Buying a house before turning 30 may just be one of the most common financial goals. However, having your dream house isn’t just fanciful; you must set hardbound long term financial goals to be able to achieve the same. While home loans at cheap costs of borrowing are made available by various banks, financial institutions as well as Non-Banking Financial Institutions (NBFCs), it is wise to start financial planning early and achieve your financial goal largely through savings and investments.
To help you take a step closer to living your dream of buying your own home, we have put together a few tips that may help you plan your future goals better.
Investments in debt and equity
Sure, home loans come handy when it comes to buying a property. But banks and financial institutions allow you to avail loans which are only 80% of the value of your property. Before you jump at it, you must arrange for the remaining 20% to be able to comfortably finance your dream home.
If you want to achieve your goal of buying a house in the next 5-7 years, you must start investing to get higher returns in the long run. The idea is to invest in instruments that yield rate of return which is higher than the rate of inflation.
Your investment portfolio must be a balance of debt and equity. If you are a risk-averse investor, debt-funds may be the ideal choice for you owing to the stable rate of return and a high degree of liquidity. Having said that, let us remember that debt funds shall only earn you moderate returns which may or may not be enough for you to meet your financial goals in the long term.
On the other hand, equity-based funds, not only help you get higher returns, but it also builds a bigger corpus over the year due to the benefit of compounding. Investment in equity is also logical in the way that returns will be higher in the long term which can be utilized towards paying the interest to the bank. If you start investing at the age of 23 years, you shall have the financial leverage to take a home loan before 30 years and manage to pay EMIs without putting yourself through financial jeopardy.
Start saving for down-payment
Saving for the down payment is the first step to be taken towards financing for your dream house. It is imperative to know about the advantages of higher down payment. If you can pay a chunk of the cost of your house as down-payment, you will be able to enjoy the benefit of low-interest rates, and processing costs and get high home equity in turn.
The easiest way to ensure that you have enough in your hands for down-payment is to start building a corpus from your monthly earnings and keep them in a separate account which is to be utilized for down-payment.
Say, you start saving Rs. 10,000 per month toward the down-payment of your Home EMI at the age of 25 years; at 30 you will have a corpus of Rs. 6, 00,000, using which you can finance the down-payment. Additionally, you may consider taking a loan against your life insurance or provident funds for new home purchases.
Perhaps, you can cut down on miscellaneous expenses to save a little more than you usually do. Saving an additional Rs. 5,000 a month can sum up to Rs. 3, 00,000 in addition to the existing corpus.
Avoid common mistakes
Before you zero in on buying your dream house, you must consider some of the important aspects of opting for a home loan. It is, after all, not a good idea to borrow when you are already in debt. Avoid applying for home loans if you are already in debt. Make sure you repay your existing debt before you can take up a new one.
Look out for an accommodation that fits your budget. While accommodation can be one of your most treasured and valued assets, it is not advisable to spend all your money including your savings, investments and borrowings into buying a house. You must have an accurate estimation of how much you can comfortably borrow to finance your dream house. Borrowing over and above what you can pay for as per your actual income can push you towards a debt trap in the process.
Lastly, diversify your sources of income. You may be a salaried individual, self-employed or a business person and still, you may lookout for ways to earn a little extra money to put into your corpus. Consider working part-time, or freelancing in your leisure time to earn a little extra till you are finally reaping the fruits of your labour.