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Affordability

By ResidenceBuy India  |  0 comments   |  1359 views  |   Feb 22 2012

Check your preparedness for home ownership before buying   :

Monthly payment: Monthly payment or EMI is one of the most important factors to take into consideration while buying a house. Understand your EMI for different products (i.e. short duration vs. long duration, fixed vs. variable interest rate, high down payment vs. low down payment etc.) and decide what fits your needs most.

 

Total housing cost: Your EMI is only part of the story. Your actual monthly housing cost also includes property taxes, homeowner association fee, mortgage insurance, and homeowner insurance. Ideally the total monthly cost shouldn't exceed 30% of your net income (i.e. take home income after tax deduction). For example, if your monthly income is Rs 1, 50,000 after taxes, you could aim to keep your total monthly housing cost at about Rs 45,000 or less per month. If you are taking a variable rate mortgage then ensure that you stay within the 30% limit after the interest rate resets to a higher value.

 

Debt Burden: Closely monitor your debt situation (e.g. car loans, credit cards, and other personal loans) for some time before planning to buy a house. Reduce it as you start your journey towards home ownership. We advise you to maintain your interest expense below 20% of your net income prior to taking a home loan. Given your current debt obligations, our mortgage tool will provide useful guidance about the value of house you should aim for.

 

General expenses: A new house brings new costs. This includes maintenance expenditure (i.e. higher utility bills compared to rental places and occasional repair expenses), commute cost, and food and entertainment expenditure. Note that your living expenses also grow with homeownership.All this may eat into your future savings significantly even though it is not obvious at first.

 

Other costs: Remember that you'll have to pay about 0.5 to 2% percent of the loan amount (with a floor of Rs 5000) in additional administrative fee (note that lenders sometime waive this during promotional periods). There is also delayed payment interest fee in case of a delay in monthly payment. Some lenders also charge foreclosure fee in case of loan default. So take these costs into consideration while deciding about the cost of taking a home loan.

 

Life after buying a house: Account for the fact that you will be spending money to make an empty house your home. People spending a lot to buy a very expensive house may end up in additional debt to furnish it. Avoid this if you can.


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