Budgeting your home purchase

The decision to purchase a house is a crucial one as it means decades of financial commitment . The condition of the property, neighbourhood, documents, verification of clear title, no encumbrance certificate, plan approval and regulator clearance are the basic elements that the buyer has to validate and verify. However, before even venturing to debate on buying an apartment or independent house, you must figure out how much money you can squeeze, save and invest.

This is an era of uncertainties . The monthly interest rate that is payable to the lending institution could go up or down. To be able to own a roof without any hassles and financial constraints, one needs to seriously plan, assess one's earning and saving potential , budget, and set money aside for emergency and unexpected situations.

Cost of owning a house

If you think the cost of owning your roof is simply the monthly EMIs that needs to be doled out, then you are grossly underestimating your likely expenses. There are the unavoidable startup expenses like deposits for utilities,down payments, registration fees, furnishing, woodwork, moving expenses and other one-time payments . Once you move into the house, your expenses will include monthly installments to the lender, taxes, insurance and other operating expenses. Then there are the random future expenses that include major repairs and replacements, home improvement and preventive maintenance.

Estimate your budget

There is no ambiguity in the fact that a typical monthly EMI payment will be greater than the amount of rent you pay out now.The difference will widen if the new house is going to be bigger and more expensive. And defaulting on monthly payments can get you into serious trouble. So here is a small exercise to see if you can stretch your limits.

Find out the estimated monthly installment that has to be paid without fail to the banker, who is arranging for the lump sum loan amount. Observe over a period of a few months if you can keep aside in your bank account, an amount equal to difference between EMI and your current monthly house rent. If you can save this difference every month with ease, then investing in your own house would be a great idea.

Amount that can be set aside towards home loan repayment and other related expense equals net income minus current day-today expenses.

Take stock of your current financial situation. This will include investments where you've locked up all your money like in stocks, funds, bonds and so on. Take into account your debts. Have you taken any personal loan or loan for vehicle ? If so, what is the monthly outgo towards repaying these debts? Then consider the basic expenses to maintain the current standard of living. No one likes to squeeze too much and live frugally, as the loan tenure can be as long as 15 to 20 years.

In case you already have an unmanageably huge debt on, better work towards getting rid of it. If you've invested in other assets , see if you can manage to augment money from these alternate sources and reinvest in your dream house.