Budgeting makes it easier to buy home
Everybody dreams for a home for themselves and their family. If you are a first time home buyer, then you need to chalk out your budget plans before you jump on to buying the house. Budgeting is providing a certain sum for a particular purpose. Budgeting takes you forward to own your home in a planned manner and through proper budgeting you can realise your long cherished dream.
Although owning a home has become easier, thanks to availability of financing options provided by banks, it requires an understanding of many related financial aspects to make sure that you get to your destination by stepping on the right stones.
Budget
It is always advisable that you prepare a budget before buying a house. Budgeting helps you to keep a track of all your expenses and segmenting your expenditure. The thumb rule is that you should look for property that comes within six times of your annual household income. Save money every month for that purpose and make sure you deposit it every month whether in savings account or in fixed deposit or in mutual fund.
The first thing you should keep in mind is that you should only go for a home that you can afford. You need to know that you cannot alter a big investment like home frequently. Save each and every possible penny through inculcating the habit of using cash rather than credit card.
Before even planning on buying the house, you need to assess whether you are going to stay in the place for a long time and only if you know you are, you should proceed with the plan. Analyse your budget on a monthly basis and cut down on any expenses that can be done with.
Funds
Although chances of availability of a bank loan is increased in recent years, you have to manage a certain amount to buy the house. You would need to save at least at least 25%-30% of the property price to pay the down payment. The sum required is comprised of margin money, advance booking amount, brokerage charges, registration fee, etc.
You can generate the margin money through liquidating small savings or some long term assets like gold. You can also borrow against long term assets like Provident Fund Prepay and against short term loans like car loan or credit card loan.
Since it is almost clear that in most cases, you would have to buy the house on mortgage loan, make sure that you maintain a clean and stable credit history.
Choose the right loan scheme
It is very important to choose the appropriate home loan scheme. Carefully decide on the bank, tenure, amount, EMI, whether to go for floating or fixed rate and after comparing the schemes offered by various debtors, decide on the specific scheme. While paying the EMI, one should make sure that the EMI amount does not exceed more than 30%-35% of the monthly income of the household.
Generally your debt-to-income ratio cannot exceed 45%-50% of your gross monthly income and your EMI should not exceed 30% of your gross monthly income.
Essential expenses like utility bills and rent should be identified beforehand in your bank statements. The discretionary expenses can be forfeited to put into monthly savings. The planned savings would help to provide the much needed down payment.
Last but not the least, you should keep it in mind that buying a home requires a planned approach with careful savings rather than impulsive decision. Get your partner to share the responsibility of realising the dream if possible; that will lessen the burden on you and make your dream come true easily.
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