Buying a home is one of the biggest investments we make in our lifetimes. If you have taken a home loan for buying your dream house, you will be repaying the loan over many years or even decades. You should know that you may end up overspending on your home acquisition which leaves you with little cash to fund other dreams like higher education of children, retirement, vacations with friends and family and even other passions.
While this is not fixed, the general opinion from most experts and financial planners that your expenditure on home loans and rent should not cross 40% of your monthly income. In most cases, lenders will work this out for you depending on your income stability, income size, down payment amount, credit score and other aspects. Be ready with your numbers before applying for a home loan so that you have a clear idea about your desired budget. This will make it easier for you to filter property options.
What you should do
Work out your monthly expenditure. Get accurate figures listed down on pen and paper and list every small and big expenditure. See how much you can actually pay as the EMI for the home loan without majorly burdening/compromising your basic savings and other goals. Use home loan calculators to estimate the payable EMI and the interest that you will be paying as well. Compare the interest rates from several lenders and select the lowest possible option since this will save you more in the long-term. Do not neglect property taxes, home loan insurance, stamp paper and processing fees, all of which can add up to 5-8% of the total cost at hand along with monthly maintenance fee in case you are shifting to a planned community. There are repair and maintenance costs to be borne over the years as well.
The Positive Side
Owning your own home will help you save both on rents and also on taxes. The EMI amount will remain quite similar while your income will increase every year. As a result, you will be on a better financial footing around 5 years from now. The value of the property will also increase in the meantime. In case you are a young professional without major financial responsibilities, you can consider making part payments on your loan for lowering the total amount.
Part-payment facilities are offered by almost all lenders with zero/nominal costs. The first few years will have you paying the interest component majorly and you can get tax benefits. As a result, you should make part-payments after 5-7 years of your home loan. Remember that you should save the rest of your money for personal expenditure and goals like vacations, college education of your kids and also your retirement.