How planning finances can help homebuyers tide over loan tenure comfortably

Buying a house has always been a dream of every individual. In earlier times, people could manage to buy a property only after earning and accumulating funds for many years. Now, aggressive financing, thrust on home loans and tax benefits have made it easy for much younger people to purchase property . However, buying a property (whether through personal sources or through a loan) is always a major financial investment and therefore it requires a good amount of financial planning at the personal front.

Those planning to buy a property, funding it through a home loan, should plan the various financial aspects to reap the benefits well, and not get into any issues which might mean a bad experience.

PREPARE BUDGET

It's handy to prepare a budget to purchase a property as it helps in making the choice, zeroing in on the right property . People should look at buying property that costs around 4-6 times their stable annual family income. It is important to consider the long-term use of the property and balance it with financial capability, as an investment in property cannot be frequently altered.

The other important factors that must be considered to arrive at the budget are stability and visibility of income, other sources of income, fallback options in terms of other property or assets, and number of dependents.

FUNDS

Most property buyers go for a home loan as it comes with many advantages such as income tax benefits, legal verification of property by bank experts etc. Usually, banks fund around 75-80 percent of the total property cost based on various factors such as earnings, type of property etc. The remaining 20-25 percent (down payment) needs to be generated by the buyer.

The down-payment money needs to be pulled out from other savings such as bank fixed deposits, mutual funds or Provident Fund. Therefore, those looking at purchasing property in the near future should start keeping some funds aside and invest in appropriate instruments to fund the down-payment .

PAYING EMIS

Planning to pay the home loan EMIs regularly is another important aspect of financial planning for a home loan. This amounts to a significant monthly outgo from the borrowers' in-hand income every month. Analysts believe the monthly EMI outgo should not be more than 30-35 percent of a borrower's monthly takehome income.
Most of the loan schemes offered these days follow a floating interest rate, which means the interest rate on the home loan keeps changing based on market conditions. Since the interest rate market is quite volatile, it makes sense to plan for phases where the interest rate is significantly higher than the current rate.

CONTINGENCY FUND
Servicing a home loan requires long-term financial commitment from the borrower as a home loan tenure goes for more than 10 years in many cases. Therefore, it is important to consider the various personal milestones and financial commitments, and chalk out a strategy to generate funds for those milestones, and also maintain a good record of ontime payments of EMIs.

It is advisable to have some extra savings and create a financial cushion which can be used to fund a contingency need. Borrowers should invest some amount in various savings instruments regularly - equity or debt - and generate a contingency fund.