Does it make sense to buy a house early on in your career?
While you might currently earn a high salary to afford a house, know that taking a loan involves a big financial commitment. And that too over a long period (10-15 years).
Property Price trends
Like many of life’s milestones, buying a home is a matter of timing. While there is no perfect age, the decision rests on your individual readiness. Consider the following factors before taking the plunge.
Price movement is one of the major triggers for a home purchase decision. If property prices go up, you pay a higher amount. So, buying the property early means lock-in at lower rates. All India real estate prices were up by 13% annually over the last nine years, as per RBI data. While Delhi and Mumbai prices were up by 14.6% and 12.5% annually, it was relatively lower for Bengaluru (11.7%) and Chennai (10.7%).
However, realty prices are also cooling off lately. Mumbai realty prices were down by 1.4% in the last one year, while Delhi (0.4%) and Bengaluru (8.6%) clocked in lower rates than in the past. When the prices are moving downward, it might be better to sit on-the-fence. Get a grip on property price trends in your locality and act accordingly.
Affordability
Affordability, as measured by property prices to annual income is at its best in the last two decades. In a way, it implies that your neighbours and friends are increasingly buying houses because it is affordable. Without the worry of catching up with the Joneses, buy a house only if it is affordable for you. A popular thumb rule is to ensure the EMI is not more than 1/4th of your take-home salary. For instance, if you earn Rs 1 lakh a month, EMI should not be more than Rs 25,000 a month.
Movement in the interest rate also affects the affordability factor, especially if you go for a floating-rate home loan. In such cases, an increase in interest rate in the economy can elongate your loan tenure and vice versa. With interest rates continuing to remain unpredictable, ensure you keep the necessary financial cushioning for possible rise in rates. Lock-in at fixed interest rate, if you can’t stretch your finances further.
Down payment
Also, ensure you accumulate enough funds for making the down payment on your home loan. It will save you substantially on overall interest payments. As a thumb rule, accumulate at least 20% of your property value before buying a home. Invest your savings regularly into a mix of equity and debt funds, till you hit the target.
The average age of a home loan taker for a reputed housing financial company is 39 years. If you are younger and in your 20s, ensure your career is stable before buying a house.
Age factor
While you might currently earn a high salary to afford a property, know that taking a loan involves a big financial commitment. And that too over a long period (10-15 years). The average age of a home loan taker for a reputed housing financial company is 39 years. If you are younger and in your 20s, ensure your career is stable before buying a house. And if you are older, make sure not to stretch your loan commitments beyond the retirement age.
Staying or Investment
Are you buying the house to stay in it or buying it as an investment? Stop considering real estate as an investment. Equity funds scores over real estate in areas of liquidity, diversification, transparency as well as wealth-generating potential. Buy a property only if you want to stay in it. And if you are staying on rented premises for a long time, endeavour to buy a property sometime soon. But then, don’t forget the above factors.
Takeaway
Owning a house early in life is a matter of pride. However, ensure your financial ducks are in a row before signing on the dotted line.
