In this post I wanted to share a simple check list that first time home buyers can use to find out their state of readiness in going for the purchase. Note that you can just have a yes/no response to the questions below:-
- Are you in a job where you are likely to continue medium term ( 3-5 yrs)?
- If you were not to have this job would you be able to find another job in the same city?
- Are you likely to be in the same city for the next 10 years or more?
- If you were to move cities will the rent available from your home suffice for renting in the new city?
- Is your proposed home consistent with your needs in terms of size over next 10 years?
- Is the location consistent with your needs – closeness to office, children’s school etc?
- Have you checked on all amenities including availability of public transport for the location?
- Are you comfortable with the cost of the proposed home, based on your overall financial context?
- From all available data, does it seem that the home will appreciate well in value over the years?
- Do you have 20 % of down payment saved by now?
- Is your EMI for a 15 year loan less than 40 % of your total take home income?
- After paying your EMI will you still have bandwidth to save for your other goals?
- Do you anticipate any sudden expenditure in the near future that can make payment of EMI difficult?
- Have you paid off all your other earlier loans by now?
- Do you have access to contingency funds, covering regular expenses and EMI for 6-8 months?
If you have answered with a “Yes” to all of these questions, then you are definitely ready to buy your first home. In case there are a couple of “No” answers it should not matter a great deal. However, make sure that you have answered in the affirmative for the questions that are in bold.
If the above is not true, you have more work to do. Do not take up a long term financial commitment in an uncertain situation. Creation of a long term liability without having adequate certainty of being able to use it well.
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