During the most recent bimonthly monetary policy meeting, the Reserve Bank of India (RBI) decided to maintain the repo rate at 6.50%. Rental income from commercial and residential real estate remains a popular choice for additional income. With a significant increase in the repo rate, rising borrowing costs raised concerns in the real estate market. Interestingly, there was no change in the repo rate during the current monetary policy, leading experts to anticipate continued expansion in the real estate sector. In this prevailing rate cycle, real estate investors may wonder whether to buy or rent a house. Let's go through the steps involved in buying a house for the first time, and we hope it helps you get your answers.
If you are trying to decide between rent vs buy in India, figuring out your budget is the first thing you should take care of. Figure out how much you can afford to pay for a house. You'd be surprised to know the difference between the actual cost of owning a home and what you're shown on a surface level. If you plan to take a housing loan, your EMIs should typically make up around 30% of your monthly income - assuming you don’t have any other loans or debts.
You can also use this rent vs buy calculator. It is an extremely insightful tool that can help you make a decision and get out of indecisiveness.
Here are some numbers to help make this clear.
Working backward, assuming that your housing loan has an interest rate of 7% and that you plan to repay it over 20 years, you can borrow around ₹30 lakhs. Therefore, budgeting is one of the most critical aspects of financial planning for buying a house in India. If you spend wisely and choose a house that costs more than you can afford, you may eventually not be able to repay the loan. And in turn, you lose your house to the bank for default.
What are the three things that matter the most in real estate?
Location, location, location.
So, finding the right location is the next thing on our list of steps to buying a house for the first time. Here are some things to consider when shortlisting a locality or a neighbourhood.
It's a good idea to check real estate forecasts for the localities you're interested in. This way, you'll better understand which areas are becoming more popular and which ones are falling in favour. And as a rule of thumb, it's generally a good idea to opt for a famous locality, so you can get a decent resale value in case you decide to sell your house later. Check this link for more information on clearing the confusion in real estate information.
According to Section 80GG of the Income Tax Act, the rent paid for your residential house can be deducted from your total income.
Decide on the type of house you want to buy based on factors such as whether you prefer an independent house or an apartment complex, gated society, number of bedrooms, size, and amenities and facilities you want in your house.
This may be the last step to buying a house for the first time, but it’s one of the most important things you need to do. There are many aspects to think of here - like the down payment, the home loan EMIs, the loan tenure, the interest rate, and so much more.
Look at this simplified home loan guide and begin your home loan journey. Here’s a checklist you can use to get started with financial planning for buying a house in India.
Before you dive in, check out this article on the right time to buy a house.
Your home loan can definitely make it easier for you to afford a house. But you still need to pay a hefty sum out of your pocket before you avail a loan. This is the down payment, generally around 15% to 20% of the price of the house.
So, for a house that costs ₹80 lakhs, you need to pay around ₹12 lakhs to ₹16 lakhs as a down payment upfront. And the rest of the cost is your home loan to the rescue.
Home loan rates are not standardised. So, it would be best if you still compare the rates offered by different lenders to find the most affordable home loan.
Plus, it would be best to choose between a fixed rate and a floating rate. Wondering how they’re different? Here’s a quick explainer.
Choose a home loan with a fixed rate of interest only if -
On the other hand, a floating rate may be more appropriate if you believe interest rates may fall in the future.
Your loan tenure directly affects your EMIs and the total interest you’ll be paying. As a rule, the longer the loan tenure, the higher the overall interest, but the lower each EMI will be. Let’s understand this with the help of an example.
Say you wish to borrow ₹50 lakhs as a home loan, with interest at 7% per annum. Here’s how the overall interest amount and each EMI vary based on the loan repayment tenure.
See how the total interest increases and the EMI decreases as you raise the repayment tenure. That’s because, with a longer term, you have more time to spread out the interest costs, leading to lower EMIs. But the total interest cost keeps going up.
A word to the wise:
Your loan amount, interest rates and tenure will give you a clear idea of the EMIs you must pay. You can use the Fi EMI calculator for a clear picture of what this can look like. All you need to do is ensure your budget accommodates the EMI. Do stringent budgeting, cut out unnecessary expenses and check if you can pay the EMIs on time. Then - and only then - should you go ahead and avail of the loan?
The decision between renting and buying a house is a personal one, influenced by factors such as financial stability, long-term plans, and market conditions. Renting offers flexibility and less financial burden, while buying is a long-term investment that can provide stability. However, if you decide to buy a house, careful planning is crucial. It involves assessing your affordability, sticking to your budget, maintaining a good credit score, and researching loan programs. Remember, buying a house is a significant commitment that requires patience, due diligence, and proper research. Whether you choose to rent or buy, make sure the decision aligns with your lifestyle and financial goals.
To maximise your benefits, whether you are purchasing or leasing, utilise the Fi app for all your payments. On Fi, there’s a buffet of payment modes for you to choose from: UPI, Direct-to-Bank, Debit Card, IMPS, and more. When you pay with the Fi-Federal Debit Card, you enjoy zero Forex on select plans, contactless payments using ‘tap and pay’ and a range of offers from top brands across various categories, like food, shopping, travel, entertainment and more. Make faster, instant payments with UPI on Fi and enjoy cashback or Fi-Coins on every payment. Bank transfers on Fi can save you time adding beneficiaries and making quicker payments. No need to worry about finding IFSC codes or choosing a preferred bank payment method - Fi suggests and works out the most efficient way of sending money to your beneficiaries.
Buying a home is a significant decision that requires careful planning. Key steps include assessing affordability, avoiding overextending, checking your credit score, early planning, researching loan options, finding a real estate agent, determining your budget, and choosing the right location. Remember, buying a home is a long-term commitment that demands thoughtful consideration.
This depends on your income, the kind of house you plan to buy; its locality and more. Although an average estimate in India today is Rs 25-30 lakhs.
Planning your finances for home buying involves several crucial steps: determine affordability, stick to your budget, maintain a good credit score, start planning early, research suitable loan programs, secure an adequate down payment, work on improving your credit rating, and reduce outstanding debt. Remember, purchasing a home is a long-term commitment, so approach it with careful planning, and consider consulting a financial advisor or real estate professional.
You can benefit from multiple schemes by The Government of India to get a house with a low income. The government has initiated the Pradhan Mantri Awas Yojana (PMAY) to provide affordable housing to low-income citizens. Under this scheme, you can use a home loan for up to 20 years at interest rates starting at 6.5% p.a. The scheme also gives a preference to differently-abled and senior citizens.
