Buying a home is not a decision to take lightly. Multiple considerations go into the same, including purpose for purchase and financial resources’ evaluation and planning. Ascertaining the state of one’s finances and planning ahead for the purchase of the house is ideally among the first aspects to think through.
Most people avail of home loans when they wish to purchase property. In such cases, there are two components to the entire amount – the down payment (which is usually 20 per cent of the total cost) and the loan borrowed from banks (limited to a maximum of 80 per cent of the entire amount). While loan application has its own process, one thing home buyers forget to plan for is the down payment.
Typically, a down payment is required to be paid to a builder within a stipulated amount of time, and there is a chance that if you don’t plan for it, you may not have the liquid funds to make the payment at your disposal. For the average home buyer, it is possible that arranging for the down payment may not be easy. It may even take a few years of saving and accumulating funds to arrive at this. So how do you put these funds together?
1. Save!
Nothing compares to saving ahead of time. The number of years you have to save are dependent on a number of factors such as the value of the property, the amount you earn as a salary, and the amount you are able to save comfortably. Your best bet would be to put away some money each month – but rather than in a savings account, in a fixed deposit account that can help your money grow. Decide the duration of the deposit based on when you want to buy your house.
2. Loans:
Assuming that savings are not your immediately possible resources, it might be a better idea to rely on a means to make funds available in the immediate future. One of the best way to do this is to seek out a loan. However, since banks are constrained by the Reserve Bank of India rule of lending no more than 80% of the property value, a bank may not lend money for a down payment. Your options would be to seek a loan from an employer at low interest rates, or, if you have an Employee Provident Fund account for over 5 years, you can also seek a loan from that account. Alternately, you could request soft loans from family or friends.
3. Funds against Securities:
You may choose to pledge assets such as shares and securities in general, which will give you a chance to access instant liquidity without selling your securities.
4. Joint ownership:
If you aren’t able to afford a down payment and other modes of funding are difficult, you could consider joint ownership – where you buy the property with another person initially, and if you may so wish, you can buy back the share in the future.
Buying one’s own property is a great milestone in one’s journey. Putting together the right kind of finances for it requires a good amount of planning and a sense of prudence in approaching the purse strings. Earning well, saving enough money over time, securing a loan and paying a down payment, and then repaying that loan can be a bit of a rigorous process, that requires a fair amount of thought and organisation.
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