15 Aug, 2013 1:25p.m.

Buying a house? Here's a financial checklist

Buying a home is a sentimental objective of every individual who has started his career in the recent past. It gives them the immense pleasure of significant achievement in their lifetime. Hence, most people are diverting their sizeable savings towards buying a dream home. The objective of a dream home is not only to lead a comfortable life but it is also seen as an asset creation for the next generation. We are spending majority of our savings towards buying a home to lead our life happy and comfortable.

The question is: are we really living comfortably after the purchase of our dream house? Though we will have a certain comfort level living in our own house rather than the rental house, but there can be some sort of struggle after buying a house due to lack of proper financial planning.

Let us discuss few causes which may lead us into the inconveniences and how we can avoid them.

1. Down payment

The first and foremost thing to take care of while buying a house is to meet the down payment requirement. As per the law, 20 per cent of the property value is the minimum requirement for down payment. It is advisable to increase the down payment as far as possible to reduce the loan amount. If the loan amount is more the interest and repayment period will be more. Paying the down payment through getting loan from friends and relatives, or pledging jewels and other unorganized loans will leave you in a trap.

We must have our own funds to the extent of 20-30 per cent of the property value to meet the down payment requirement. If you lack the funds then it is not right time for you to buy a property.

2. EMI

Often, while buying a home we do not pay much attention in fixing the EMI and are likely to keep it low. In order to target these individuals financial institutions advertise with attractive and low EMI offers. However, we miss here the fact that if the EMI is less the repayment period will be more. Also, based on the extended period the additional interest will be charged.

We should have a clear idea about the repayment of EMI as per our present financial status. We must keep our EMI payment less than 30 per cent of our take home salary. Then only we will be able to manage the future expenses like maintenance expenses and the interest rate hike of our housing loan.

3. Interior

When we go for a big deal like buying a home, we mostly concentrate on the major chunk of the cash outflow which will be required for the property purchase transaction. However, we must also consider post purchase requirement of cash flow to set up the home as per our taste and life style.

Getting the loan to do interior works or buying the furniture and other house hold articles will enhance our liquidity crunch, and if you buy the household articles through consumer loans it will increase your outflow towards loans. The interest of the loans will be more than 15 per cent of the loan amount. It will consume a majority of your income.

Therefore, budget your pre-purchase as well as post-purchase expenses. Only then will buying a home be a good experience for you.

4. Self-protection

Most of us are not keen to protect ourselves through adequate insurance coverage.

Ignorance in taking adequate life insurance for the house owner who is repaying the housing loan will create issues for the family members in retaining the property in case of any mishappening.

In case anything happens to the house owner before the repayment of housing loan the bank will call for auction to recover the outstanding loan amount. If the house owner had adequate insurance coverage the insurance claim amount will help to retain the property without any difficulties.

5. Asset protection

Protecting existing assets is more important than creating new assets. We very eagely create new assets but give less importance in protecting the existing assets. If you refer the number of houses having the insurance coverage to protect from natural calamities you will agree with my statement. Ignoring to take the insurance coverage to protect the home from the natural calamities such as flood, earthquake, fire, etc. will make the house owner in a trap. It may happen very rarely, however if it occurs it will negatively transform our entire life style.

If you recall, most of the home buyers whom you know would have experienced any one of the above said difficulties in their journey of availing a dream home. I hope this article will make you rectify these mistakes when you are planning to buy your dream home.

Nobody is planning to fail, but they fail to plan. For this reason, plan now and act immediately on your goal of your deam home

Source : NDTV Profit

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