|
A lot of thinking process is involved while buying a house as it is the most expensive undertaking involving a major proportion of the family's resources and savings i.e. it could go up to 20% to 30%.
The parameters which determine the proportion of family's resources to be spent on the housing are as follows:
Family income
- The current income savings and investments and the likely future income, all together determine the ability of the family to pay a particular price or cost of the house, along with additional costs, and how it will effect the other family needs such as food, clothing, education, etc.
- The purchasing power of a particular family can be estimated by computing the amount it can safely invest in a house without sacrificing other important needs and wants.
- This purchasing power, therefore, will depend upon the total monthly housing allowances, the cash reserves and partially on the future earning power.
The monthly housing allowance
- This determines the mortgage payment one can handle each month with ease, together with non-mortgage costs such as house tax, insurance cost and maintenance cost.
- If one can afford to pay larger monthly installments, one can obtain a bigger loan and pay it off faster with lesser interest. The strain on family budget will also be lesser, thus, overall cost will be economical.
Family's cash reserves
- The savings and investments also influence buying ability as these are needed for down payment and other related expenses while purchasing or constructing a house. Down payment is required at the time of transfer of ownership.
- Other expenses include moving costs, closing costs, new furnishings and fittings and unexpected expenditure which can run into several thousands of rupees.
- To estimate the size of down payment, one can figure out the cash one can raise from savings and investments and other assets.
- Also one can estimate roughly the cash which will be required for emergency, furnishings and non-house expenses, moving costs, buying costs, building costs etc.
- These rough estimates can help one determine the amount of cash one has to pay as down payment.
Future earning power
- This estimate will determine the power to spend on housing in the years to come.
- Since mortgage loan is going to be a long-term obligation, one must consider the financial future before deciding on mortgage.
The three parameters of the housing economics which will establish the abilities to pay for housing are:
- The initial capital cost of the asset
- Total annual household income
- Annual economic rent
|
Participants