Tips for Planning And Managing Your Home Buying Budget

Home Buying Budget

Published on Apr 01, 2019 @ 10:56 pm

As  a  home  buyer, it  is  essential  to  ensure  proper  financial  planning before  you  make  the  decision  to  buy  it. Purchasing  a  home  is essentially  one  of  the  huge  financial  commitments  in  your  life. Hence, knowing  your  budget  and  preparing  for  the  expenditures  is  very important  before  starting  the  home  buying  process.

You  can  decide  on  your  budget  and  know  exactly  how  much  you  can afford  to  invest  in  your  property  based  on  your  own  financial situation. Therefore, be  clear  about  your   budget  before  starting  the  home  buying  process.

Financial Planning

A  proper  budget  has  to  be  planned  to  know  how  much  money  you  can  put  aside  each  month  after  meeting  your  monthly  expenses. Your  budget  for  buying  your  home  should   be  based  on  your  household  budget  and  how  much  money  you  can  afford  to  pay  as  the   EMI  if you  opt  for  a  home  loan. So, understanding  your  family’s  present  essential  requirements  in  your budget  will  help  you  make  the  right  decision. Review  your  current  financial  obligations  such  as  loans, life  insurance  or  any  other  commitments  to  see  your  true  monthly  income.

Calculate the  additional  expenses

While  determining  and managing the  budget  for  the  purchase  of  your property, consider  the variety  of hidden  costs  and  the  overheads  that you  may  encounter  in the  home buying  process. There  are several additional  expenses  besides  the  purchase  price  of  the  property  that also  account  for, such as  stamp  duty, registration  fees, legal  fees, brokerage  fees, and  cost  of  renovation or  furnishing  of  the  new property, among  others.

These  can  put  an  extra  cost  on  your  budget  and  more  if  you  are doing  some  serious  redecoration  work. Besides, in  the  case  of  an under-construction  property, you  should  also  consider  at  the  time  of booking, the  gross  pricing  of  the  property. They  involve external  development charges  (EDC), infrastructure  development  charges  (IDC), preferential location  charges  (PLC), club  membership  if  applicable, electricity  and water  connection  charges, maintenance  charges, and  other  applicable  taxes. These  additional  costs  can  put  an  extra  burden on  your  budget. It  is  recommended  that  you  calculate  these  additional costs  before arriving  at  the  total  cost  of  ownership  of  your  home. Therefore, besides  the  EMI  you  should  have  a  healthy  savings  account  that  can pay  for  these  additional  incidentals.

Understand  Your  Payment  Plan

The  payment  pattern  depends  on  the  developer  and  the  property  type. In  the  case  of  the  ready-to-move-in  property,  a  lump–sum  amount  is  to  be  paid  to  buy  the  property. Once  you’ve  considered  the  down  payment, make  sure  you’ve  got enough  to  cover  fees  and  closing  costs.

However,  if  you  are  buying  an  under–construction  property, you  can  opt  for  a  payment  plan  of  your  convenience. Typically, there  are  three  types  of  payment  plans  offered  by  developers  for  under-construction  or  newly-launched  projects:

Down  Payment

Under  down  payment  plan,  a  home-buyer  needs  to  pay  an  upfront  amount  of  around  20%  of  the  property  cost as  the  booking  amount. However, there  is  no  maximum  limit  you  can  pay  as  down  payment. Therefore,  try  to  pay  the  maximum  amount  you  can  afford  to  keep  your  interest  pay-outs as  lower  as  possible.

Thereafter,  the  buyer  is  required  to  pay  the  rest  75%  within  45-60  days  of  booking  and  the  remaining  at  the  time  of  possession  depending  upon  the  developer. This  payment  plan  is  the  most  economical  as  the  buyers  get  the  maximum  income  tax  benefits under  it. Moreover, the  developer  also  offers  huge  discounts  to  the buyers  but  the  risks  are  also higher  if  there  is  a  delay  in  completion.

Construction  Linked  Payment  Plan

Under  this  plan,  you  just  need  to  pay  an  initial  booking  amount  of 10%  upfront  of  the  total cost  of  the apartment  or  a specific  amount for the  booking  while  the  rest  is  linked  to  a  set  time-table  construction milestones.  The  construction-linked  plan  has  a  relatively  lower  risk  although  it  may  be  the  most  expensive.

Flexi  Plan

This plan is a combination of both construction-linked  plan  and  down  payment plan  where  the  buyer  pays  10 per cent  at  the  time  of  booking, depending  on  the  developer’s  payment  scheme, and  the remaining  in  a  fixed  time  span  linked  to  the  progress  of  construction.

Pre-approved  home  loan

For  a  more  accurate  figure, pre-approval  is  an  option  that  is  available to  know  how  much  of  a  loan  amount  you  can  obtain. The  best  way  to  do  that  is  to  get  a  pre-approved  home  loan. This  will  help  you  in determining  the  budget  for  your  home  you  are  looking  to  buy.

Finalizing  the  right  home  loan  deal

There  are  various  types  of home loans available in the market for you. Depending  on  your  financial  standing,  some  of  the  home loan  products allow  you  to  qualify  for  a home  loan.

It  is  recommended  that  you  should  know  well  in  advance  about  the lending  policies, all  terms, and  conditions  of  the  lender  before finalizing a  home  loan  deal. Thus, the  choice  of  a  home  loan  provider and  the decision  to  choose  between  a  fixed  or  floating  rate  of  interest become vital.

Insure  your  home  loan

In  case  of  an  unforeseen  misshapen  or calamity, this  would  ensure financial  protection  to  the  dependent family members  of  the  home loan customers. Under  any  such circumstances, the  insurance companies would  take  care  of  the outstanding  payments of  the  home loan. Therefore, you  should  get  your  home  loan  insured to protect  your family  from  an  unforeseen incidents  or  misshapen happen  to  you.

Managing  the  down  payment

The  size  of  the  total  acquisition  cost  of your  home  will  also  determine  how  much  money  you  should have  for  the  down  payment  and  closing  costs. If  you  are  planning  to buy  a home  by  taking  a  home  loan, you have  to  arrange  for  at  least 20 percent  of  the  cost  of  the  property  as down  payment. It  is recommended  that  you  avoid  taking  a  personal loan  for  the  down payment  as  it  comes  with  a  heavy  interest  burden.

Therefore, you  need  to  have  extra  savings  before  buying  a  home  or you  may  liquidate  some  investments  including  your  fixed  deposits, ULIPs, mutual  funds, and  life  insurance  policies, among  others  for  the down  payment. Besides, you  can  also  consider  taking  a  loan  against your  PPF  or  life  insurance  policies  or  arrange  it  from  your  parents  or relatives  as  a  monetary  gift. You  should  try  to  avoid  withdrawing  from your  retirement  funds  such  as  PPF  and  EPF, however, you  can consider taking  a  loan  against  your  PPF  or  life  insurance  policies.

Maintain  a  contingency  fund

So, before  you  start  looking  for  a  home,  you  will  need  to  know  how much  you  can  actually  spend. However, do  not  exhaust  all  money  for buying  your  dream  home. Besides, you  must  put  some  of  the  money on the  table  before  buying a house  and  maintain  a  contingency  fund in case  of  any unprecedented event.

Remember, under  any  circumstances, you  must  be  able  to  pay  off  your monthly  installments  to  avoid  any  kind  of  late  payment  charges. Make sure  that  the   property  you  are  planning  to buy  fulfills  your  present needs  and at  the  same  time  you  should  be  able  to  take  care  of  your lifestyle  and  therefore  keep  it  within  your  budget.

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