When a person starts earning, the biggest asset that person generally dreams of is to own a house. This dream resides in the eyes of both men and women. Owning a house from income is always a big drain on one’s finances because a person always tries to buy the biggest/costliest house his income may buy after stretching the budget.
But when should a person buy a house? I am not saying one should not buy a house because
- Owning a house is a matter of pride and enhances one’s confidence.
- House is somewhere one feels financially secure. At the back of mind, he knows he has the ultimate source to liquidate if something goes terribly wrong.
- One may stay in one place for long time without the worry of moving to another house at the end of lease term.
- Shifting household items from one house to another causes at least some breakage to the items. Owning a house means breakage of those loved items can be avoided.
- Paying a rent every month is a financial burden and one may live in one’s house without needing to pay rent. However, one still needs to pay house tax, regular maintenance, wealth tax, municipal tax and so on.
- If one does not pay rent regularly due to financial hardship then he may be evicted. However, if a person lives in one’s house then he need not worry about it. The person may survive somehow.
- A person may, sooner or later, repay mortgage and own his piece of earth.
- Many a times, house is a consideration in Indian society when looking for grooms or brides for marriage alliance.
- House can be a source of alternative income by renting out complete or a portion of house to someone else.
One should buy a house when
- When one can look after his house. If a person has a job that requires him to move from one city to another then he should have some means to look after this costly and delicate investment in his absence.
- When he can pay deductible (his share of home loan). Home loan requires one to pay at least 15% of the loan amount one’s savings. One should have enough savings to pay those 15%. Taking a personal loan to pay that 15% is a bad idea.
- When rent is almost same as EMI (Equated Monthly Installments). One may calculate by considering that life of a building is 30 years and that of land is unlimited. If the rent paid to own a house in 30 years is more than paying to buy that house + the residual value of land after 30 years then one should buy that house. On the contrary if rent paid in 30 years is lower than cost of owning the house in 30 years then one is better off living in a rental dwelling.
- When buying first house, a person should have sufficient surplus to invest elsewhere as well. House is the investment (it can be well be called expense) that a person does not (and cannot) readily liquidate so a person must have sufficient liquidity to survive and thrive.
- When price of property is not too high and not too low. When prices are too high then one may not afford buying the house. When prices are too low then that may mean that economy is in turmoil and one may not repay the mortgage/home loan.
One should surely look to buy a house but one should be capable to buy and maintain the house.