Why buying a home early in career can be a financially incorrect decision

Top lenders such as State Bank of India, Kotak Mahindra Bank, HDFC and ICICI Bank have reduced home loan ratesin recent days. This has made home buying even easier since home loan rates have been hovering around the lowest levels in two decades. Along with this, property prices have also seen a major downward move in recent years though it has been moving up in markets in recent days.

Against this backdrop, the general advice from most would be to lap up this opportunity and go for a purchase of a home. Buying a home is often seen as a sign of social achievement and if you are able to have your own home early in life you are looked at as a successful person. However, if you are young and have a good career going, the question you should ask yourself is whether it is the right time in your life to take the dip? Will a home purchase tie you up with a burden that you do not need to carry?

In fact, buying a home early can be a financially incorrect decision.

Here’s why:

Stability is yet to come

When you are in the early stages of your career, you may lack stability. Besides financial stability, you may have to move from one city to another in your present job or to take up a new one. For example, large numbers of the young workforce today have been forced to suddenly relocate to their hometowns as the Work-from-home culture has taken over. Some may come back to their earlier places of work while many may choose to stay back in their hometown. That makes it difficult to decide where they should buy their house and it is better to give it some time.

Double outflow

Home loans are inevitable in this era of high prices of homes. If you buy a house in one city using a home loan, and then decide to move to some other city for some better opportunity, then you face two cash outflows. First towards the equated monthly installment (EMI) of your home loan and second for the rent you pay for your shelter in the city where you work. This can be a very painful scenario if you cannot earn good rent on the house you bought using a home loan in your hometown.

Needs may change

When you are single, you buy a house considering your needs and preferences. But when you get married and have kids, then your needs and preferences may change. When you are all alone, you may prefer to buy a house near a commercial hub to cut time to reach your work-place. But when you get married and have kids, you may want to buy a house near schools and in some calm residential area with public recreational places to ensure a better life with your family. If you buy a house early in your career, and the same does not suit your family’s needs then you may have to sell it later. This may consume a good amount of time and effort and on top of that may also involve transaction costs as well.

Joint ownership benefit

Most often home loans for a house of your choice is too big to be serviced with the salary you earn at the early stages of your career. If you wait for some years for your salary to become healthier, you may go in for a larger home. Also, if you get married to an earning partner, you will be able to club your incomes and go in for a home more suitable for your family. Along with this, because of the double income of spouses, repayment of the home loan will be easier.

What should you do?

If you have not yet reached the ‘stable phase’ of your career then you should not be in a hurry to buy a house. Try to focus on your job and your career growth. You should however keep the ‘house purchase’ agenda in back of your mind. You should have a clear plan to save for down-payment of your dream home. You should save money in money market funds and fixed deposits of reputed banks if you are planning to buy a house in near future – typically within three years. More you save now the better off you would be when you set out to look for a house that suits your needs.