A complete guide to buying your own home

A complete guide to buying your own home

The first question that friends and relatives ask those who have just started a new job or got married is when they are buying a new house. That being said, while it is okay to buy a house to live in, buying a house as an investment is sometimes a poor decision. 

In comparison to developed countries, residential property in our own country yields a very low rent. Even in metropolitan cities, the rental yield, or the annual rent as a proportion of the market price, never goes beyond 2 or 3 percent. A lot of people tend to believe that property markets can earn them great capital appreciation, based on the fact that a lot of people claim that their property has appreciated 30 times in 50 years. However, when you convert these figures into annualized returns, you realize that this is just a 7 percent return; and once you factor in the interest that you pay on a home loan, this return is not really great. 

And while property might not be the most lucrative investment as it is believed to be, owning a roof over your head is an entirely different matter. Home loans offer you great benefits, and you will also save a lot of money in not paying rent. Both these factors together make buying a house a sensible decision. 

And if do intend to buy your own house, make sure that you go through the following guide once. 

  1. Only take a loan that you can pay back easily

Taking a loan might be one of the biggest financial decisions that you ever make. Make sure that you take only what you can afford to repay. A good thumb rule to follow is to make sure that your home loan EMI does not exceed more than 30 percent of your current income. Also take into account the stamp duty, costs payable to the municipality, and expenses of renovating your house while calculating your loan requirements. If your dream home exceeds your budget, try and downsize your dream. 

  1. Think about the down payment

The down payment is often the biggest stumbling block to buying your own house. Your down payment will typically be 20 percent of your purchase price. Thus, if you are planning to buy your own house, start to invest in the down payment for it at least five years in advance. Try to save at least 25 percent of the purchase price, and account for inflation too when calculating this number. 

  1. Invest in mutual funds

You can consider a good multi-cap fund investment for around five years to save money for your down payment. On the other hand, if you have a shorter time in hand, hybrid-fund categories like a conservative hybrid, aggressive hybrid, or equity-saving funds are good options to invest in. Choose from the categories as per your risk appetite. 

  1. Give priority to the location

The location should be a top consideration when choosing your home. Make sure that both you and your partner have settled down in your careers well, and are sure of the city that you want to live in, before you ahead and buy your first house. Renting a residence and paying an EMI on another one can cost you a lot. The location also determines the kinds of returns that you can get on your property should you decide to go ahead and rent it. Capital appreciation or the ability to fund buyers also greatly relies on the location of your property. 

  1. Ensure your loan 

Opt for a plain term insurance plan online, which will cover your outstanding loan as soon as you take a home loan. Should there be any unfortunate event, your spouse or nominee will receive a death benefit equal to the loan amount that is outstanding, thereby freeing them for the burden of EMIs. 

Buying a home is something that most of us dream about. But don’t make a hurried decision with respect to this dream. Do not buy a house that you won’t live in when you already do not own the house that you are living in presently. 

Also, choose your home wisely. The property market of the country has always been loaded against the buyer. The developer has very little accountability with respect to delivery times and construction quality. The issues surrounding land titles and municipal regulations are also plenty. 

Selling the property at the time and price that you want to is also no joke since real estate transactions freeze up during downturns.