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  • Writer's pictureAkshay Nayak

Before Moving In

Owning a home of our own is a significant dream for most of us. There is always a lot of pride and a sense of self esteem tied to being able to own a home. Therefore it is something that most of us strive for and look to achieve as early as possible in our lives. But even so, buying a home is a decision that is extremely hard to reverse if things were to go wrong. Therefore, there is a lot of forethought and a number of considerations that should go into the process of buying a home. And this must happen before we actually follow through on our decision and buy ourselves a home. So today I am going to talk about the important factors we must consider before we go ahead with the decision to become home owners. I am going to highlight each factor and the thought process we must adopt to think through each of them.

The first factor to consider when looking to buy a home is to try and understand whether our desire to buy a house is a want or a need. In order to do this we must first understand the triggers that motivate our desire to buy a house. If our motivation comes from the fact that we have lived in rented accommodation throughout our lives, our desire to buy a home may be classified as an essential need. This is because moving into our own home would give us greater independence owing to us no longer being answerable to our landlords for rental payments. Therefore, such people should definitely plan to buy a house. Those of us who already own a home but are not happy in terms of the location or the amenities offered by our current home, must view buying a home as a need, but not an essential one. Therefore, must first do a lot of research have a clear idea of what we are missing and not plan a move until then. This would give us a solid set of criteria against which to filter out potential options, thereby allowing us to zero in on the perfect option for our needs. But, if we own a home, are happy with it and yet want to buy one because people around us are encouraging us to do it, our money would be better employed elsewhere, since the desire to buy a new home would be nothing more than a want fueled by greed.

The next factor to consider is the kind of house we want to move into. It is important to think through this factor because purchasing the wrong kind of house for our needs would mean that the money spent on the house would be completely wasted. When looking at a prospective house to buy, we must look at the needs of our families and our own convenience rather than the locality or the form of construction (i.e apartment, bungalow, villa etc). It is also important to look at the reputation or track record of the seller or builder. The house we move into must be spacious enough for all members of our family to live comfortably. Those of us who have aged family members or those with special needs in our families must ensure that the house we are moving into is fully accessible for everyone in the family. Also, those of us who are moving for the want of better amenities must ensure that the house we are moving into has all the amenities we are looking for, along with the right quality of service. The maintenance costs associated with the house of our choice must also be reasonable.

Let us now move on to the most crucial aspect of actually financing the purchase of the house of our choice. Ideally speaking, we must not look to buy or construct a new home until we can afford the expenses fully in cash, are free of all other forms of debt and have some residual savings along with an adequately sized emergency fund in place. But in today's world where consumerism is an inherent part of our lifestyles and credit is easily available most of the time, that may not always be possible. Therefore, we may look to finance the purchase or construction of our new home by availing a long term housing loan. If we choose to exercise this option, we must ensure that we at least make a high down payment. Also, we must ensure that the EMIs on our housing loans do not exceed 20% of our monthly household income. Any more than this would put our ability to meet our remaining monthly expenses under serious stress. Also, availing a housing loan purely to avail a tax deduction on the interest payments is not at all a viable decision. This is because our tax deductions are likely to be lower in the later years of the tenure of the loan, owing to a reduction in the outstanding amount of our loans. Moreover, these deductions are likely to be phased out completely in the years to come. And finally, if we find a home that we can comfortably afford in cash and suits all our needs, it is better to pay the full purchase price rather than bargain at the risk of missing out on a deal with the seller.

For most of us, purchasing a new home would be one among a list of financial goals. So we need to understand how the purchase would impact our other financial goals. And this is the final aspect we need to think through before purchasing a new home. What we need to understand here is that unless we are looking to shift out of a rented accommodation, purchasing a new home is a goal that is purely aspirational and tied to our personal ambitions. Therefore, we must not give it priority over our essential financial goals such as planning for retirement, education or marriage. We must first set up a substantial base for our essential goals before moving on to realising our aspirational goals. And we must do this even though we may have the financial resources to comfortably meet our aspirational goals. For example, if we have a monthly income of Rs 1,00,000 and a monthly surplus of Rs 50,000 available to us in our early years of employment, it doesn't mean we can buy ourselves a home with an EMI of Rs 45,000. Our monthly surplus would be much better employed if it were to be directed towards building our retirement corpus. The house can always be purchased in later years when we would have a much better chance of affording the house of our choice in cash, thanks to the probable growth in our monthly income.

To sum up, purchasing or constructing a new home is an event that most often marks a significant turning point in our lives. Given the significance and the almost irreversible nature of the event, due emphasis must be placed on each of the factors discussed above. The decision to purchase a new home is one that is best made when it is motivated by the right reasons. We must choose a house for ourselves on the back of long and well reasoned forethought keeping the convenience and needs of ourselves and our families at the centre of our attention. Our purchase must be financed completely in cash as far as possible. And where financing through debt is chosen as the preferred option, debt servicing payments must be restricted to reasonable limits in light of our monthly household income. And finally, we must ensure that the money spent on purchasing a new home does not set us back in our endeavours to achieve our more essential long term financial goals. Adopting this approach before we buy ourselves a new home would ensure that the decision to buy one proves to be one that is both financially prudent and emotionally rewarding.

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