For most people, buying a home means the biggest purchase they will ever make. And having a home is together a combination of lifestyle, affordability, and a long term investment decision and definitely, the numbers support this decision.
Buying a property can be an enormous investment hence it should be done with great planning and calculation. As a potential homeowner, there are set of questions which need to be underlined when buying a house – What is the current real estate market trend? When is the good time to invest? How much need to contribute for a down payment? How can we afford a mortgage? How much should be there in financial safety valves for uncertain circumstances? It is always fortunate to have an expert advice before buying a house or planning to take mortgage finance as it saves a lot of time, also helps to envisage what you want to accomplish and abet in setting the strategies as per the requirement.
Understanding of Buyer’s or seller’s Market
The proper understanding of buyer’s and seller’s market can give you an edge in terms of further property discussions with the seller. Before shopping around it is advisable to comprehend the market scenario, as it is better to buy during the depreciation in housing prices, wherein the demand is lower and the prices are reduced.
Figure out what you can afford
If we consider the current market dynamics it is much lesser to pay a mortgage equivalent to rent. And one can manage to mortgage a property that costs between two to two and a half times of their annual gross income. Besides there should be a minimum cash reserve of 25 per cent to shell out the down payment and extra 8 per cent transaction cost to be including in your budget if you planning to mortgage a property in Dubai.
Monthly Income towards Mortgage
To find out if one qualifies for a mortgage, every bank calculates debt-to-income ratios, which include credit report, monthly gross income, and how much cash can be added for the down payment. Though, the lenders take only 50 per cent of the monthly income to calculate the borrower loan eligibility. Moreover, considering the principal, interest and insurance over here in Dubai, it should not surpass 30 per cent to 35 per cent of the total income. Banks calculate the lending amount based on both the front-end ratio and the back-end ratio.
Expect the Unexpected
As a great thumb rule, smart homeowners always keep 3-6 months savings cushion while taking out a mortgage to shield an emergency or unexpected life situation. One should plan his/her investment in such a manner that the investment corpus fund matches at least half the owing principle amount value, so in the rainy day that corpus can be used to settle the part of the mortgage outstanding amount, seeing the fact that your current mortgage does not have any forfeits on pre-payment. Financial ambiguity disturbs everyone, yet a wise choices and planning can calm latent worries and reduces the debt. I would exhort, before investing take your time and discuss with an unbiased and trusted source and then make an informed assessment.
Tick the right boxes during house hunt
Before the property purchase, either it is a primary residence or investment property, it is prudent to always look for reliable and known developers as this ensures your return on investment on the residential property also helps you to determine if the property will last into the future for capital appreciation or not. It is further important that an investor should put into consideration few points before buying a property such as financial feasibility, building location and maintenance, surrounding infrastructure growth, and the resale property value.
Consider other added expenses
Owning a home is not just about money it is also about forming a unique lively space that fit in your persona. Well, while shopping one should not forget additional financial responsibilities of homeownership as well. Buying a house is an exciting venture and mortgage is certainly the main cost associated with a home, but, on the other hand, there are some extra expenses such as moving expenses, utilities, house repair, household appliances, décor, and the like, which needs to be well thought out in advance. And a smart shopper would fix everything appropriately if they keep in mind these additional costs too.
Down Roots
Buying a property is truly rewarding if one does prudent financial security planning ahead. Therefore, if you think you have a good credit score and feel protected about your job, discuss with an expert, based on your requirement they can guide the best advice as per the market flow.
Still, if you look at the above ratios and plan the financial approaches considering your present and future lifestyle and the personal preferences, then probably you can make an informed decision on your own.
By Mr. Dhiren Gupta featured in Gulf Property November 2015 Issue