How To Plan Early On, To Buy Your Dream Home
Owning a home is a satisfying feeling. For homebuyers in India, a home is more than brick and mortar – it is an asset where they invest not just financially but also emotionally. However, the feeling of owning a home can become mentally disturbing if you don’t have a plan in place to save for the expenses related to it. It is essential that you work on a strategy and start saving while young if you wish to buy a home. Here are a few ways in which you can plan early for purchasing your dream home, without burdening your budget.
Assess your budget
Know how much money you are going to need to buy a house that you want. Also, factor in the additional costs that you would have to incur such as registration and stamp duty charges, interiors, maintenance fees, etc. This way, you will know what you are aiming for and when you know the target, it will become easier to plan for it. If you are planning for a home loan, you need to arrange at least 40 per cent of the property cost to avoid any financial burden on your monthly expenses.
Start saving as early as you can
The market is full of saving instruments that give attractive returns and can help you create a corpus. Consider mutual fund investments through systematic investment planning, recurring deposits, provident fund, post office schemes, etc. While mutual fund investments are subject to market risks, you can invest in safer schemes such as equity which have a lock-in for three years and gives an average return of 10-12 per cent if you stay invested longer. Equity schemes will also offer you income tax benefits. Similarly, PPFs are tax-saving and offer returns up to 8 per cent. However, one can withdraw only 50 per cent of the amount after five years while the account has a lock-in period of 15 years. Recurring deposits offer up to seven per cent returns and are not tax saving but the easiest way to save money. Most of the banks offer RD facility to their account holders which does not require any documentation. You can start with a small amount and can keep on increasing it if your budget allows. For instance, start a monthly RD of Rs 5,000 and you can open another one for Rs 3,000 monthly.
Create your credit history
If you will be taking a home loan for buying the property, you need to have a strong credit history to negotiate a good deal with the lender. A good credit score can be created if you make timely payments of your credit card, use credit cards for big transactions and get your credit limits increased every year. The credit score basically indicates your capacity to pay back the EMIs and the risk associated with you as a borrower.
Also, maintain your debt-to-income ratio and pay off your previous loans before applying for a home loan. To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your monthly income. Your monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.
Look out for deals on loans
Since you are planning early, you can check out deals and offers that are available in the market for home loan products. For instance, some banks waive off the processing fee while others have easy documentation and approve loans within days. You can also consider choosing between floating and fixed rates of interest. Usually, women homebuyers get interest rates discounts and other freebies. You can also get your home loan pre-approved to avoid last minute hassles and delays.
Create an emergency fund
For unpredictable situations, you should always have an emergency fund ready. It could be related to your pre-home purchase period or for after home buying. For this, you can invest in a mutual funds-liquid scheme which have minimal market risks with no lock-in. You can also earn returns on this fund and can withdraw it whenever required.