6 mistakes to avoid as you take a Housing Loan for your residential flat in India!

Biting more than we can chew is always a bad idea. Let us explore the mistakes to avoid before we take a home loan for our dream home!

A home loan EMI should not be more than 40%-50% of your total income. If you have double income (couple earning), with a combined net income of husband and wife exceeding Rs 1.8 lac per month, then your monthly EMI could go beyond 50% of your total net income.

A high EMI outflow sometimes puts the household budget in jeopardy. In times of crisis, we are forced to downsize important family aspirations. Many people end up living a suffocating life by stretching beyond their means and feel trapped in the whirlpool of huge monthly EMIs. Plus, at times, they are even unable to extricate themselves by liquidating their asset, especially when they are still under construction!

6 mistakes to avoid before we commit ourselves to a monthly Housing Loan EMI…

1. Wrongly assuming that real estate is a liquid asset that can Be sold quickly in times of need

• Not to take a plunge for a home loan EMI under the wrong assumption that you can exit out of the investment should things go South, and may not have to pay the EMI. It’s easier said than done!
• Always be sure to hold the property, and not take this aspect easy
• So, it’s always good to embrace a housing loan as a long-term commitment
• Most Indians pay off their home loan within 10 years, and you should also plan accordingly
• Not to take likely or unforeseen expenses lightly

2. Not keeping an emergency fund in times of financial uncertainty

• Always keep some sort of emergency fund handy that can take care of at least 6 months of EMIs should you face difficult or transitional times financially
• Having no buffer to payoff EMIs can put you in a delicate situation, and your credit scores also take a hit in case of non-payment of home loan EMI

3. Not factoring in other unstated or hidden costs like registration, interiors, amenities

• Having an additional budget for registration costs, stamp duty charges, paying commissions, interiors, etc. is also needed
• On an average, registration alone can take up to 6% to 10% of the cost of an apartment or home
• Also, for interiors, you need a minimum of Rs 5 lac budget to make the apartment ready to move in
• Additionally, you need other things like electricals, appliances, air-conditioners, plumbing, and electrical fixtures among other items
• Costs tend to go up further, when you consider moving in, depending on family needs

4. Not being clear if you want to live in the home in the long run

• It is advisable to buy a home only if you actually plan to live in it for 10-15 years
• For instance, at times, young home buyers are required to move places/cities and get stuck wondering what to do with the apartment
• You may not want to sell your home, but if you move out of the city, then you end up paying rent in the new place/city as well the EMI burden
• This suffocates cash outflow and suffocates your beyond imagination
• At times, home buyers regret having bought a house in a hurry
• So, you need to be clear about your priorities in your career and life before you lock down a housing loan EMI to your monthly income

5. Avoiding questions about job prospects and income inflow in future

• Sometimes we are not sure of our income prospects due to many reasons like industry trends, market issues, job-related uncertainties/insecurities
• When you are unsure or doubtful of consistent inflow of income, going ahead with a home loan EMI can be a risky proposition
• Worse still, if you do not have possession of your home, and the property is still under construction, you may not be able to sell easily!

6. Not being sure of an on-time project delivery

• Acquiring an under-construction property can be dangerous if you may have to sell the property midway
• Also, the builder’s reputation and past performance on delivery must be checked before you lock down on a home loan EMI
• With on-time delivery, you can even move in on time and save on the burden of rent. Many home buyers stay in a rented apartment and pay both EMI and rent as a tenant till they get possession
• On-time possession eases the financial burden considerably, especially, when you move into your own apartment, and have only the EMI burden

‘Take calculated risks. That is quite different from being rash.’

– George S. Patton

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