Smart tips for purchasing your first home on a budget

Buying your first home requires careful planning. By following these tips, you can manage the financial aspects effectively and make a sound investment. (Image: Freepik)

Acquiring your initial home marks a momentous occasion and a substantial financial commitment. With the Indian real estate market offering a wide range of options, from affordable housing to luxury apartments, it’s crucial to plan and budget carefully.

Before you begin the home-buying journey, it’s essential to evaluate your financial situation. Here are some practical tips to help you understand the home-buying process without straining your finances.

Savings and Income

Ensure you have enough savings for the down payment, which typically ranges between 10% and 20% of the property value. It is important to have a stable and reliable source of income to manage monthly EMIs and other expenses.

Credit Score

A good credit score is crucial for securing a home loan at favourable interest rates. Therefore, maintaining a good credit score is essential to ensuring favourable borrowing terms.

Adhil Shetty, CEO of Bankbazaar.com, says, “Your credit score is crucial when buying your first home because it directly influences your ability to secure a home loan. A good credit score, typically 750 or higher, indicates to lenders that you are a responsible borrower, which increases your chances of loan approval. Additionally, a higher credit score can help you obtain a lower interest rate, reducing the overall cost of the loan and making monthly EMIs more affordable. Lenders also consider your credit score to assess the risk of default; a low score may lead to higher interest rates or even loan rejection.”

Down Payment and Loan Eligibility

Most lenders require a down payment of 10%-20% of the property’s value. Start saving early to meet this requirement. Use online calculators to estimate the loan amount you can qualify for based on your income, existing debts, and credit score.

Monthly EMI and Loan Options

Ensure your monthly EMI does not exceed 30%-40% of your monthly income to maintain financial stability. Another important thing is to compare different options. With numerous banks and financial institutions offering home loans these days, it’s important to shop around for the best deal.

Interest Rates and Processing Fee

Opt for a loan with a competitive interest rate to reduce your overall borrowing cost. Consider the additional charges like processing fees, which can add to the overall cost of the loan.

Loan Tenure

Your loan tenure is very crucial. If the loan tenure is too long, your interest out will increase, but if the tenure is too short your monthly EMIs will go up. Therefore, choose a tenure that balances EMI affordability and total interest payable based on your eligibility.

Factor in Additional Costs

Some people only factor in the cost of the house as the total cost for buying a property. But that is not all. Property buying also comes with some additional cost and recurring charges that you must keep in mind before buying a house. The purchase price of the home is just one part of the total cost. So, you must consider the following as well:

1. Registration Fees and Stamp Duty: These mandatory charges vary by state and can be a significant part of the total cost.
2. Legal Fees: Hire a lawyer to verify property documents and assist with legal formalities.
3. Maintenance and Utility Deposits: These upfront costs are required when moving into a new property.
4. Interior and Furnishing Costs: Budget for expenses related to furnishing and decorating your new home.

Choose the Right Location

The location of your home significantly influences its cost and future value.

Proximity to Work and Amenities: Choose a location that reduces commute time and provides easy access to schools, hospitals, and shopping centres.

Future Potential: Areas with planned infrastructure developments and economic growth prospects can offer better appreciation in property value.

Evaluate Property Options

Take your time to explore various property options. Don’t forget to compare amenities and understand the builder’s reputation. You must also check the possession time and what are the legal approvals the project would need and what all it already has.

Ready-to-Move-In vs. Under-Construction: Ready-to-move-in properties eliminate the risk of construction delays, but under-construction properties may offer better prices and payment flexibility.

Build an Emergency Fund

Owning a home comes with unexpected expenses like repairs and maintenance. Building an emergency fund can help manage these costs without financial strain. Aim to save at least 3-6 months’ worth of living expenses.

In conclusion, buying your first home requires careful planning. By following these tips, you can manage the financial aspects effectively and make a sound investment. It will make your journey smooth and free from financial hardships.