One of the major investments that any family makes is to buy a home for themselves and some strive for the better part of their lives to be able to do so. Buying a home, especially in India, requires great planning, a lot of careful research and a good idea of one’s own financial capabilities. One has to have a clear understanding of one’s cash flow as well as how the property market functions in the country. Here are some things to ponder about:
If you have a dream of acquiring a particular kind of house, then it is important to plan for it at least five to seven years in advance. In fact, it is a good idea to start saving for your home as soon as you land up with your first job, around the age of 25. Create an investment portfolio which will help you acquire the better part of your resources which you would need for buying a home by the time you have entered the thirties.
Tips for you in this regard
The best ways to do so in look for avenues of investments where you would get a higher rate of return than the current rate of inflation. So, it would a good idea to invest in equity funds, rather than investing in debt-based options. This will help yield higher returns and also create a substantial corpus over the years due to the benefit of compounding. With this, even if you cannot accumulate the entire amount of acquiring the house, you will be able to accumulate at least 50% to 70% of the house price, of course, depending on how expensive a property you are going for. For the rest, you can acquire a home loan, which you will repay in the subsequent years with the EMIs.
One of the points to remember here is that although banks sponsor about 80% of the home’s purchase through home loans, such a huge amount will be approved only based on your repayment capacity. The rest 20% has to be the down payment what will come from your own pockets, and it is a good idea to start planning for it well in advance. Ideally, one should not simply look for accumulating money for the down payment only- you should try to pay as much of the price of the property from your resources as possible, because the higher the outstanding amount, the greater would be the amount of loan, and even greater the interest rate accrued on it. Banks would charge anywhere between 8.5% to 10.9% interest on your principal loan amount and so it is important to ensure that you will be able to bear the expense each month till your repayment unless of course, you prepay the loan. If not, and if you keep defaulting on your payments, your property will be forfeited and any investment you have made thus far will be lost. Hence, your home purchase will become a lot more expensive in the long run if you do not save enough in the beginning.
What else should you keep in mind?
This can be done by saving as early and as quickly as possible. Investing in a SIP is a good idea and one should ideally increase it by 10 to 20% each year. This will help reach the desired amount over the years.
It is also important to stay away from committing some common financial mistakes and this will help them plan and invest better for their dream home:
- Try not to buy a house when you are in debt. Your debt, combined with the EMIs that you pay, and the fact that you should still save something for an emergency fund will be too much of financial pressure. Try to pay off all debts and start with a clean slate. Moreover, having debts will also bring down the credit score, making it far more difficult to get approved from banks for a home loan anyway.
- Although everyone wants to possess a lavish property, try not to go above and beyond your means in buying a home that stretches your budget. It is not a good idea to deplete all the resources in one form of investment only. Be realistic and buy a home for which you will be able to fulfill all obligations with ease. If necessary, invest in a smaller home first and upgrade later again when you are more secure with your finances.
- As mentioned earlier, be sure to save enough for your down payment so that later you are not burdened with EMIs. This is especially true for those who are self-employed or are into their own business and do not have a fixed source of income. Save enough to tide over the time when your income is low.
- It is also important to take other costs into account while buying a home like property taxes, insurance fees, legal fees and moving expenses because they are also going to be a part of buying your home.
It is a good idea to take help from a financial expert and concentrate on your savings. Yes, you could have to make some additional sacrifices at the beginning with regards to entertainment and secondary expenses but it is going to be worth it in the long run.