Interest rates are just one factor in the house buying conundrum. There are other factors to consider, too – this article lists them all.
Living in rental accommodation has become a norm for most people today. Unrealistic realty prices force people to seek rental homes instead of buying their own houses. However, the price points are not the only consideration when it comes to buying your own house – there are other factors as well, such as –
* Future return on the investment?If you live in rental accommodation at the moment, start by factoring the rent-to-price ratio. If this ratio is below 20, then you may consider buying the property, else it is priced too high in the current market. To find the ratio, divide the cost of the house by the annual rent you currently pay. Also carry out a risk analysis vis-à-vis projected price trends, and how much your tax burden will increase with the purchase.
* What is your financial state like?Assessing your finances realistically will give you a clear picture of whether you are in a position to buy a house or not. For starters, you must have savings at hand – this money is paid to the seller as down payment, before you get the home loan. Also, you may get up to 80% of the house’s value as loan, so the remainder must come from your pocket. Besides, you must analyse your other debts (credit card/car/personal loan) and find how much your monthly outgo will be once the loan cycle begins. If your budget is too constrained, it is better to wait before buying the house.
* Do you want to wait for a further rate cut? Home loan rates of interest have reduced across banks and financial institutions. From a high 10% or more till November 2016, the lowest rate of interest by a leading Indian bank is 8.5% (for loans up to Rs 30 lakh) while other leading financial institutions are offering rates starting from 8.6%. Some financial gurus opine that there will be a further reduction in home loan rate of interest – which is good news for buyers, since a lower rate of interest translates into a lower EMI. You might decide to wait for more reduction in the home loan rate of interest – though there is no way to predict if rates will really fall – or decide to capitalise on the current rates by applying at once.
* How expensive is rental living for you? If you find that the rent you pay is not commensurate with your current accommodation, you may decide to finally buy a house. But do consider the state of the economy first, as also the property rates listed in the Ready Reckoner for the year. When the economy is doing well (the stock markets rise, for instance) you can be certain that property prices will double in a period of five years. However, rental prices do not increase at such a speed, because they are reflective of actual demand in the market. If economic fluctuations are making it difficult to read the market conditions, it is better to wait.
* How easy will it be to sell the house you buy? You may move into your dream home today, but you may decide to shift into a bigger house later. Suppose you wish to purchase a bigger house in five years – are you certain of getting high returns on the house you currently own? Properties located in good localities with supportive infrastructure normally appreciate, so base your decision after considering future price increase.