4 Steps Towards Financial Planning Before You Buy Your Dream Home

Romila and her husband bought their dream home in Pune after years of hardship. They exhausted all their savings and had no savings for any unforeseen circumstance.

Romila found herself in deep financial trouble, just 3 months after buying an apartment in Pune through Home Loan from Public Sector Bank when her husband passed away in a road accident.

Romila’s story is a lesson for all the people who want to buy their dream house but they didn’t have a sound financial plan in place.

The decision to buy your dream home should be backed by sound financial planning rather being an emotional decision. It’s a wrong notion that if both the spouses are working then they can manage the finances smoothly even after a real estate purchase. The problem comes without knocking your door. Romila’s husband had never thought that he will leave behind his wife and a huge mountain of home loan. And because he didn’t plan for future uncertainties, he never thought of purchasing a term insurance plan.

But are you making the same mistake?

Romila and her husband purchased the property under family & peer pressure without proper financial planning. Financial Planning is very critical especially if you are buying a house on a home loan. Here are 4 points which are indispensable for proper financial planning before you buy your dream house.

1. Monthly Household Expenses:

   For any middle-class family in India, buying a house is a huge financial decision. On the other hand, considering high property prices no one can purchase a property without financial stretch. Based on a study of various cases, on an average, you need to cut down household expenses by a minimum of 25%-40% after buying a house through a home loan. It is not an easy task as you are used to a specific lifestyle. It is critical to keep aside at least 6 months household expenses as a reserve to meet any future financial deficit

2. Next Six Months Liabilities:

   It is important to make a list of next 6 months liabilities like kid’s tuition fees or Insurance Premiums. This amount should be kept reserve so that you fulfill these liabilities on time.

3. Existing Loans/Debts:

   You should clear all your existing loans or debts like a car loan, personal loans etc. before opting for a Home Loan. It is not feasible to serve 2 loans at the same time taking into account a huge liability of a Home Loan. Secondly, by clearing these unsecured loans, you will improve your CIBIL score before availing a Home Loan.

4. Term plan

   Last but not least is a term insurance plan. Life is uncertain and no one can foresee unexpected expenditures like health expenses, family function, job loss etc or an untimely demise of the main bread-winner of the house. Financial Planning is incomplete till you have a term life insurance in place. You just have to pay a small amount of premium and your family’s future will be secured.

   Buying your dream house should be a pleasing experience rather a financial nightmare. Above mentioned points will help in better financial planning and protect you from fears of life.