5 key indicators you’re ready to buy your first home

Many individuals in India aspire to purchase their own homes, viewing it as both a personal ambition and a financial objective. However, the process of purchasing a home can be quite challenging. It necessitates thorough financial planning and a solid foundation of financial stability to ensure that one has adequate resources to secure their ideal residence.

To assist you in determining your readiness to purchase a home, consider the following guidelines.

1. Your Savings: The amount you save each month is crucial, as it significantly influences your ability to accumulate enough funds for your home. It is recommended that you aim to save at least 20-30% of your monthly income. When applying for a home loan, financial institutions will evaluate your repayment capacity based on your income and employment status.

2. Funds for Down Payment: In addition to the financing obtained from lenders, you will also need to contribute a certain percentage from your own resources to demonstrate to lenders that you are capable of managing the repayment. Many lenders require borrowers to make a down payment on their home loans, which typically ranges from 10% to 20% of the property’s value, although this can vary depending on the property and the lender.

3. Can You Afford the EMI: Consider a scenario where you secure a home loan of Rs 50 lakh for a duration of 20 years at an interest rate of 9%. The estimated EMI for this loan would be approximately Rs 45,000. If you find yourself unable to meet this EMI obligation over the 20-year period, it would be unwise to proceed with the home purchase. Defaulting or delaying your EMI payments could severely impact your financial stability, leading to significant stress in managing your overall financial responsibilities.

4. Future Earnings Potential: For individuals who have recently embarked on their careers in their 20s, there is a promising future ahead. With time, you are likely to encounter more opportunities and experience growth in your income. If you anticipate an increase in your earnings, consider taking a loan that you can manage alongside your other financial obligations. Additionally, you have the option to repay your loan ahead of the scheduled term.

5. Creditworthiness: Your credit score functions similarly to a health score, indicating to lenders your ability to repay a loan. A high credit score will encourage lenders to approve your loan application and may also result in more favorable interest rates.

It is crucial to evaluate all these financial factors before finalizing the loan agreement and making the decision to acquire your ideal home. Conducting this due diligence will enable you to make an informed choice.