Skip to main content

Buying a home early makes financial sense

The earlier you buy property in your earning years, the better it is for you financially

The high economic growth in the past five years has brought about a big change in the life of the average person. Many young people are joining work early and earning high salaries. Many of them are either single or newly-married with lower financial commitments. There is higher disposable income in their hands. Home loans are relatively easy to get and mortgage rates are getting cheaper. So, the journey of wealth creation now starts in early 20s.

Property as an asset

Easy availability of home loans, declining loan rates and tax concessions imply that with the right amount of planning you can easily buy that dream home early in life. When you analyse it thoroughly, the first house purchase is not just to fulfill your dreams but also to provide for a secure place to live in through the golden years of your life - after retirement.

Due to the improved living conditions and access to better medical facilities, life expectancy is increasing. This has led to a situation where you will be spending approximately the same number of years in retirement that you would have spent in your active working life. Having a house where you can stay comfortably in then becomes a necessity rather than a choice.

Arriving at the budget

Starting early provides you with the ability to finish off the first housing loan while you are in your early 40s. This gives you the added luxury of buying a second house for investment purposes. However, to get all this right requires proper planning. Hence, a lot of thought and planning has to go into the buying process. It requires long-term financial planning.

The right financial planning practice starts with asking a few questions. These questions throw up many surprising answers and help in understanding your needs better. For example, do you have enough cash resources to cover expenses for at least the next two months? It seems like a simple question, but is a very relevant one. It helps you provide for contingencies before you venture out to invest or take a housing loan.

Some questions you have answer while buying a house:

  • What type of house do you need?

The kind of house you need will be based on a host of factors like proximity to schools, offices, shopping centers and medical facilities. Making a list of all the items you need in your house in the order of priority. This helps your selection process because it weeds out choices that do not find favour.

  • How will you fund the down payment?

Even though banks are funding a substantial part of your housing costs, you will have to arrange for your contribution upfront from your personal savings. This will be no less than 15-20 percent of the value of the house. You also need to cover at least a part of the closing costs. So, the first step towards owing your own house is saving up for down payment.

  • How big a loan should you avail?

If you are buying a house with borrowed funds your home specifications will depend upon how much you can borrow and how much you can raise as down payment. The mortgage lender will work out your loan eligibility in both scenarios. The quantum of loan can be either linked to income or to down payment. It pays to be prudent and limit your EMIs to no more than 35-40 percent of your net take-home pay if you do not have other loans.

  • What should be the loan tenure?

Another major decision you will have to make will be the length of loan tenure. Generally, the longer the loan the costlier it becomes. A five-year difference in the loan tenure could set you back by a couple of lakhs. So, the general philosophy should be to pay back the loan as early as possible. If you have an early start, you will be in a position to settle your first loan and be eligible for another housing loan for your second house.

  • Insurance and taxes

These are expenses that are not factored in the calculations before buying the house. These increase the cost of ownership. For any home loan borrower, it makes sense to get insurance so that in the unfortunate event of his untimely death the loan can be settled with the insurance. Further, a home insurance to cover your home and its contents will stand you in good stead.

Asking the right questions to yourself before buying a house will help you get the maximum value for your money

Popular posts from this blog

Guide to pension plans in the form of Insurance

  Pension plans ensure that you are financially secure during your golden years. Take a look at the important aspects that you must keep in mind while opting for one...      Gone are the days when a leading criterion for choosing an employer was the type of pension plan that came with your salary package. Today, more important issues like matching of skill sets to job requirements, scope for personal and financial growth, etc. have come to the forefront. However, this has left individuals with the responsibility of financially planning for their golden years. And it's all for the best as there are a variety of pension plans available in the market to suit different individuals and their specific needs. WHAT ARE PENSION PLANS?     In a pension plan, you are required to pay premiums for a certain number of years and once you reach the retirement age, the insurer returns a lump sum amount that can be then used to purchase an annuity or stream of income for the rest of your life....

All about "Derivatives"

What are derivatives? Derivatives are financial instruments, which as the name suggests, derive their value from another asset — called the underlying. What are the typical underlying assets? Any asset, whose price is dynamic, probably has a derivative contract today. The most popular ones being stocks, indices, precious metals, commodities, agro products, currencies, etc. Why were they invented? In an increasingly dynamic world, prices of virtually all assets keep changing, thereby exposing participants to price risks. Hence, derivatives were invented to negate these price fluctuations. For example, a wheat farmer expects to sell his crop at the current price of Rs 10/kg and make profits of Rs 2/kg. But, by the time his crop is ready, the price of wheat may have gone down to Rs 5/kg, making him sell his crop at a loss of Rs 3/kg. In order to avoid this, he may enter into a forward contract, agreeing to sell wheat at Rs 10/ kg, right at the outset. So, even if the price of wheat falls ...

More on Mutual Funds

What Is a Mutual Fund ? A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. Anybody with an investable surplus of as little as a few thousand rupees can invest in Mutual Funds. These investors buy units of a particular Mutual Fund scheme that has a defined investment objective and strategy The money thus collected is then invested by the fund manager in different types of securities. These could range from shares to debentures to money market instruments, depending upon the scheme's stated objectives. The income earned through these investments and the capital appreciation realized by the scheme are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.   What Are The Types of Mutual Fund Scheme...

PF e-Passbook

  Provident Fund e-Passbook   The Employees Provident Fund Organisation now runs an e-passbook service that enables members to log in and access their provident fund accounts . This facility enables tracking of the money and ensuring that the employer's contribution has been deposited into the account. This facility is available to those whose accounts are with the central provident fund commissioner for maintenance and can be availed at members.epfoservices.in . Registration A member can register at the portal easily by using PAN , Aadhar or passport number as the log in and the mobile numbers as the PIN . This combination enables easy retrieval of information. Accounts After logging in, the member has to choose the state where the employer is located, and enter the code number of the employer, account number and name. These details can be obtained from any existing PF document . PIN To download the passbook, the member will request...

Refinancing Home Loans

With home loan lending rates easing out, many borrowers are considering home refinance as an option to minimise their liability    Home loan borrowers have always been concerned about their financial outflow while repaying debts. With interest rates easing out in the recent past, many borrowers are considering home refinance as an option to reduce this burden. So what is home refinance and how can you capitalise from it? Understanding refinancing.     Refinancing in simple terms means replacing your existing loan, with a new one, under fresh terms and conditions. So when you talk of home loan refinance, you will be repaying your existing home loan before its final tenure, with a new loan possessing different terms.    A home refinance option could prove to be beneficial for many borrowers. However, it is important to understand its procedure and the various costs that are associated with it before considering the option.    Whether it's for personal requirements or chang...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now