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First home? Bargain hard, borrow wisely

india Updated: Aug 14, 2009 23:28 IST
Sandeep Singh
Sandeep Singh
Hindustan Times
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Home is the most important asset that one builds. But building it on a pile of debt can put you off the track to financial freedom. Making the first roof of your head debt-free is crucial.

Take care to follow some basic rules.

- Buy a home that your current income can support and not based on a future income, say, one you may earn two years hence.

- The loan amount should be as low as possible. Pay as much as possible from your own savings, after keeping some cash aside for other needs.

- Don’t stretch yourself to buy that home. Buy it only when the income is sufficient to support the purchase. While the real estate prices have softened over the past 12-18 months, it is very important to look for a good deal, be it for a home or a loan. Leading public sector banks are now offering attractive rates of 8.5 per cent fixed for three years.

“Do not pay exorbitant price for the house you buy and stay on rent till you think your income can’t support it,” says Amar Pandit, a Mumbai-based financial planner. “Also, do not stretch for a bigger house on expectation of an increased future.”

It is important to decide on the amount of loan. “Not more than 40 per cent of total income should go towards repayment of instalments on all kinds of loans,” says Vishal Dhawan, a Mumbai-based financial planner.

“If there are other loans as well, the outflow on home loan should be limited to 30 per cent,” adds Pandit.

The current economic slowdown stemming from a global turmoil has seen many young Indians lose their jobs and getting into a debt trap. So it pays to be realistic to avoid such situations.

The rise in the floating rate home loans from around 9 per cent to up to 13 per cent has seen equated monthly instalments (EMIs) rising by around 30 per cent, hitting the ability to service loans.