3 self-assessment exercise to know if you are ready to buy home yet!
As a potential home buyer, it is prudent to engage in a risk assessment to see if you are ready to buy a 2 or 3 BHK yet!
A middle class budget to buy an apartment in a city like Hyderabad for a 2 BHK, 1100-1300 sft unit is between Rupees 45 to 50 lakh. For a 3 BHK, 1300-2300 sft, it can range between Rupees 65 lakhs to Rupees 1.2 Crore.
How to make ends meet requires an assessment, which we shall discuss in this article.
Categories of home buyers
For convenience, let’s say we have three categories of home buyers-
A. One’s who can afford an apartment easily
B. Those who can afford to borrow (home loan etc.) and repay easily
C. Those who are NOT so sure, and may find it difficult repaying the borrowed amount
The third category is a problem area. There are many home buyers who take a loan, and are unable to repay due to circumstances, and lose both money and peace-of-mind!
You must be very clear about which category you fall in.
Once you have a clear understanding of where you stand, it becomes easy to decide the budget, size, location and other design elements of your dream home.
‘Financial Capability’ and ‘Future Confidence’ Grid
So, are you really ready to buy an apartment? Let’s assess ourselves basis a ‘grid’ (four blocker table) given below.
Let us call it the ‘Current Affordability vs. Future Capability’ grid. This grid eventually helps us understand two scenarios- a) money is not a problem, b) money is a problem.
The two measures on X and Y axis are:
1. Confidence to repay loan
2. Ability to Afford
To explain this further-
- Ability to Afford
- This is your current ability to afford like savings to pay for the down-payment
- If you don’t need loan, and can buy upfront, then you are placed convenient
- If you need loan, you need to assess how soon you can repay, and well you are placed in your job or business
- Confidence to Repay
- To repay loan, you need to have a stable source of income that is relatively future-proof
- If your job or business is thriving, and future-proof, then you will have HIGH confidence to repay, else it will be LOW
- You own the home only after you repay fully. Normally, people take a loan for 15-20 years and are able to repay within 10-12 years of tenure
- If NOT confident, you must NOT take chances and risk your peace of mind and savings
The four quadrants of the ‘Financial Capability’ and ‘Future Confidence’ Grid
Quadrant I – Go-ahead confidently
- If you have enough cash, and are confident to pay upfront (or pay an EMI) without stress, go right ahead
- You could even choose a spacious 2000+ sft 3 or more BHK apartment, or an exclusive floor
Quadrant II – Re-think why, fix issues before committing
- If NOT confident, think why that’s so, and come up with a solution, if possible
- Even if you are placed comfortably currently, and can pay the down payment with ease, that’s NOT good enough
- If your source of income is uncertain, you may invite trouble by taking a jump in buying a home
- Never invest when your repayment-capacity is in doubt
- If things look up, make sure your safety–nets are high before committing to an EMI/borrowing (home loan)
- Do NOT compromise on your savings, and be caught in the downward spiral of ‘defaulting’ on your EMI, making your life a living hell, and eventually losing your home, besides, peace of mind
Quadrant III – Build reserves before deciding
- If you are certain of your future, and just don’t have enough down payment capacity immediately, then wait for a few months/years till you build your reserves
- You don’t buy a home every day, so have enough reserves to have a good home even if means waiting for another year or two
- For all you know, you may pick an ever bigger/better home after a patient & wise wait
Quadrant IV – No-Go, fix issues before planning
- If you DO NOT have enough money, or are uncertain about future income inflows, do NOT jump into buying a home
- Cater to your family needs first, and be guided by wisdom of NOT risking peaceful life by stretching beyond your means
- Unwise and hasty decision without adequate safety-nets is dangerous
So, always follow a sensible, mid path! A wise home buyer, you must NOT act without thinking about the ‘pros’ and ‘cons’ of your ability to buy a home and keeping your peace of mind intact!
To know more about “4 things to know about home loan application process” click here