The development of a full grown housing finance market and rise in income levels in India over the past 10 years has changed the way Indians buy their house.
While most of Indians target to buy their home at early stage of their lifecycle now it remains critical for individuals to have an optimum exposure of their income towards leveraging for buying their house.
Young ambitious Indians working either at a call centre or a financial services company or an airline company look to utilize their leveraging ability based on their future earning to build on house and car and at times end up being overleveraged.
Experts say that the slowdown in the Indian economy as a repercussion of the global turmoil has seen a lot of young Indians losing jobs and getting caught up with lot of debt to be repaid and so it becomes very critical to be realistic.
In the financial year gone by, due to the rise in the floating rate home loans from around 9 per cent to up to 13 per cent, individuals saw their equated monthly installments (EMIs) rising by around 30 per cent which led to a situation where people found it difficult to service their loans.
“Not more than 40 per cent of the total income should go towards repayment of monthly installments on all kinds of loans,” said Vishal Dhawan, a Mumbai based financial planner.
This is because it leaves some room for meeting with these unexpected circumstances.
“Loans should be within a certain level because when the rates go up the cash flow is impacted and suicidal tendencies crop up so the outgo on debt should be within 35-40 per cent of the take home,” said Amar Pandit, certified financial planner. “If there are other loans then outflow on home loan should be limited to 30 per cent of take home.”
Experts also suggest that even while taking a loan on couple’s income, they should be very conservative. This is because on many occasions one of the earning members quits the job for family planning or some other needs.
“In case the couple is earning, loan EMI can be stretched up to 60 per cent of single income rather than 40 per cent of couple’s income,” said Dhawan.
While keeping control on the EMI outflow is one aspect, one should also take care of the paying the right price for the house. One should not stretch to buy the house buy only when the income is sufficient to support the purchase.
“Do not pay exorbitant price for the house you buy and stay on rent till you think your income can’t support it,” said Pandit. “Also do not stretch for a bigger house on expectation of an increased future income but go for a smaller house that you can afford on the present income.
While all this has been fixed, you must look for a good deal for your home loan.