The “HOME, DREAM HOME” is a sentimental objective of every individual those started their carrier in the recent past. It gives the immense pleasure of significant achievement in their life time. Hence everyone is diverting their sizeable savings towards availing a dream home. The objective of a dream home is not only to live and lead their comfortable life and also an asset creation to their next generation. We are spending majority of our life time savings towards buying a home to lead our life happy and comfortable.
The question is, are we really living comfortably after the purchase of our dream house? I am sure; we will have some comfort level while living in own house rather than the rental house. However, there will be some sort of struggle after buying an own house due to lack of proper financial planning.
Let us discuss few causes which may lead us into the inconveniences and how we can avoid them.
- Down Payment :
The first and foremost plan of the dream home is to meet the down payment requirement. Normally the 20% of the property value will be the minimum requirement as per the legal formalities. It is advisable to increase the down payment as far as possible to reduce the loan amount. If the loan amount is more the interest and repayment period will be more. Paying the down payment through getting loan from friends and relatives, or pledging jewels and other unorganized loans will leave you on trap.
We must have own funds to the extent of 20 to 30% of the property value to meet the down payment requirement. It is not ready, then it is not right time for you to buy a property.
- EMI :
The most of the individuals are not planning to fix their EMI. They are always like to keep their EMI less. In order to target those individuals the financial institutions are advertising with attractive less EMI offers. If the EMI is less the repayment period will be more. Based on the extended period the additional interest will be charged.
We should have clear idea about the repayment of EMI as per our present financial status. We must keep our EMI payment less than 30% of our take home salary. Then only we will be able to manage the future expenses like maintenance expenses and the interest rate hike of our housing loan.
- Interior:
When we go for the big deal like buying a dream home we will always concentrate on the major chunk of the cash outflow which will primarily required for the property purchase transaction. We must consider post purchase requirement of cash flow to set up the dream home as per our taste and life style.
Getting the loan to do interior works or buying the furniture and other house hold articles will enhance our liquidity crunch and If you buy the house hold articles through consumer loans it will increase your outflow towards loans. The interest of the loans will be more than 15% of the loan amount. It will consume your majority of the income.
Therefore budget your pre-purchase as well as post purchase expenses. Then only buying your sweet home will be a REAL sweet experience for you.
- Self Protection:
Most of us are not keen to protect our self through adequate insurance coverage.
Ignoring to take adequate life insurance for the house owner who is responsible for repaying the housing loan will create issues to family members in retaining the property in case of unfortunate mishappening of the house owner.
In case anything happens to the house owner before the repayment of housing loan the bank will call for auction to recover the outstanding loan amount. If the house owner had adequate insurance coverage the insurance claim amount will help to retain the property without any difficulties.
- Asset Protection :
Protecting existing assets is more important than creating new assets. We are very eager to create new assets and give less importance in protecting the existing assets. If you refer the number of houses having the insurance coverage to protect from natural calamities you will agree with my statement. Ignoring to take the insurance coverage to protect the dream home from the natural calamities such as flood, earthquake, fire, etc. will make the house owner in a trap. It may happen very rarely , however if it occurs it will negatively transform our entire life style.
If you recall, most of the home buyers whom you know would have experienced any one of the above said difficulties in their journey of availing a dream home. I hope this article will make you rectify these mistakes when you are planning to buy your dream home.
Hope this article not only makes to buy your “Dream home” and makes the buying process really sweet. Nobody is planning to fail, but they fail to plan. For this reason, plan now and act immediately on your goal of “Dream home”.
K. Ramalingam is the chief financial planner at Holistic Investment Planners, a leading financial planning and wealth management company.
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