Purchasing your own house is definitely exciting, especially for first-time buyers. However, the paperwork and finance can be daunting and it is important to have a well-thought-out budget plan. Planning a budget helps to stay within the limit and not end up spending extravagantly. It should ideally start around five years prior to your first home purchase, depending on your financial circumstances. Here are some techniques to help plan your budget for your first home.
The first and foremost step of planning a budget is listing your assets and incoming cash flow. Gather all financial statements that include bank balance, investments, bonds and other income sources like equities. Make a note of the total assets you possess and list down your monthly income as accurately as possible.
After determining your income sources, make a list of the outgoing cash flow, including monthly expenses on house rent, utilities, groceries, debts, credit card bills, entertainment and shopping. Check for left-out items by tallying average amounts that actually end up as your savings.
A budget plan is more a game of balance sheets than income statements alone. At the end of the day, it’s not what you earn, but what you save that counts. Unless your income is equal or more than your expenses, you’d definitely need to cut down on the non-essentials and make way for savings.
Considering a few major expenses like house rent, travel and living, one should plan to save for buying a house. It’s important to keep in mind that such plans will vary drastically for each one — most significantly by income, expenses and financial habits.
Several costs come barging in once you become a homeowner. From mortgage processing fees to the minor or major house renovations, you’ll need to maintain some funds at your disposal to make sure the sail is smooth — since so far it would have been your landlord bearing the repair costs, property tax, cleaning, maintenance and painting. Decide on the property value you can afford and calculate the EMI to check the long-term viability of your plan.
Even though banks provide mortgage of 75-80 percent of the property value, the remaining 20-25 per cent should be borne by you. Buyers also have to take care of the additional charges like processing fees, property registration fees, and agency fees — and you need to plan for them as well.
Rather than breaking the emergency funds, savings can help in covering these costs. Put at least 20 per cent of your monthly income on down payment savings. Making some moderate-risk investment in gold, bonds and business that can provide decent returns can be of help.
Source: Gulf News, 2018
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