Planning to buy a new home? Consider these points first
A new home buying decision is a long term commitment. We need to be thorough with our exact financial status before committing. There are many other factors to be considered before the purchase so that you can enjoy your decision in the long run. We would like to share with you a few points of wisdom based on the actual client experiences.
Do you have a job which demands frequent transfers?
In today’s world not only Government employees get transferred even the Private sector jobs demand a transfers for 2-3 years. Sometimes these transfers are within the country however, certain jobs demand deployment at Client side which could also be out of the country. We have a few clients who made a purchase and within a few months they had to move because of their projects to other countries like Germany, UK, USA, etc along with their families. In such cases, the homes were unoccupied by them but the EMI’s were going on. This was a simple case transfer, sometimes people switch their jobs in the similar industry or a different one which demands relocation too.
Hence we recommend that one should consider how long they would be residing in that particular location where one plans to buy the New home. One should not plan to buy a new home on emotional basis there needs to be a lot of customized study to be done. We have to understand and anticipate a few important aspects in the long term relationship with EMI.
Consider your overall expenses and not only your monthly expenses
Generally we have come across this many a times that when a person realizes that he is saving some good amount at the end of the month, he/she decides to invest in a real estate. This situation also arises when one has been staying on rent and aspires to buy a property for himself/herself. However this decision of buying a property just because you have some excess amount in your savings account for a month’s together in a row. It so happens that while doing such calculations we forget about our annual expenses, emergency funds allocation and short term goals if any. Due to this short sighted decision many a times the Client panics when he/she cannot manage the annual expenses, emergency funds allocation and short term goals, which can also lead to distress sales of property or unable to meet the annual expenses. In some situations panic selling of a property within 3 years of purchase can also call for short term gain taxes on the Sale proceedings.
In a few cases, the Clients were NRI’s and hence received double income when deployed on projects at client ends, so they decided to buy a new home as investment since they had a good amount excess every month. However once the contract / project was over and they returned to their parent country after 5-7 years, their salary in the other country suddenly stops and then it becomes difficult for the clients to meet their monthly, annual, emergency expenses from the limited income source. This situation can also lead to panic selling/distressed sale.
Identify the exact need for the new purchase, since it’s a huge commitment for a long time
Many a times, since a major portion of the monthly salary (45 – 50 %) is allocated for home loan EMI, people find it difficult to allocate funds for their life’s future goals (Dependent as well as Personal goals). This leads to only one option, adding new loan to fulfill the upcoming important life goal in near future (1 – 5 years). So instead of building up the investment portfolio for his/her goals, he/she ends up building up a loan portfolio, making others rich. Person should do detail financial planning and understand his future life requirements before taking big financial decisions.
Do you have enough money for the down payment?
If the answer is No, please rethink. Since in almost every project the loan financed is 80-85% maximum. Rest of the amount has to be available with the buyer. If one is not having that the down payment amount the purchase needs to be postponed. In such cases we advice, the day you decide to buy a new home, find out your loan eligibility from several banks, and start contributing an SIP in debt funds of that same amount so that by the time you finalize a good deal, you will be comfortable with the EMI being deducted from your account and one would have saved enough money to do the down payment as well.
How soon do you plan to take the possession of the new property?
Considering the current scenario of real estate industry, we advise Clients to opt for a ready to move in homes as compared to buying under construction properties. In these times even the reputed builders and construction companies are unable to deliver the fit-outs on time. If the property being purchased is for self use then the load of EMI will start before you actually start using and even if it is a form of investment, till the property possession formalities are complete one can’t even rent it out. Hence it very important to identify when do you actually plan to shift in the new property.
These are some important points we recommend to be considered before making the purchase. Look forward for your comments on usp.thane@gmail.com
Caringly yours,
USP FinPro
