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Home Loan

Should I buy a house now? Factors to consider

19 Mar 2022 by Team FinFIRST


As 2022 continues to speed ahead, the RBI’s bi-monthly monetary policy review has decided to keep the repo and reverse repo rates unchanged. Therefore, interest rates are likely to remain low, which makes home loans more affordable. Aggressive selling by the sellers can be seen as the market opens up again. This gives aspiring home buyers various offers and discounts when it comes to buying a house. The rigorous implementation of rules by the Real Estate Regulatory Authority (RERA) has made the real estate market more buyer-friendly. All these make buying a house now a decision worth considering. 

However, irrespective of when you decide to buy a house, there are several factors to consider.

Arranging the Down Payment: 


Home loans are generally available at a loan to value ratio of 75% to 90%. For a house worth Rs 50 lakh, you will have to arrange Rs 5 lakh to Rs 10 lakh as a down payment. This is the minimum that you need to pay. By paying a higher down payment, you lower your loan amount, and consequently, your monthly EMI. Therefore, while buying a house, you will need to plan for a down payment and figure out how to arrange the amount. Aspiring homebuyers accumulate their savings and liquid investments to pay the down payment. If you plan to buy a home, arranging the down payment must be your most immediate concern.

Assessing the Monthly Burden: 


If you don't have a monthly budget yet, it is recommended that you get one in place before you buy a home. After all, it is a considerable investment, and it will have a significant impact on your finances. Having a big EMI amount accruing each month can add to your financial stress. But assessing and using a monthly budget will help you determine your monthly income and expenses. You will have better visibility of your financial position and your disposable income. As a result, you will know how much money you have in your spare to meet your monthly home loan EMI. Based on this assessment, you can decide on your home loan eligibility, amount and tenure, and keep the EMI within affordable limits.


Future Income Flow: 


While finalising your home buying plans, also have a look at the long-term prospects of your career. A home loan is a long-term commitment and requires a steady income flow for uninterrupted repayment. If you have plans to take a break from your job, go for higher studies, or opt for a career switch in the future, consider your home loan repayment capacity. Similarly, if your monthly income barely covers your costs, having a home loan EMI burden may not be advisable. It is advisable to go for it only if you have a steady source of income or have a sufficient emergency fund to meet the temporary loss of income.

Credit Score: 


Home loan providers offer loans based on the eligibility of the applicant. One of the critical factors that influence your home loan eligibility is your credit score. It is an assessment of your past credit records. Your credit score must be credible enough for the lender to offer you a loan. You can check your credit score online or ask your lender to have it checked for you as a part of your loan eligibility assessment. Do note that loan applications are rejected on account of low credit scores. Therefore, building a solid credit score is essential before applying for a home loan. Loan rejections can in turn further lower your credit score and damage your prospects for future loan applications.

Choice of Location: 


If you plan to use your purchased home for residential purposes, you will also have to consider where it will be located. If it is not located in the heart of the city, it should be located in a place that gives you easy commutable access. Even if you are buying the home for investment purposes, its value will be appreciated only when there is overall development. And if you plan to live there, it should be a place you can live in for a long time. The surrounding locality and the society are also to be considered before buying a home. After all, you will be living there, so it's best to be convinced about the long-term residential prospects of your new home.

Real Estate Market: 


The concept of buyer and seller's market is dominant in the real estate industry. It is convenient to buy a house when a buyer's market is prevalent. It means that there are more upcoming housing projects in the location compared to the demand. If the options are limited and there is a high demand for homes, the prices of the homes in such localities are bound to skyrocket. If all other conditions are in your favour, you should prefer a housing investment in a buyer's market so that you get a better bargain against your purchase. 

Cost of Ownership: 


The price of the house, the down payment portion, and the monthly EMI are the significant costs of homeownership. But there are more expenses than meet the eye when it comes to buying a house. You have to get the interiors done, including the amenities and furnishings to be fitted. If it is a pre-owned home, you may need to spend on repairs and renovations as well. There are regular expenses like maintenance, home insurance, and property taxes to be considered. All of these should be factored in when you are calculating the cost of ownership.

By considering these aspects, you can be better prepared to buy a home. It will help you estimate the funds you need to arrange, the amount you need to set aside for repayment and the cost of ownership. It will also help you find a better deal while selecting the house. Once you have addressed and assessed these factors, buying your dream home can be a seamless experience.

 

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.

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