Sound financial planning must form the base of your decision to buy the home of your dreams, instead of mere emotional obligation or pressure. Generally, individuals just into three to four months of buying their house or an apartment, find themselves in excessive financial trouble, especially, when they have taken home loans. Even when both the spouses may be working, the notion of it working out is quite wrong. After a real estate purchase, it is difficult to manage the finances. Hence, it becomes a necessity that financial planning is given due importance.
Essentially, when the purchase of a house is being made on a loan, financial planning becomes a crucial as well as critical element. Before you buy your dream house and invest into that dream, you must consider the following 4 points which are critical for an efficient and fool proof financial plan.
Monthly Household Expenses
A huge and extensive (sometimes extremely difficult too), financial stretch is caused due to buying a house, in any middle class Indian family. Yet, at the same time, without a financial stretch, nobody can really buy a property, considering the soaring prices of real estate. If we talk of an average, at least a minimum expenses of the household need to be cut down, to up to twenty – five to forty per cent after a house is bought on home loan. Additionally, a major difficulty faced in this is that we as individuals, are used to a particular lifestyle. Hence, this cut down is not as easy as it sounds. What can be helpful in this case is setting aside at least a critical amount as reserve for any financial deficits faced in the future, amounting to at least six months of the household expenses. Ask us why, and there is a simple reason – in order to adjust to the new lifestyle, you as well as your family will need some time.
At present, about eighty per cent of the property value is covered by the home loans. Even if you are planning to take a loan for buying the property, you need to be ready to furnish at least twenty per cent of the property value by yourself. This residual value must not be raised by debt or by any kind of a loan. Ideally, if we pay heed to the advice of financial planners, and other specialists, they say that we must contribute at least forty per cent of the down payment amount in an effort to reduce the burden caused due to the loan. In addition to these expenses, individuals buying the property must also take other costs into accounts, which include the registration cost, stamp duty and miscellaneous costs which can contribute up to a value of five to ten per cent of the total cost.
Liabilities of the next six months
It is necessary that you make a comprehensive list of the liabilities of the nest six months which may include (but are not restricted to) tuition fees of your children as well as any insurance premiums you need to pay. This amount up to six months of liabilities should be kept aside as a reserve amount for the fulfilment of the above mentioned liabilities, whenever need arises.
Existing Debts or Loans
In case you have any prior debts or loans, you must clear them first. These may include any loans such as personal loans, study loans or car loans, etc. This is necessary before you get involved in a home loan as it becomes extremely difficult, in fact next to impossible, to furnish two loans at the same time. Home loan in itself is a huge liability. You must also try to set aside at least three to four months of EMI amount for your home loan. This also helps you in improving your CIBIL score before you finally avail a home loan.
Why not make home buying a pleasant experience instead of making it a financial nightmare! For more, read other posts on home buying tips and get going.