Can You Afford Your Dream House?

Wondering whether you will ever be able to afford your dream house? Read on to know what these interesting statistics have to say about buying a house.

Buying your own house is a big milestone in anyone’s life. It is a big deal and if money were no constraint, then one would go all out and get themselves the house of their dreams. Isn’t it? But since nothing comes easy in life and you have to pay a price for everything, buying your own house these days means a ton of money.

It all boils down to what you can afford or rather how much money you have to pay for that down payment on your Home Loan. And often you are left wondering whether or not you can afford your dream house in this lifetime.

More often than not, many homebuyers end up stretching their finances to make this dream come true. Italian marble floors, German modular kitchen designs and a well-manicured lawn costs a lot of money. But, do you really need all these frills and fancies considering how much money you have stashed away under your mattress?

Additional Reading: Home Loan FAQs

Well, we’ll tell you what you can afford based on how much money you have. So, sit tight.

Note: This is under an assumption that you are able to save 25% of your pre-tax income if your annual earnings is Rs. 8 lakhs with an expected return of 10% on your savings. The property prices in each city are calculated at an average for 1000 square feet ready to occupy homes in these cities.

Taking these calculations into account you need to start saving meticulously in order to afford your dream home. While a simple Savings Account isn’t the best choice when you’re trying to put together money for a Home Loan. You should consider investing in Mutual Funds or other equity investment options.

Dream House Vs Reality

Experts believe that potential house buyers have to take into account a lot of other factors before putting down the down payment. And more often than not, they end up stretching their budget to a large extent which ultimately means digging into their life savings.

Rising property prices and the pressure to own a house has definitely become heavier on the pockets for most buyers. Besides, millennials these days consider buying a house a way of self-expression than just a need to own a place to live.

A house is no longer just a place to take shelter. It is all about how big the property is, what’s the neighbourhood like, and what’s inside the house. And all these things end up as additional costs. For instance, real estate prices in an upscale and central neighbourhood will be twice as much than the suburbs.

With changing trends in the behaviour of homebuyers, it isn’t hard to notice that buying a house is as good as making a statement about yourself. More often than not, homebuyers want to make this dream a reality even if it means that they have to shell out a lot more than what they budgeted. Plus, banks don’t lend more than 80-85% of the value of the property, so buyers are then forced to use up their total savings.

As per a wealth survey conducted by Economic Times, one in every three Indian homebuyers digs into more than 50% of their total savings to make for the down-payment. And it doesn’t stop there, there are a bunch of other ancillary costs that need to be borne apart from the down payment itself. Things like property tax, registration fees and Home Insurance are a few things one must consider too.

And if you’re considering buying a house in an upscale housing complex that has a clubhouse, garden area, swimming pool etc., then you need to account for monthly maintenance charges too. And a bigger house would mean a bigger price to pay for its maintenance and upkeep. Not to mention that moving into a fancy neighbourhood would also put some pressure on having a certain lifestyle to match your suave neighbours!

Additional Reading: 5 Precautions To Take When Buying A New House

Here are some interesting statistics on the behaviour of potential homebuyers:

1. The percentage of total savings a buyer is willing to put in for the down payment

• 6% people are willing to pour more than 80% of their total savings into the down payment
• 7% people are willing to pour less than 30% of their total savings into the down payment
• 7% people are willing to pour about 30 – 50% of their total savings into the down payment
• 18% people are willing to pour about 50 – 80% of their total savings into the down payment 

2. The percentage of household income they are willing to pay as EMI

• 1% don’t plan on taking a Home Loan
• 7% are willing to use up to 30% of their household income to pay for the EMI
• 6% are willing to use up to 30-40% of their household income to pay for the EMI
• 2% are willing to use up to 50% of their household income to pay for the EMI
• 4% are willing to use up to 40-50% of their household income to pay for the EMI

3. Reasons for buying a house

• 3% say that they want to save on rent
• 5% say they need bigger space
• 6% say that they can get tax benefits on their loan
• 7% say they have been offered a good deal
• 6% say that they believe in the price appreciation of the said property

4. Reasons to consider buying

• 4% are willing to buy if property prices decline
• 4% are willing to buy if they get a 20% rise in their income
• 2% are willing to buy if there will be an increase in tax benefits
• 2% are willing to buy if they get attractive offers from builders
• 6% are willing to buy if the Home Loan interest rate is cut by at least 2%
• 2% have stated other miscellaneous reasons

5. Obstacles that stop buyers

• 1% think that the property prices are too high
• 8% think that they don’t have enough surplus
• 2% believe that the interest rates are too high
• 9% think that the returns are unattractive
• 1% already have a house
• 3% think that living on rent is more cost effective
• 6% have other miscellaneous reasons to not buy a house

6. Factors that homebuyers consider

• Size of unit or living space
• Price of the property
• Proximity to work space or schools
• Amenities like clubhouse, gym, open spaces etc
• Scenic view

Additional Reading: How You Can Maximise The Benefits Of A Home Loan

Conclusion

Although buying a house may be a top priority for you, you must consider buying it only if you can afford it. And what does that mean? It means that you should have saved enough money to pay for a down payment. It doesn’t end there, when you take a Home Loan, you are expected to pay for its EMI (Equated Monthly Instalment) every month and this should not affect your finances in any way.

This means that you need to calculate your total income, add up your total expenses for a month, subtract your monthly savings or other investment and see if you have enough left to pay for your EMIs.

Don’t know how to calculate your EMI? Worry not, use this EMI calculator!

It is very easy to get carried away when you’re buying a house. Not taking into account your other expenses and compromising on your savings is certainly not the best way forward. Your Home Loan must not eat into your household income and other financial goals.

While you may be tempted to get your family a luxurious and spacious house to move into, this aspiration of yours must not sabotage other important needs like your child’s education, healthcare for your family, and saving for your own retirement corpus!

Committing to a big EMI and moving into your dream house should not mean that you suffocate and cut corners when it comes to other basic needs. It most definitely must not mean compromise on your standard of living, your health and the well-being of your family members.

Additional Reading: In Your 20s, 30s, or 40s? Here’s A List Of Financial Goals For You

Be realistic in your approach when you go house hunting, ascertain all expenses pertaining to the purchase and ensure that this will not affect your other financial goals. If you’ve already made up your mind then we have plenty of Home Loan options for you. Care to check?