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My uncle used to say, “The perfect time for buying a house was yesterday”. He died with three properties and two loans for his family. His children had to pay the remaining installments. Contrary to this, his brother who was also my father, like many other middle-class men from the earlier generation waited till retirement to build a house. He did it without a penny of loan. Unfortunately, he could spend only a few years in his house before he passed away, leaving the house, without the burden of installments, to us.
The two scenarios are subjective and open to discussion, because neither of them would authoritatively answer the question, “Should I buy a house now or later?” Even if you throw in the “times have changed” factor into the discussion, you will still struggle to find the right answer. Or at least, an answer that is right for everyone.
So, does that mean that you will always be clueless about the decision for buying a house? Not really. You may not find an answer in black and white, but you could always consider the factors that affect the decision. Here are the top 5 factors you must carefully think about while buying a house.
Objective - Why do you want to buy a house?
For many of us, a house is not merely a structure. Owning a house can be one of the most important dreams for us. It is where we create memories. Home is where the heart is, isn’t it? So, if buying a house is an emotional decision for you too, how long do you want to postpone fulfilling this dream.
This is one of the biggest factors that will drive your decision to buy a house now or later. Are you planning to stay in the house? Or will it be an investment that you can rent out?
If you are planning to stay in the house, you need to think about the location and carefully consider the market conditions prevalent in that area. This might put pressure on your budget because you might have location constraints. Buying right now or waiting for a price correction will be a crucial decision. But if you want to invest, you can stick to your budget and look for locations that have properties within that budget.
A house loan will be your second-longest commitment, the first being your marriage. Yes, you will be committing to paying the home loan EMIs for the next 20 to 30 years. Hence, you need to make sure that you have a stable income at least for the foreseeable future when you commit to significant cash outflows for such a long time.
In all probability, your income will increase in the coming years. Your spouse’s income might also add to the cash inflow. Your home loan installments, on the other hand, may not increase unless you buy another property.
Although your EMIs will seem smaller as compared to your increased income then, there will be other expenses to care of. For instance, education of the kids, medical expenses for aging parents, maintenance of the house, etc. might become some unavoidable expenses in addition to the home loan EMIs.
Sufficient savings and investments
Even if you have a stable job or business now, it may be difficult to accurately predict the future. It would be better to make provisions for income fluctuations so that you are able to pay your EMIs comfortably. You should have sufficient savings to help you float through tough times before you consider buying a house. And this should be over and above the emergency funds, which you have set aside for medical and other eventualities.
Pat yourself on the back if you got the savings part right. But what about investments? Do you also have the right investments for your life goals? Saving is not the same as investing. Consider it under a different head when you plan out your income/expense/savings chart.
Your savings and investments should go out from your monthly income before your home loan installments. If you can manage it, this factor is in your favor for you to buy the house now.
The Ideal Age
My father bought his first house at the age of 65. I bought it when I was 28. My kids may buy it at 24 or 44 or decide not to buy it at all. How do you decide the ideal age? The answer is you can’t. But you can always look for ideal circumstances.
Having said that, the ideal age to commit to a house loan is generally around 30-35 years. Look at the circumstances of this age bracket. At this age, you would have a stable income to bear the weight of home loan EMIs which can be a significant percentage of your monthly income. You would have also saved sufficiently by this time and have the right investments on track.
Also, in the initial years of a career, one does not care much about the location, and switching jobs and places is frequent. Some of us may want to explore a little before we decide if we want to stay in our hometown or any other place. Right?
But as you enter your 30s, you would have made up your mind about where you want to settle down. You might also have bagged a job that you wish to stick to for a relatively long period. It makes sense to think of buying a house at this stage.
Buying a house at this age also means that you get longer tenures and lower EMIs on the loan. Generally, a home loan tenure is around 25-30 years. You can always opt for shorter tenures if you can afford larger EMIs. While buying a house at 30, you can have 30 years with income inflow to pay your EMIs.
Real estate and home loans both are driven by market conditions. While you cannot influence these conditions, you can definitely gauge those to see if they are conducive to buying a house now.
If there is a relative slag in the real estate, you might get lucky in finding a decent property within your budget. And if you are exceptionally lucky, the interest rates might also be in your favor at that time.
But that’s just too good to be true. Right? So, let’s leave luck out of the equation and stick to ground realities. You might want to hold on a little longer if real estate prices are booming high. And shop for a good deal for your house loans. The lending market is extremely competitive and if you have a good credit score, you can negotiate for lesser rates and lower down payments too.
For wealth creation, it is advised to invest early in an asset so that you see a considerable appreciation in the value. But what if wealth creation is not your primary objective? Consider your financial goals before you commit to paying EMIs for 20-30 long years.
Take the plunge or wait and watch
One of my friends got a good deal for a property many years back. Although the location was far from the main city and was still developing, it was projected to be one of the most sought-after locations in near future.
It turned out to be a good decision for my friend because the prices in that locality appreciated drastically. He has been staying in that house for ten years now. The value of the property is now more than twice its purchase price and all the amenities are available at a stone’s throw from there.
His next-door neighbor who was around the same age when he bought the house wasn’t so lucky. He had to sell the house within two years and move to a new location for his job. The value of the property had not appreciated till then and overall, it proved to be a loss-making deal for him.
Neither of them could have predicted the outcome of those decisions because there is always a margin of uncertainty. But does that make their decision wrong? Maybe not. Because they had considered all the factors and decided that it was the right time for them to buy a house.
Real estate and home loans are tricky. You must have immense patience and discipline to benefit from them. You can always ask for advice from friends and family who have recently bought a house, but the final decision must be yours. And the decision should be based on the relevant factors.
Ask yourself – do you have the discipline in your financial behavior to pay EMIs for a long time? Do you have enough savings and investments before you start a long-term expense? Do you have enough reserves to keep paying the EMIs if your income halts or drops for some reason? Do you see yourself settling down in one place now? Do you want to live in that house? are the market conditions favorable for buying a property? What is your budget?
And then come to the most important question. Is it the right time for you to buy a house?