The financial plan of home-buying
Today, real estate has become more than a basic necessity; it has become an investment prospect. In today’s day and age, most of the earning population choose to invest their money in real estate projects – either for personal use or investment purposes. Either way, with the advent of Real Estate Regulation Act (RERA) and lower interest rates on homes loans; the buyers who were sitting on the side-lines waiting for the opportune moment to invest, are now ready to make their move. If you are among the ones ready to take this big decision, there are few things mentioned below, you need to keep in mind.
- Margin money –
While majority of your price on the property can be funded with home loans, the buyer still needs to invest a certain amount of fund from one’s end for the booking amount. Buyers should invest a monthly amount in lucrative investment schemes. Over the years, the principle amount increases and the returns can be reaped by the investor. The amount received at the end of this investment can be used a booking amount by home-buyers. Some buyers invest more than the minimum booking amount as down payment which reduces their loan amount and thereby the value of EMI.
- Loan eligibility –
As per the guidelines set by Reserve Bank of India and National Housing Bank, banks and other housing finance organisations are not allowed to loan more than a certain percentage of the fair market value of the property. This percentage is called the Loan to Value ratio. As per the latest regulation, for a property worth up to 30 lakhs, the buyer can avail 90% of the value of the property as a home loan. For a property worth more than 30 lakhs but less than 75 lakhs, the buyer can avail 80% of the value on the property. For properties valued more than 75 lakhs, the buyer can get a home loan equal to 75% of the value of the property.
- EMIs payable –
One thing investors need to remember is while taking a home loan of the maximum amount based on you Loan to value ratio is quite appealing, the more amount you pay as a down payment, the smaller is the EMI and hence a lesser stress on the monthly financial plan. While granting home loan, lenders normally postulate that approximately 30% – 40% of the income of the individual will be used to pay the EMI. Another aspect lenders look into is the individual’s age. The tenure of the home loan is usually fixed based on the remaining years in the individual’s years of employment, keeping in mind a person usually retires at the age of 60. Home loan takers should make a financial plan for the years to come keeping in mind that other expenditures can come up, so that other aspects of their life are not disturbed.
- Additional money-
While banks and financial institutions loan money for the home-buying process, other expenditures such as stamp duty and registration charges are not include as part of home loan. The buyers need to invest in these finances by themselves. This will amount to approximately 5% of the cost of the property.
Although home buying is a crucial process, the buyer needs to factor in other expenses that come along with it. With proper planning and knowledge, a buyer can make the home-buying process relatively easy. Adequate planning is the key. With migration to major cities in increasing on an exponential percentage, investing in real estate is the safest method for long-term returns