Planning to buy your dream home in 2019? We look at some of the dos and don’ts that can make it easier for home seekers to raise the down payment and service the EMIs
Finance is one of the most important determinants, when it comes to buying a house and most of the other considerations revolve around this. As a property purchase is often a once-in-a-lifetime decision, it is essential to evaluate your funds accordingly. To buy a house, one nowadays has to utilise their savings and also opt for a home loan. The process of taking a loan has also become simpler, with a majority of people opting for it. Nevertheless, there are some basic principles that one can follow, to plan your finances for buying a house this year.
1. Pay off all your existing debts
You can never assess your net worth, if you are debt-laden. Any partial payment towards this debt, will show up poorly in your credit ratings and this may affect the home loan process. Paying off your debts completely, will help you move ahead in the direction of home buying. Besides relieving one’s tension, it can help you to properly allocate money for your basic needs and for your big real estate purchase.
2. Invest in multiple assets
One should learn about the different financial instruments available in the market. This can help you to invest your money wisely and use the returns, to fund the purchase of your home. Financial experts always stress on having a mix of different asset classes in one’s portfolio, as this will help you during big-ticket purchases, like property. “Before making the decision to buy a house, one needs to ensure that the current asset allocation is not skewed towards a risky asset class like equities. If that is the case, one needs to shift a chunk of those assets to less risky ones that are also liquid. Mutual funds can be a great avenue for such temporary parking of funds,” says Rakesh Nair, an independent financial advisor.
3. Track your spending
Real estate is an expensive investment. However, with modern buyers being exposed to global standards, they refuse to settle for anything but the best. In such a scenario, every penny counts. Experts suggest that an individual’s monthly budget should be based on the 50/30/20 thumb rule, where one spends 50 per cent on basic necessities, including groceries, utilities, medical expenses, etc., 30 per cent for indulging yourself and your family, while the remaining 20 per cent should be saved. This 20 per cent will help you in your down payment, getting home loans and also in case of any other emergency. “After following the real estate market for the last three months, for buying our own apartment, we found something better than what we were looking for. So, we are trying to channel our funds in this direction. Buying a house requires a huge amount of self-control, to avoid spending money on other temptations and instead, develop a habit of saving money for buying an apartment,” says Vihaan Verma, a house hunter from Delhi, who intends to buy an apartment this year.
4. Standing instructions for automatic transfer of money
Initiate standing instructions at your bank, for transferring money from your salary account to your savings account, every month. This will keep you in check and you will only spend what is left after savings. Going forward, when you take a home loan, you can follow the same method, so that monthly EMIs are taken care of, right at the beginning and you avoid getting into any financial mess.
5. Maintaining a balance between rent and EMIs
Proper planning is especially important, when one plans to buy a house while also living in a rented accommodation. This will entail an outgo of EMI, as well as the rent for your current house.
“Once you avail of a home loan, the EMI starts immediately. This can become a burden, when you are paying it along with the rent for your current house. You have to maintain a proper balance, between the EMI and the rent, so that once you get the possession of the new house, you can increase the EMI amount and move into your dream home. In 2019, there is hope of a reduction in the Goods and Services Tax (GST) for real estate, as well as further reductions in the repo rate, which will directly reduce the pressure of repayment on buyers. In the meantime, buying a ready-to-move-in property can be a viable option, as this will enable you to avoid the rental outgo and the GST,” advises Harvinder Sikka, MD of the Sikka Group.
Fund allocation, for buying a dream home
Plan the monthly budget using the 50/30/20 thumb rule, where you spend 50 per cent on basics, 30 per cent on luxury and the remaining 20 per cent towards savings.
Change your asset allocation predominantly from risky assets to liquid assets, so that when you zero-in on a property, you can immediately proceed and not let go of an opportunity because of unavailability of funds.