Property is usually the most expensive purchase in your life. Not so, it requires years of planning and saving. So, what is the ideal age to buy a house?
Buying a home is a dream for every individual across the globe. The only problem is affordability. Buying a house needs to fit the budget. One’s dream need to be realistic in order to achieve it.
From the lender’s perspective, if a person receives sufficient income from legitimate sources, he is eligible for a loan. After taking care of daily expenses and other loans, he must have a stable source of income and sufficient savings to repay the equivalent monthly installment (EMI) of the mortgage. These factors are called the creditworthiness of the borrower, and the credit behavior of the borrower is evaluated in India by what is known as CIBIL score.
The CIBIL score takes into account the person’s credit history, whether he defaulted on the loan earlier, and other similar points.
Another point that appears is age, which determines the tenure of the loan for purchasing the property.
The age in isolation is not a factor. The lender also wants to check the person’s income and repayment ability, the quality of the house he intends to buy, and loan amount he is seeking.
Let’s take the case of a house property which is worth say Rs 80 lakh which includes all taxes and statutory charges. Assume that the lender is willing to fund 80 percent of the amount, which in our case is Rs 64 lakh.
Now, let’s consider three person aged 25, 35 and 45 who approach the lender for the loan on this property.
These days the younger generation gets a good starting salary especially if he has a good education or is a professional. In our case let’s consider an average individual.
Clearly, a 25 year old person can take the loan for the longest period possible, which in India can be around 30 years. The middle-aged person can be eligible for the loan for 20-25 years. The eldest individual will get a loan with a tenure of 10-15 years maximum. The lender would consider the useful working life of the borrower before fixing a tenure.
Lenders generally hesitate to lend a housing loan to an elder person. Part of the reason is the limited working life he has in front of him and secondly because his obligations increases with age. Children’s higher education needs to be funded, their marriage and medical cost associated with him and his spouse which can lead to cash flow mismatch going forward.
However, if the older person has a strong income stream and needs money for a shorter tenure, lenders would be interested in it. They may or may not ask for more collateral against the property since in a small tenure window price fluctuations can act as an added risk.
Or they may consider taking a higher down payment which would mean a lesser exposure and time risk for the lender.
Another way the older person can improve the chances of getting a loan is by applying for it with a co-borrower. This way the risk of the lender is reduced and there are more than one income stream to take care of the EMI payment.
There is no fixed and ideal age for taking a home loan. Finally what matters is the affordability. As a rule of thumb the EMI outgo should not exceed 30 percent of the income. Anything higher would put stress on the financials of the individual.
Financial markets in India have now matured offering an individual multiple avenues of raising money. Having said that, assets like a home is best bought as early as possible in one’s life since after this he can concentrate on wealth creation.