The decision to buy a house can’t be made just on the basis of emotions and desire
Ashwini Kumar Sharma
Sandeep Verma and his wife Jyoti had been living in a two BHK (bedroom-hall-kitchen) rented apartment since 2014. While the rent was initially Rs 15,000 a month, by 2019, it had increased to Rs 21,000 a month. The time to renew the lease was fast approaching and the house owner wanted to yet again increase the rent by 10 per cent. That was when Verma finally decided that he no longer wanted to live in a rented house, but buy a flat of his own. After a two-month search, the couple found a good deal and bought a house similar to the one they had rented, in a nearby locality.
The decision to buy a house can’t be made just on the basis of emotions and desire. There are numerous other factors to consider before deciding on renting or owning a house. Here are four major questions you need to answer before you make the switch.
How long are you going to stay in that city or area?
This is an important factor that will help you decide between the two options. Do you see yourself living in your city for many more years, probably your entire lifetime? If you have a transferable job or you are very likely to relocate to another city for better job opportunities, then buying a property in your current city of residence could mean that you get burdened both financially and mentally, as you will be paying an EMI on top of rent.
If your answer is yes and you have no plans of moving from the city for the next, say, 8 to 10 years at the least, you may go ahead and explore other factors that will help you choose between renting and buying.
Do you have enough money for a down payment?
Buying a house would be one of the biggest investments you ever make. And it is likely that even after putting a large chunk of your savings towards down payment, you still need to take a home loan. So, before taking a decision to buy, evaluate whether you have sufficient funds to make the down payment. The higher your down payment, the lower would be your home loan burden and, therefore, equated monthly installments (EMIs).
“Ideally, one should be in a position to pay at least 30 per cent or more of the house’s cost. Also, the balance amount taken on loan should be easily serviceable,” says Suresh Sadagopan, founder of Ladder7 Financial Advisories.
Let's say you have enough to make the down payment. Will this have an effect on your other goals? The down payment should not come at the cost of any other financial goal such as child's education, retirement planning, and so on. If that’s not the case, it would be better to postpone your house-buying decision.
To pay EMIs, savings are more important than income
Drawing a large salary doesn’t mean you would easily be able to pay your EMIs. Rather, look at how much you save every month, after your expenses. “More than earnings alone, one needs to figure out savings, especially if you intend to take a loan; 60-75 per cent of one’s own regular savings can be used to pay the EMI,” says Lovaii Navlakhi, managing director and chief executive officer, International Money Matters.
Sadagopan agrees. “It is not income that one needs to look at, rather what is surplus after expenses. The EMI amount as a percentage of in-hand income can be 40-50 per cent (if income is high). Else, the EMI outgo has to be a lower percentage figure since basic expenses will take away a good portion of the income,” he says.
If you can pay the EMI comfortably, without disturbing other savings and investments for separate goals, you could consider buying a house. If you can't, postpone your decision till your expenses reduce or savings improve.
Will the new house serve your needs?
After considering your budget and affordability, the other important factor to keep in mind is whether the new house meets your and your family's needs or leads to compromises in your lifestyle and comfort. Of course, some amount of adjusting is acceptable, but experts believe that one should not make undue compromises just to live in his/her own house. “There is comfort in having your own house; a true sense of ownership. But before making the move, make sure the features and conveniences that you need are all present in the house as you might stay there for a decade or two, or more,” said Navlakhi.“Are you buying a house because it is suitable for your family, or are you buying it due to societal compulsions? If the reason is simply a feeling that you should live in your own house and you buy what you can afford, then the house may not be comfortable to live in or may not be in a desirable location. One should be careful about these aspects too,” explains Sadagopan.