What should you do if your preferred home is costlier than what you can afford now?

2 min read

What should you do if your preferred home is costlier than what you can afford now?

There have been too many house owning dreams shattered by the lack of a suitable budget to accommodate the same. However, should you let your dream home pursuit bog you down from moving on and upwards? In case the home you desire is out of your reach at the moment, financially, there are ways and means that will enable you to turn this situation to your advantage.

Affordable housing has brought you another option which may help you own the house of your dreams in the future. This enables you to purchase what is popularly called starter homes. These are affordable housing units which are smaller in size and priced competitively in turn. While they may not be initially giving you the fancy lifestyle that you desire, this can actually make for a good financial decision as per several experts.

Why does a starter home work?

  • Buying a starter home can be financially beneficial in comparison to renting out a home or splashing out a good amount on buying a dream home by taking a costly home loan.
  • The entire package becomes more attractive if you consider the PMAY (Pradhan Mantri Awas Yojana) interest subsidies and benefits given by the Central Government on affordable housing.
  • First-time homebuyers will naturally be incentivized to buy affordable homes in this regard.
  • Apart from interest subsidies, homebuyers can also expect lower taxes on homes under construction in this segment.
  • GST has been lowered to 1% for under construction affordable homes from 8% earlier. There is no GST on ready to move property.
  • It helps you accumulate enough funds for the long haul while building an asset which can be sold off for a bigger amount in the future to help fund your dream home.

Other aspects worth taking into consideration

  • Staying on rent may seem attractive but it is not a good proposition since you are anyway paying good money for something which is not an asset.
  • On the other hand, an affordable home will be worth 3-4 times as forecasted over a period of 7-10 years. Even if it doubles in value, you will still be the big gainer, building an asset for which you have to pay lower EMIs while investing surplus funds into building a corpus for your next home.
  • Always keep in mind registration, stamp duty and other ancillary expenditure. This is usually 5-6% of the overall cost of acquisition while there are recurring costs like maintenance along with home furnishing and property taxes. Everything should be factored into your budget.
  • The CLSS (credit linked subsidy scheme) will help you lower your monthly EMIs overall. The interest subsidy is 6.5% and 6.5% for housing for the economically weaker sections and lower income groups with annual incomes up to Rs. 3 lakh and between Rs. 3-6 lakh respectively. For the middle income group, subsidies are 4% for income between Rs. 6-12 lakhs and this is 3% for the middle income group-category II with income between Rs. 12-18 lakhs.
  • Starter homes will not burden the pockets of first-time homebuyers while enabling them to build an asset and meet their housing needs.
  • Later on, they can sell off this property and save enough money to pay close to 60-70% or even more of the value of the dream home they wish to own.
  • You can easily plan to buy the dream home in a period of 5-10 years and accomplish the same by upgrading once your income has increased and you can realize a good value from your starter home and other investments.
  • Starter homes may not always be suitable for every individual. It should be based on the particular life goals and scenarios. If someone knows that in 5-10 years, he/she will be able to purchase a larger house, then a starter home makes sense.
  • However, if you are not willing to stay in a starter house for a period more than 2-3 years or less, then staying on rent makes sense.
  • Even purchasing a starter home will require you to make a down payment. Additionally, if there is a job transfer in the offing or if you do not wish to stay in a particular city for a long time then buying a starter home will not be a good decision.
  • A starter home works only in a scenario where EMIs for these homes are not more than the rental outflow.
  • Most people choose starter homes in better locations due to better connectivity and proximity to social amenities. A smaller size is no deterrent in these cases.

The most important thing to remember is to stay invested in the home for at least 5-10 years if possible in order to get the most value out of it. Why compromise on your house-buying dreams when you can make some smart moves early on and secure the same for the future?

Resident Editor