In a recent move, the National Housing Bank, India’s premier housing institution, proposed allowing lenders to loan up to 90% of a property’s value for homes costing Rs 20 lakhs and beyond. It is also excellent news for borrowers who want to purchase a home because a reduced down payment will be required. In contrast to the old standard, where lenders were only disbursing 80% of the property’s total worth, But for a prospective homeowner, coming up with even 10% of the purchase price as a down payment is no easy undertaking.
According to conventional opinion, the homeowner will benefit more from making a larger down payment since he will have more equity in the property when he moves in. But how does one go about saving for this crucial down payment? You can use the advice that follows to make this activity simpler:
Putting money aside for a down payment:
Calculating the amount you would need is the first step in starting to save for a down payment. According to your objectives, you should typically aim for a 20% down payment. You need to save up this much money. It’s smart to budget an additional Rs 1-2 lakh for unforeseen expenses. You can begin investing once you have a financial plan and a deadline. How much time you have to build your corpus will determine the type of investment vehicle you use. If your investing horizon is short, say, 1-2 years, choose low-risk vehicles like recurring deposits. However, you might think about investing in mutual funds, which offer better returns, if you have a longer time frame—say, 5 years or so.
Follow the 50-30-20 plan:
You need to practise financial restraint if you want to save for the down payment. Following a 50-30-20 budget is one approach to achieve this goal. Under this plan, 50 percent of your take-home pay should be set aside for fixed needs, 30 percent for other discretionary expenses, and 20 percent should unquestionably be saved. Cutting out on amenities you may otherwise afford is not going to be simple, but it will be worthwhile after you move into your new house.
Setting Your Investments Aside:
Your cash could be parked in top-notch debt mutual funds with maturities ranging from three to six months. You can also choose a high-yielding savings account, where contributions beyond a particular amount will generate a substantially greater interest rate. Then there are FDs (fixed deposits) and RDs, of course (recurring deposits). Unless you have a lengthy investment window of at least five years, avoid investing in stock.
Think about radically altering your way of life:
Consider making significant changes to your life if you are truly devoted to saving for and purchasing your own home. One way to do so is to temporarily relocate into a smaller apartment, which will enable you to save at least 20% of the money you would have otherwise spent on rent. You can consider finding alternative sources of income in addition to your current career. Ideally, doing both will help you save for that down payment on your home while living within your means and reducing expenses like vacations, entertainment, and memberships you could do without for at least two to three years.