Gone are the days of the unwritten rule that you can only start buying the first house when you’re married and have kids. Added benefits of putting money into a house now are starting to become apparent. Early investment can lead to increased earnings in the long run while also providing a diversified home-related portfolio.
According to BankBazaar’s Aspiration Index, buying a home is the single most important long-term goal of Indian city-dwellers, with 84% planning to buy.
And buying a home early has certain advantages: you either get to stay rent-free for a good chunk of your life or enjoy the continued appreciation of an investment. Buying a house can be an excellent way of making your home payments fixed and predictable. However, you’ll need to be careful when you’re buying a house at a young age because there are certain additional expenses that may arise in the future. I’ve just come across these tips which might help:
1. Make Financially Disciplined to Build Down-Payment
Financial discipline is the cornerstone to making this dream affordable. You need to make a down payment on a house with your own money. The down payment on your property is usually between 10-25% of the total cost. For example, if a flat costs 60 lakhs, then you’ll typically need to pay 6-15 lakhs as cash upfront.
To build your down-payment fund, you need to start saving money. Cut your costs if possible, avoid wasteful spending and reduce any debts you may have. You can also consider increasing your income pool by getting a second job or boosting your hours at work. Here are some important pointers:
2. Fixed Your Budget
What do you spend the most money on each month? Most people have trouble looking beyond housing, food and clothing but there’s more to the picture. Take a close look at your monthly spending habits! Maybe there are ways you can save where you wouldn’t expect. Compile all your expenses and categorize them to see how you’re spending your money. There are many apps that can help you set up a budget. Just compare your income with expenses in order to find the one that’s most suitable for you.
This can help you cut down on discretionary expenses and save for your future. You don’t have to cut off your necessities, just give them a trim. If you currently eat out 10 times a month, then you might want to cut it down to 5 or 6 times for the sake of your bank account. Instead of buying grocery items that are brand-specific, consider purchasing house brands or cheapest store brands which may come in at a cheaper price. Doing things like working out from home, taking public transport, and cycling to work can save you a lot of money.
3. Do Home Work on Your Dream Home
Do you have the details sorted for buying a home? It could be an apartment, a condo, or an independent house – make sure you’ve thought about how many bedrooms you need. What amenities are you looking for? Do you want a parking space, swimming pool or club house? Where would you like it to be situated – in the heart of the city or on the outskirts?
The cost of owning a house varies based on many factors, such as where it is located and how much space it has. For instance, a house in the countryside would cost less than one in the city for the same square footage. Knowing these details means you can plan better for your financial future. However, it’s vital that the budget you set is in line with your current repayment capacity. That way, you won’t end up with a house you can’t afford and have to struggle financially.
4. Save Your Money and Invest
Simply saving your money in a savings account may not be getting you the best return on your investment. Investing it yourself would provide better returns and make the process clear for you.
A savings account will earn a maximum interest of 4% p.a. A fixed deposit (FD) account also earns up to 6% before tax, but comes with a lock-in period of 5 years. A recurring deposit (RD) account earns 7%-8% p.a before tax and allows withdrawals any time you wish without any penalties. Meanwhile, some mutual funds may offer a 10-15% return.
First, bear in mind that FDs and RDs are not risky. Yes, mutual funds are risky, but they have the potential to beat inflation over time. This is a great advantage because when you’re saving today for a house tomorrow, the transaction will cost less. Inflation is always a problem and it means that one day, your £200000 house (£120k) will be worth £240k (£144k). That’s why people who are young mostly want to take high risks.
5. Setting aside money for future EMIs.
Buying a home without a home loan seems impossible today. And the costs of Home Loans may be greater for the buyer than renting would have been in the short term. They often require monthly installments, which will cost more than rent over the long run. We recommend using an online EMI calculator to estimate how much you should set aside monthly for your home loans. Once you know what you are able to save every month, it might be a good idea to start channeling returns on savings and investments so you can set aside that much amount every month before committing to paying back your home loan/EMI. You may want to practice your budget with a personal finance app so you know what to expect.
6. Always Prepare for Other Expenses
With a down payment, there are other expenses that need to be made when someone is purchasing a house. Here are a few examples: stamp duty has gone up from 5% to 7% of the property value, registration costs have increased, and so on. There will be other expenses as well, for example brokerage fees, legal fees, and home insurance. This is not factored in by default, but you can still have an estimate of these costs. One strategy would be to save money each month and to dedicate it towards your EMI payments instead of spending them on other things.
7. Try To Improve Your Credit Score
A good credit score (750+) is not only a precondition for a home loan but can also help you to negotiate for lower interest rates. Due to the long tenure of a home loan, your real interest rate is actually much higher than the original principal. For example, if you borrow Rs 60 lakh for 30 years at 8.7% p.a., you’ll end up repaying Rs 1.09 crore in interest charges. But if your credit score is poor and hence you were charged a higher rate, the repaying could be much more than this. For example, taking a loan at 10.5% interest will lead to Rs 1,97,34,585 in total interest over the next 30 years.
If you have a good credit score, it is possible to get a lower interest rate. You can increase your credit score by paying your outstanding bills, not applying for too many credit products at once, and only using a quarter of the amount of your credit limit. You can also correct any mistakes in your report if you come across any.
8. Compare Home Loans
Apart from researching on the type of home you want, compare loans on third-party websites to narrow down your options. Interest rates vary from 8%+ p.a. to 9%+ p.a., usually pegged to the bank’s MCLR (Marginal Cost of Funds Based Lending Rate) if you have a floating-rate loan, but fixed-rate loans are also available and start at 9%.
In addition, some companies charge interest rates as high as 25% APR. Be sure to consider other fees such as processing fees, pre-closure charges and late payment expenses. Pay your bills on time! Comparing a home loan package will give you an overview of how expensive it is to borrow.
9. Why This is a good time to buy a house
Floating rates are pegged to the bank’s MCLR, which is updated according to changing macroeconomic conditions. The Reserve Bank of India’s (RBI) Repo Rate is what determines the interest rates for deposits & loans in India. It also impacts the Minimum Cost of Lending Rate (MCLR). If the repo rate hikes then the MCLR will too, leading to an increase in interest rates for home loans.
In August 2019, the central bank of India cut its repo rate by 35 basis points. This is the fourth successive rate cut and is indicative of an economy that is struggling to achieve a trade-off between growth and inflation. When home loan interest rates drop, it also affects banks` MCLR. This is one of the main reasons for lenders to lower the interest rates in order to stay competitive and make up for their reduced profit margins.
10. Tax Benefits As Well…
Home loan interest is tax-deductible if you stay in the same property for more than three years. You are allowed to deduct up to Rs 2 lakh on your tax return under Section 24 of the Income Tax Act, 1961. You can claim up to Rs 1.5 lakh, per financial year, as a deduction on the principal repaid under Section 80C.
When buying a house, it’s not always easy – but you’re better off in the long run. Waiting could see you miss out on a good deal, and end up with higher expenses because of increased commitments. Learn more about first-time home buyers! Keep in mind that managing your money will take some work and sacrifices. In the end, though, you’ll be glad you did it and those coveted keys will always be with you.
FAQ
The first hurdle to buying a house is the down payment. And while it’s easy enough to save up a few thousand dollars, when you’re young, it can be hard to save up tens of thousands.
The second hurdle is the credit score. If you don’t have a credit history, it will be difficult to get a mortgage.
Young people are often told that they should buy a house as soon as they can and not waste money on renting when there are so many cheaper places out there now. But what people don’t realize is that it’s not always the best idea for everyone, let alone for those who are just starting out in life.
The first benefit of buying a house when you’re young is that you get to live in the house for a longer period of time, which means your mortgage payments are lower. The second benefit is that your mortgage payments are lower, which means you will have more money to invest in other things. The third benefit is that the interest rates on your loan will be lower because you qualify for a better interest rate.
Buying your first house is usually one of the biggest financial decisions that you will make in your life. It is important to consider all aspects of the decision before proceeding to buy.
You should consider what type of housing you are looking for, how much you can afford to spend on a house, how long you plan to live in the home and what kind of neighborhood would be best for you. You should also compare the mortgage rates among different lenders and take into account the cost associated with moving into a new place. You should then decide whether or not it is worth buying a house based on your needs and preferences.
The answer to this question is not a definite yes or no. It depends on many factors like your current financial situation, your plans for the future, and the state of the housing market in your area.
If you are in a position to save more money and wait for a better housing market, then it would be wise to do so. However, if you need to buy now because of a change in circumstances or are worried about rising prices then it is best to go ahead and make that purchase as soon as possible.
Buying your first house when you are young is a good idea as it helps you establish a credit history and build equity in the home. However, it’s important to know that there are some risks associated with buying a house when you are young:
You will not be able to buy as big of a home as you would like because of your limited finances
You may not have enough money for renovations or repairs
You may not have enough money for emergencies such as medical bills, car repairs, etc.
Buying your first house is a big decision. There are many factors to take into consideration, such as the location, the price and the size of the home. It’s important to consider these things before you buy your first house so you don’t end up regretting your purchase later on.
One of the drawbacks of buying a house when you’re young is that it may be difficult to afford. You may not have enough money saved up for a down payment or enough income to make monthly payments on a mortgage.
Another drawback is that it can be hard to find a home that meets all of your needs in terms of location, size and affordability. You may have trouble finding an affordable place with enough space for all your belongings or close enough to where you work and live now.
It is possible to buy a home before making any money. This is possible if you have a high-paying job and your credit score is high enough.
You can also buy a home with the help of family members, friends or other people who you know. They can help you out by providing cash for the down payment or by helping you with the monthly payments.
If you are looking to buy a home, it is important to make sure that you have saved up enough money for the down payment. The amount of money that you will need will depend on what type of loan and the mortgage rate you qualify for.
The down payment is the amount of money that you put towards the purchase price of your home. It can be made in one lump sum or in installments over time. The length of time it takes to save up for a down payment depends on how much money you earn and how much interest rates are at the time.
