In my short career of being a financial planner for the last 12 years, I have observed that for most of us buying a house features in our top financial goals, which made me ponder a few things like ‘how do you afford a house in India’ & what things to keep in mind while doing the same. Here is a list of things you should consider :
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Saving for a down payment
Buying a house typically requires you to pay an EMI and an upfront down payment at the time of buying a house and typically ranges from 10-20% of the cost of the house which is where most people face challenges. The best way to work around it is to save every month for the downpayment for 2-3 years in advance before buying the house, you can do this in an instrument like a mutual fund choosing a less volatile asset class like a debt fund or conservative hybrid fund, the idea here is not to maximize the return but save & accumulate the fund with least risk to the capital.
EMI to Salary Ratio
It is very important to keep in mind that in the pursuit of chasing your dream of buying a house, you do not sabotage your other short-term & long-term goals, now the best way to keep a check on it by following a 40 rule which basically means that one should ensure that if you are earning 100 rupees than your EMI does not exceed 40 rupees, this will ensure that you have enough room left for accommodating other goals and will keep you at bay from spiraling debt.
Income to House Ratio
One of the common mistakes that one can make while buying a house is to overstretch in order to fit in the dream house, honestly it’s common as one is fulfilling a long cherished dream & people tend to let their emotions take over practicality. therefore income house price ratio comes to our rescue to give us a reality check during such times of being clouded by emotions, here the idea is to see how many years will take to pay the price of the house with your current household income if you do not take any leverage. Ideally, it should range from 4 to 6 times, which means that if your yearly household income is 25 lakhs then the price of the house should be in the range of 1 to 1.5 crore. This way you know where to limit your budget so as to ensure that you do not put all the eggs in one basket.
Ideal Age
There isn’t a specific “ideal” age to buy a house in India, as it largely depends on individual circumstances, financial stability, and personal goals. However, here are some factors to consider when deciding the best age to buy a house:
Career Stability:
Buying a house typically involves a long-term commitment, so it’s advisable to wait until you have established career stability and job security. This ensures that you can continue to meet your financial obligations even if there are changes in your employment situation.
Life Stage
Your life stage and personal circumstances play a significant role in determining when to buy a house. For example, young professionals may prioritize career advancement and mobility, while individuals or couples starting a family may prefer to settle down and invest in a permanent home.
Market Conditions:
Keep an eye on the real estate market conditions, including property prices, interest rates, and the availability of housing options. Timing your purchase during a buyer’s market or taking advantage of favourable interest rates can help you make a more cost-effective investment.
Ultimately, the “ideal” age to buy a house varies for each individual and depends on a combination of financial readiness, personal circumstances, and long-term goals. It’s crucial to carefully evaluate your situation and make an informed decision that aligns with your priorities and aspirations. Also, it observed that after 10-12 years of career people usually get more clarity on the city they want to settle down & also have a decent credit score & savings to go for buying a house.
