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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 it. 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 required beforehand. So today I am going to talk about the important factors we must consider before buying a home. 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. For some of us, the motivation may come because we have lived in rented accommodation throughout our lives. Some may have a strained relationship with their landlord. In such a case our desire to buy a home may be classified as a need. This is because moving into our own home means we are no longer answerable to our landlords. Therefore, the desire to buy a house makes sense. So a new home can be purchased provided there is sufficient liquidity available.


Some of us may already own a home. But we may not happy with the location or amenities on offer. Such people may view buying a home as a need, but not an essential one. They must first have a clear idea of what they are missing in their current home. This would give them a solid set of criteria against which to filter out potential options. This would allow them to zero in on the optimal option for their needs.


There are some who own a home and are happy with it. Their only reason for wanting to buy one is because people around them are encouraging or pressurising them to do it. Or it may even be to compete with those around them. If such is the case, the money would be better employed elsewhere. Here the desire to buy a new home is simply a want fueled by pressure or 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.


For instance looking to move into a 3 BHK as a 3 member family may not represent the most prudent use of capital. It is also important to look at the reputation or track record of the seller or builder. Some of us may have aged family members or those with special needs in our families. Here, we must ensure that the house is fully accessible for everyone in the family. 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 home purchase. Ideally speaking, we must not look to buy or construct a new home until we can satisfy the conditions given below.

This implies that the best time to buy a home is in our late 30s or early 40s. But in today's world consumerism is an inherent part of our lifestyles and credit is easily available. So the ideal scenario may not always play out. Therefore, we may look to finance the purchase or construction of our new home through a home loan. If we choose to exercise this option, we must ensure that we at least make a significant down payment. The down payment must amount to at least 70% of the cost. We must also ensure that our EMIs do not exceed 30% of our monthly household income. Any more than this would seriously compromise our ability to meet our investments for other goals. Consider the example given below.

Here the individual is able to save 50% of their take home income. But their EMIs represent 40% of their take home income. Therefore they are left with monthly savings of just Rs 10,000 after paying their EMIs against the required Rs 20,000 a month. This represents a deficit of 50%. It would be extremely hard to compensate for such a deficit.


Also, availing a housing loan purely for tax benefits is not a wise decision. Moreover, the new tax regime is likely to become the norm for everyone in the future. So tax benefits on home loans may be phased out completely in the coming years. 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.


To sum up, purchasing or constructing a new home is an event that is a significant milestone in our lives. Given the almost irreversible nature of the event, due emphasis must be placed on the factors discussed above. The decision to purchase a new home must be motivated by the right reasons. We must choose a house for ourselves on the back of well reasoned forethought keeping our convenience in mind. Our purchase must be financed completely in cash as far as possible. If debt is chosen as the preferred option, EMIs must be restricted to reasonable limits. And finally, we must ensure that buying a new home does compromise our essential long term goals. Adopting this approach would ensure that the decision to buy a new home proves to be financially prudent and emotionally rewarding.

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