Nobody wants to spend all their money only on a home. People have various expenses that they would like to continue to afford even after they have bought their first home. So, how does one know if they can actually afford their a home without diminishing their quality of life? Maybe you have enough savings for the down-payment or maybe you have calculated your approximate EMIs. But is all that enough? We at The Scapers give you a few guidelines that will help you decide a realistic budget for your first home.
- Analyze your Income & Expenditure: This goes beyond just noting down all your monthly expenses. Here you need to take into consideration the income you are left with after paying taxes , extra expenses that may come up at certain times of the year (like tuition fee) or any other expenses that you pay upfront for. Also make sure to clear any outstanding debt you may have including things like credit card bills. If you start your purchase debt-free, it will be much easier to pay for it.
- Be Sure to Have a Regular Source of Income: This may sound obvious but not everyone has a secure job. Some people may freelance, some have their own businesses, and some may even unexpectedly lose their jobs. No matter what your situation is try and find at least one regular source of income. It doesn’t have to be your primary job, though it could be. Only when you feel reasonably secure about this should you go ahead with budgeting for your first home.
- The 30% Rule: Payments for your home should not be more than 30% of your monthly household income. Often it is tempting to pay a higher EMI in order to complete the payment sooner. However, if the EMI is more than 30% of your income, you will find it very difficult to manage other expenses and this will land you in further debt.
- Decide on Your Budget before You Start Looking: Every home is going to look better than the other. Every home is going to make you aspire to afford it. And that’s okay up to a certain point. Once you have decided that you are going to buy, plan your budget well so you don’t get tempted to spend beyond your means. While planning the budget, keep in mind expenses apart from the cost of the house. These include legal fees, the cost of furnishing the house, society charges and so on and so forth.
- Don’t Expect to Get Your Dream Home Just Yet: As a first-time home buyer you’ll be excited about a number of things in your home. What you need to realise is that though buying a home is your dream, this particular home may not be your dream home. If you are young, buying a starter home is a good decision. This fulfils your need to have your own home but saves you from overspending on it. However, buying a starter home is an individual choice and depends on your own future goals.
- Keep a Backup Fund: Despite having planned every detail of your budget, always remember to have a backup. Ideally at any given point of time you should have a buffer of 3 months of EMI. This will ensure you don’t miss any payments and you have enough to spend on any unforeseen situations.
- Try Predicting the Cost of the Property: When you see a home you like, you probably won’t buy immediately. Chances are you will browse around while planning your finances. Use this time to estimate what the cost of the property will be when you decide to finally buy it. This improves your budgeting.
Setting a budget for your first home requires a lot of planning and detailing. However, this process can stabilize you financially in the long run. Also at the end of the day one must look at a real estate purchase more practically rather than emotionally. We at The Scapers hope this article has helped you start your budgeting process.