‘Purchasing a House’ - One of the biggest financial planning goals!
The process of purchasing a new home can be both worrisome and exciting. Purchasing a house is a financial planning task that is intricate, complex and involves lot of thinking. One needs to analyse current financial situation, location for the property, the ability to raise capital, pay the loan and obtaining optimum interest rates and tenure. Hence, it is different from other financial goals. We at Fpguru.com suggest you to keep in mind the following points before buying a house.
We firmly believe one should buy a house only if one plans to live in it. It is a financial commitment involving big chunk of one’s life earnings and forms the biggest share of your overall assets. Prior to making this vital decision to buy a home, you must also decide whether renting makes more sense by comparing the costs between buying and renting a home. This difference may help you come to a decision on whether it really is the time for you to buy a new home – or if it’s better to rent for the time being.
When is a good time to buy?
This is a constant question that comes up when buying a house. It is simply based on one’s need and affordability alone. If you are looking at a house to stay in then any time is a good time. One should look at buying a house based on need for it and not based in isolation on tax benefits, rising or decreasing market rates and as an investment. Buy a house as per your needs i.e. do not buy a too big house which is not really required for a small family. Remember big houses involve big maintenance expenses too.
A house property in which you actually stay is not considered as an investment asset, it is rather a personal asset. It is also a very illiquid asset, difficult to sell and convert it into cash on an immediate basis. And that is why we advice you not to buy a house as an investment when other financial products can offer better and efficient returns. Trading in real estate which involves high risk, low liquidity and long term holding is better left to High Networth Individuals with high risk profiles.
How much can one afford? What should be the loan amount?
Once the decision to become homeowner is arrived at, one should review finances and determine how much one can afford per month and for how long this repayment be planned. A home loan should not be taken lightly as you're putting your home up as collateral on the loan. If you fall behind on the payments, you could lose your home through foreclosure, where the lender takes ownership of the property and sells it in an attempt to recover the money he lent you. Hence, it is good to insure the loan amount to keep away from uncertainty in future on ownership and repayment of the loan. Consult a financial planner for proper guidance on borrowing a home loan.
Before buying a home, it is always a great idea to inspect documents, title deed and the builder (in case of new construction) carefully before you sign in order to avoid any difficulties in future
For most people, a house is the biggest purchase they will make in their lives, one they will pay off for years, even decades, to come. But spending a lot on a house could leave you with little money for other goals in life, such as retirement, child's college funding and vacation. Hence, buy a house as per you needs and affordability. If this is kept in mind, buying a house will not be a stressful experience!
By Disha Keyur Shah
The writer is working with FpGuru.com
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Keep it up @Fpguru.com
thank you
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