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Discover the answer to How much money do I need to buy a house? Our comprehensive guide provides valuable insights and expert advice on financial considerations for a successful home purchase.
Buying a house is a life-changing decision. Maybe you're earning a pretty handsome salary now - but this question always arises, how much do you need to buy a house?
Since 2015, Indians' loan burden has increased by 13%. According to a recent RBI report, the average house price in India in March 2019 was 61.5 times the average Indian's monthly income.
As the ratio rises, housing becomes less affordable in cities across India. Despite the global pandemic affecting the real estate ecosystem, property prices continue to rise.
Making wrong decisions while taking home loan can make or break the rest of your financial planning and derail major life milestones. However, taking the right approach backed up by careful planning can save the day!
House prices are expected to rise in 2023 due to the record-breaking housing boom, prompting many of us to reconsider our home-buying decisions.
But if you're still determined to realize your dream, we'll help you figure out how much money do you need to buy a house for the first-time.
Determine Why and Where You Want to Buy a Home.
It is critical to determine why you are purchasing a home, whether you wish to live there or is it for investment purposes.
If you intend to live there, you should select a house based on its location and amenities.
If you have children then ensure good schools are close by, if you have elders at home then ensure there is fast access to medical facilities, and the locality is well-connected and has easy access to transport options.
Choose a home that is both comfortable for you and those with whom you live.
If you choose it from an investment perspective, do good research on the property location, check the appreciation history of the property, and then make a final decision.
After all, since this is taken as an investment, it should be able to fetch you a good ROI in case you wish to sell the property after a couple of years.
Before You Make a Purchase
1. Look at the real estate forecast.
Before you start financial planning for buying a house in India, you should research housing market predictions. You can also look for real estate forecasts for the city and neighborhood you're interested in.
A good real estate forecast can help you place a safe bet on areas that are always in demand, areas experiencing increased demand due to infrastructure and other factors, and areas experiencing a sharp drop in demand.
2. What is the minimum amount required to buy a house?
The first step in buying a house should always be “How much money should I save before buying a house?”.
It is not advisable to borrow more than 30% of your take-home pay.
So, if you have other loans or financial commitments, you should sit down and figure out how much of your take-home pay you can spend on your home.
Consider how much money you have in savings and whether there is a possibility of more money/additional sources of income that you can add to your monthly income.
Buying a house that exceeds your budget can result in many months of financial struggle until you can sell the house.
This financial burden could result in a cash crunch in your day-to-day functioning and perhaps even an acute shortage of having an emergency fund by your side to face any uneventful crisis that comes your way.
Another thing to remember is not to buy a house out of your budget; some people mistake purchasing a home to selling it to pay off the loan and earn a profit.
This is a very risky decision because there is a possibility that the real estate market topples for the worse, and you do not get your due share of the profit on which you were keeping your eyes.
3. Check for CIBIL
If you're at the beginning of your career, it's likely that you have no existing loans or credit cards. In such a case, it's essential to focus on building a good CIBIL score before seeking loans.
Your CIBIL score is determined by the following factors:
- Payment history: Whether you consistently pay your EMIs on time or default on payments.
- Credit mix: The combination of secured loans (e.g., auto loans, home loans) and unsecured loans (e.g., personal loans, credit cards).
- Multiple inquiries: Avoid having numerous loan inquiries.
To improve your CIBIL score, make sure to always pay your dues on time, regardless of the amount owed. This includes credit card bills and EMIs.
Financial Planning for Buying a House in India
After figuring out, how much money do you need to buy a house, here are the further steps on how to get started.
1. How to Save for a Down Payment on a House
Saving for a down payment on a house takes careful planning and financial discipline. First, determine how much you need to save and set a realistic timeline. You can also automate your savings by transferring a portion of your monthly income to a separate account.
The Reserve Bank of India (RBI) only allows banks and lending institutions to lend up to 80% of the property's value which means you must put down 20% of the purchase price as a down payment.
You will also need to consider the additional costs such as registration fees, loan application fees, furniture, and interior design costs.
2. How to Make EMIs Manageable
Managing EMIs can be a challenge, but there are a few things you can do to make them more manageable.
Consider opting for a longer loan tenure. This will spread the repayment over a larger number of months, resulting in smaller monthly installments. However, keep in mind that a longer tenure may increase the total interest paid.
Do not forget to maintain an emergency fund to handle unexpected expenses and avoid defaulting on EMIs. Regularly reviewing and adjusting your budget will help you keep up with your financial commitments.
3. Find the Best Home Loan Rate According to Your Needs
Finding the best home loan rate starts with assessing your financial situation, including your income, expenses, and credit score. This will help you determine the type of loan and interest rate you qualify for.
After the pandemic, the government has significantly reduced home loan interest rates in an effort to rebuild the economy. Some lenders are now offering rates that are more than 2% lower than pre-pandemic levels.
Next, shop around and compare rates from different lenders. Consider factors such as fixed or variable interest rates, loan terms, and any additional fees or charges. You can also use online financial tools to get an estimated amount as per your interest rates.
4. Ensure Checking All Required Documents
Before buying a home, it is essential to check all the required documents. This will help you avoid any legal or financial issues in the future.
With the Real Estate Regulatory Authority (RERA) in place, you now have a general understanding of the permissions and approvals required for the house you intend to purchase.
However, it is still essential to have all the documents thoroughly examined by experts to protect yourself from potential liabilities.
5. Don't Buy a Home Without a Home Inspection
A home inspection is an essential part of the home-buying process. Although it's not as common in India as they are in other countries still you must consider a home inspection before investing in a property as it can help you identify any hidden problems that may not be apparent during a casual walkthrough.
A professional inspector will assess the structural integrity, electrical systems, plumbing, and other vital components of the property. They can identify potential problems like mold, pest infestations, or faulty wiring that may require expensive repairs.
By investing in a home inspection, you can avoid unexpected surprises and ensure that your new home is safe, structurally sound, and in good condition.
6. Be Flexible and See Lots of Options
After arriving at an estimate of how much money do I need to buy a house, it is important to create a checklist of non-negotiable home features, as well as those that can be compromised.
When buying a home, it is important to be flexible and open-minded. Don't limit yourself to a single property or location.
Being flexible allows you to compare features, prices, and amenities, ensuring you find the best fit for your needs. Keep an eye on the market, as new listings may arise that meet your criteria.
What is the minimum amount required to buy a house?
Financial planning for buying a house in India can be an overwhelming process for first-time buyers, but it brings in the excitement and satisfaction of owning your place for life.
If you're a beginner in the real-estate journey and keep pondering upon how much money do I need to buy a house, we suggest you take slow steps and start saving for this decision; the more you save for your down payment, the less you will have to borrow from the bank, and the less you will have to pay in EMI each month.
This is where the Jar app can help you out! It's a daily saving app that helps debit your account by rounding up your daily transactions and investing them in digital gold. Invest as low as Rs. 10/day or Rs.5000+ in a month on the app and see your savings increase bountifully.
With the price of digital gold rising over the years, you can expect a handsome return on your investment in a few years.
So, save on the Jar app and fulfill your dream of getting yourself a beautiful house in the years to come.