Buying a home is usually the biggest financial decision of our lives which requires a lot of planning and research, due diligence, and a highly focussed approach. A wrong decision while buying a home can cause financial distress, but in the current situation, it could have devastating financial implications. However, it’s also a fact the realty market has witnessed attractive price corrections amid record-low home loan interest rates. Here are a few important things you should keep in mind before taking the plunge.
Stable source of income
It’s important to have stable and adequate income while you plan to buy a home. Many who are servicing home loans are struggling to pay their EMIs after losing their jobs or experiencing pay-cuts because of the Covid-19 crisis. And while the moratoriums have given them temporary relief, their overall loan burden or repayment tenure is likely to have increased. If you plan to buy a home now, you must make sure that you will have sufficient funds to repay your loan dues in full on time. The best way is to set up income through multiple sources to avoid any disruptions later.
Keep contingency fund
You can never completely discount getting impacted by a financial risk, especially when the overall economic situation is still going through a rough phase. To mitigate the financial risks, you should be ready with an adequate amount of contingency funds. This emergency corpus should be sufficient to meet your crucial financial requirements, including your regular expenses and your EMIs, for at least eight to ten months considering the Covid-19 crisis.
Ready to move-in properties
The realty market in India, like many other sectors, is currently facing the heat of the Covid-19 crisis. As such, you may not want to buy a property and wait for a very long time to get the possession. Although the Real Estate (Regulation and Development) Act, 2016, is in place, under an unprecedented financial situation amid the Covid-19 crisis, you should be prepared to face the worst. The best option would be to consider a ready-to-move-in property over an under-construction one to minimise the risk. That said, you should factor in all the aspects like the premium on a ready-to-move-in property, the affordability of your home loan EMIs, and whether there are any discounts available in the current market.
Most of the banks have linked their home loan interest to the borrower’s credit score. A higher credit score (usually above 750-800) normally results in lower rates and vice-versa, subject to fulfilment of other conditions. Do note, a high or low credit score may result in an interest rate difference of approximately 1% p.a. Even a small increase in the interest rate can make a big difference to your overall loan repayment amount in the long-term. So, if you plan to buy a home, you must assess your credit score and make sure that it is maintained at a higher level to get a home loan at the lowest possible interest rate.
Now or later?
So, should you buy a home now or later? For end-users, the decision should be from a long-term perspective. In the current market, you may get a good deal, including discounts and properties at the location of your choice. There are several tax benefits also that you may get if you buy your first home in the current market. So, if you are financially ready, i.e., you have a stable income and possess the required margin money that doesn’t disturb your contingency savings and other critical financial obligations, you may not want to miss out on a good property deal in the current market. However, put in ample research to find a property that best meets your requirements without burning a hole in your pocket and don’t borrow more than your repayment capacity.
The writer is CEO, BankBazaar.com
Ensure you have a stable income so that you do not struggle to pay the EMIs
Be ready with an adequate amount of contingency funds
Consider a ready-to-move-in property over an under-construction one
Maintain a high credit score to get a home loan at the lowest possible interest rate
Check out the tax benefits available if you buy your first home in the current market