For most of the people, buying a first home is a very challenging task. One of the challenge they face is that an affordable house is not available in the locality they prefer. People often do mistake by choosing locality/specific project before working on finance aspect. It is always beneficial and time saving tactic to decide on your budget first. Based on the budget, look for the locality/project. There is no point in searching the property if you do not know your financial appetite.
Home buying is a long term commitment. So ask a few questions to yourself
Have I saved enough to pay for down payment?
This is the initial amount which needs to be paid from your pocket. Generally down payment is 20% of agreement cost. In addition to the down payment, you need to pay for stamp duty, registration charges, sales tax and VAT. Most of the banks do not include these charges in loan amount. It is not advisable to go for another loan for making down payment.
How much EMI I can afford?
Equated monthly Installment (EMI) is the payment made every month towards home loan. EMI of all your loans should not exceed more than 40-50% of your in-hand salary. Loan adviser might suggest you to consider your future salary hikes/promotions for increasing loan amount, thus EMI. But do not buy with this option. Even though you might get a salary hike or promotion, it is associated with inflation. Your home expenses will keep increasing too. Consider the worst case scenario, if you have over-committed on the EMI and home-loan interest rate also rises, you might default on your loan and calling for more trouble.
Do I have enough fund balance after making down payment?
For emergencies, you need to keep aside some amount. You should not spend all your savings towards the down payment on the house.
Can I afford both EMI and rent for initial period?
If you have booked under construction property and currently staying in rented house, you might have to make payment for both EMI and rent till the time you get possession. Even though this is a temporary situation, keep aside some money for this scenario.
Most of us want to buy home as early as possible, but buying home come with long term loan liability. If you do not have enough funds for down payment, wait for some time. Plan short term goal and create a corpus for down payment.