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Buying your first home is a big milestone, and it’s important to ensure you’re financially and mentally prepared.
Home Buying.
Buying a home is one of the most significant financial commitments. It represents more than just property ownership; it is a long-term investment and a personal milestone. For first-time homebuyers, the process requires careful considering various factors to ensure that the decision aligns with financial stability and future aspirations. The decision is about your financial readiness, long-term stability, and understanding the intricacies of the real estate market. In India, with its dynamic economy, shifting government policies, and ever-evolving tax structures, knowing when you’re ready to take the plunge into homeownership requires careful consideration.
1. Do You Know The Kind Of Financial Commitment Home Ownership Entails?
The first, and most crucial step towards homeownership, is ensuring you have a stable income. In India, home loan eligibility is typically based on your monthly salary or income. Financial institutions generally offer loans up to 80-90% of the property value, but your monthly EMI (Equated Monthly Installment) should not exceed 40-45% of your income to ensure you maintain a healthy financial balance.
For example, if your monthly income is ₹1,00,000, your EMI should ideally not exceed ₹40,000 to ₹45,000, depending on your loan eligibility.
Additionally, assess if your current income can support your other expenses (like EMIs for existing loans, personal expenses, and savings) while still maintaining a comfortable lifestyle.
2. It’s Not Just The Cost Of A House, There Are Other Things Too!
In India, home loans generally cover up to 80-90% of the property’s value. The remaining 10-20% is your down payment, which you must pay upfront. Ideally, you should save at least 20% of the property value for the down payment. For example, if the home you’re eyeing is priced at ₹50 lakhs, you would need ₹10-12 lakhs for the down payment.
Beyond the down payment, you should also have funds set aside for additional costs, such as:
● Stamp duty and registration charges: These vary by state but are typically 6-7% of the property value.
● Home inspection and documentation charges: Fees for title verification, legal advice, and property inspections can add up.
● Interior decoration and renovations: If you’re purchasing a resale home, there may be costs involved in making the house move-in ready.
3. Have You Taken Into Consideration Your Existing Loan And Debts?
Before committing to a long-term loan like a home loan, it’s essential to evaluate your existing financial obligations. Having existing debts—such as credit card debt, personal loans, or auto loans—can strain your finances and reduce your ability to pay off a home loan comfortably.
Lenders consider your debt-to-income ratio when approving a loan. A high existing debt load could hinder your loan approval process or affect the loan amount you qualify for. Ideally, you should have cleared or significantly reduced high-interest debts before applying for a home loan.
4. Is Your Credit Score Home-Loan Ready? Here’s Why It Matters!
In India, your credit score plays a pivotal role in securing a home loan and influencing the interest rate you’re offered. A credit score above 750 is typically considered good by most lenders, and it can help you qualify for lower interest rates. A strong credit score shows that you’re responsible with managing credit, which gives lenders confidence in your ability to repay the loan.
If your credit score is below 750, consider working on improving it by clearing outstanding debts, paying off credit cards, or reducing any pending loans before applying for a home loan.
5. Do You Know That Home Loan Is A Recurring EMI For Not Less Than 10-20 Years?
Homeownership in India, especially in major cities like Delhi, Mumbai, Bengaluru, or Pune, is a long-term commitment. You need to ask yourself if you’re ready to settle in one place for an extended period. Typically, it takes around 7 to 10 years to recover the cost of a home and begin seeing an increase in its value, particularly in metropolitan areas.
If your job is likely to require relocation or you’re uncertain about your future plans, it may not be the right time to buy a home. Renting could be a better option until you’re more settled.
6. Are You Maximizing Your Home Loan Tax Benefits?
Income Tax Benefits: Under Section 80C of the Income Tax Act, you can claim a deduction of up to ₹1.5 lakh on principal repayment. Additionally, Section 24(b) allows a deduction of up to ₹2 lakh on home loan interest payments. These tax benefits can ease the financial burden and make homeownership more affordable.
You should also be familiar with stamp duty and registration fees, which vary from state to state. Some states offer reductions for women buyers, so if you’re a woman purchasing the property, check if any exemptions apply in your state.
7. What Are The Other Hidden Factors That Can Make Or Break Your Property Investment?
The Indian real estate market is varied and can be tricky to navigate. Whether you’re buying in a metropolitan city or a smaller town, research is key. Understand the trends in the local market, the appreciation potential of the area you’re interested in, and upcoming infrastructure projects that could influence property values.
● Current Market Conditions: Is the market currently a buyer’s market (more supply than demand) or a seller’s market (higher demand and lower supply)? Knowing this will help you negotiate a better price and avoid paying more than the property is worth.
● Future Development Plans: Check for any planned infrastructure projects such as metro rail expansions, new highways, or commercial hubs. These can significantly increase property value over time.
8. Can You Afford More Than Just The EMI?
Homeownership is not just about paying the mortgage. As a homeowner, you will be responsible for the property’s maintenance and upkeep. This includes repairs, maintenance costs, paying property taxes, and dealing with utility bills.
Make sure you have the financial capacity to handle these expenses without stretching your budget. Consider creating a fund for future repairs and maintenance costs, as these are inevitable over time.
Conclusion
Buying your first home is a big milestone, and it’s important to ensure you’re financially and mentally prepared. It’s not just about saving for the down payment or securing a home loan; it’s about making sure you have long-term stability, a clear understanding of your financial health, and awareness of your responsibilities as a homeowner. With a stable income, no major debts, a good credit score, and a thorough understanding of government schemes and market trends, you’ll be well on your way to making a sound decision about homeownership in India.
Taking the time to assess these factors will help you avoid potential pitfalls and ensure that buying a home is a rewarding and financially sustainable decision.
Authored By – Amit Agarwal, CEO & Cofounder of NoBroker
The views expressed in this article are those of the author and do not represent the stand of this publication.
