place to another since it is highly inconvenient.
If you are buying a home as an investment, assuming that you are planning to put it up for rent, the rental yield wouldn’t be as much as you expect. The average rental yield is between 2-3% of the house value. You’d argue that real estate appreciates with time and you can churn out a good amount by reselling the house. However, the entire process is time taking and you never know when you’d end up making a good deal.
3. Focus on your basic necessities
Saving for the future means that you’ll have to live below your means in the present. The 50-30-20 Rule is a good method for budgeting that focuses on your basic necessities. You can apply it to take care of your essentials like groceries, accommodation, monthly bills and your future EMIs along with your current financial obligations.
As a general rule, your EMIs should not exceed 40% of your income. If you try to push it past this point, you’ll have a difficult time keeping up with your regular monthly expenses. For more insights on personal finance, check out our blog on personal finance.
4. Make a budget and stick to it
Financial discipline is key in financing big purchases. It takes time to build a big enough corpus for a down payment, and budgeting is a critical skill to have. With proper planning and patience, you can methodically tackle any financial obligation.
As for buying a home, you need at least 20% of the price of a house saved up. When it comes to home loans, most banks follow the 80-20 rule, where 80% is the loan amount and 20% is your contribution. Of course, some financial institutions and NBFCs do offer more than 80%. However, it’s always good to pay more upfront to save on some extra EMI. For more details on down payment, check out blog on 7 effective ways to save for down payment.
Let’s say you are planning of buying an apartment worth INR 60 lakh. You’ll have to arrange a corpus of INR 6-12 lakh as the bank or NBFCs, in most cases, will sanction an amount of 80-90%.
In order to have this amount covered, you’ll have to manage your expenses and optimize. You will be tempted to splurge once in a while, but you’ll have put your head down to stick to your budget if buying a home is your priority. A simple way to get started is to invest a set amount each month in index funds, equity markets, corporate bonds or savings certificate based on your risk tolerance.
5. Pre-approved home loan
Pre-approval means that a lender has reviewed your financial information and determined how much you can afford and how much they will lend you. Pre-approval will save you a lot of time and energy because you won’t be looking at houses you can’t afford. It also allows you to shop around for the best price and interest rates.
Pre-approved home loans give you a headstart. They have a few noteworthy benefits which are criminally underrated:
1. Tension free house hunting
2. Save time during registration process
3. Get access to curated offers
6. Keep an emergency fund
To deal with uncertainty, it is critical to have an emergency fund. When you have an emergency fund, you don’t have to worry about running out of money in an emergency.
It is recommended that you save 3-6 times your monthly expenses in an emergency fund. However, if you are buying a home with a home loan, you should keep at least a 12 months of EMIs aside to tackle emergencies like a job loss or a medical emergency.
7. Amenities and Features
Shortlisting properties that meet your criteria is an important step. Look into what amenities the developers are providing. Nowadays, more and more housing societies provide a comprehensive set of amenities ranging from a clubhouse to a swimming pool, a gym to a children’s play area, an ambulance service to a fire hydrant system. Make sure that you include all of this in your research.
Check out Address India’s latest association – Oakwood Apartments, a unit of Serene Greens – to know about the project features and the amenities that they offer.
8. Property Insurance
When purchasing a home, you should always consider purchasing property insurance. It won’t cost you much and will come in handy if you find yourself in an unusual situation.
An insurance policy covering the amount of your home loan will protect your family because they will not have to struggle to pay off the loan if you die unexpectedly. Property insurance also covers your household furniture and appliances in the event of a natural disaster.
And there you have it – a list of all the things that you need to take care of when buying a home. If you know someone who is thinking about buying a home, refer them to this blogpost to educate them on how to make the best decision.