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:
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.
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.
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.
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.
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
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
