A year is a long time. Or a very short time, depending on which way you look at it. But when it comes to financial planning, one year can stretch quite a long way! The way the real estate sector has appreciated over the last few decades, buying a house without proper planning can turn out to be disastrous.
A home requires financial planning and acumen. A year is a good time to plan and save for a house.
We asked our in-house financial guru the best tips to help you buy that house you wanted in a year:
Draw up a budget
It is good to do thorough research of properties across different locations/builders and compare. It would help you arrive at an expected cost of the property that you are intending to buy. Once you have an approximate cost, you are then on the way to deciding the budget you need to allocate for your house.
Use online calculators available on the websites of most home finance institutions to help you make the decision.
We like this: https://homeloans.sbi/calculators
Take into account all the other costs involved in buying a house, right from the interiors to other expenses like registration, legal and inspection fees, and document retrieval fee. All this could inflate your project cost by about 10-20% with interiors taking a significant chunk.
Decide if you want to put down a bigger amount as the down payment and pay smaller EMIs or do it the other way round.
Save for the down payment
After deciding on the cost of the house, set aside about 20% of the project cost to be paid as down payment. This may go up to 30% too depending on the decision of the lender. It is good to earmark some amount from your existing savings and also plan to save a fixed amount every month. As the goal is that of short-term, do not invest in riskier assets like equities.
If you can’t bring in the entire amount required for down payment, look into other available resources. It could be loans from friends/family, personal loans, a loan from employers or PF etc.
Take a look at your debt to income ratio
This ratio is very important for lenders who are generally comfortable at a ratio of 30%, ie. EMIs taking up 30% of your income. If you are already servicing other high-interest loans, it is good to clear off some loans before you apply for a home loan.
Check your credit score
A credit score is a numerical representation of your past credit behaviour. It is in the range of 300-900, and higher scores are better. A bad score would mean outright rejection of your loan application.
A year is a good time to check your credit score. It takes about 6-8 months of efforts to bring up your credit score.
(Use our handy article that tells you how to calculate your credit score)
Avoid applying for unnecessary loans/credit cards in the interim period
The more loans/credit cards you have, the lesser the chance you have off getting your loan application cleared. So, resist the temptation to apply for all loans/credit cards that you receive offers from. You do not want to come across as a credit-hungry person.
Owning a house is a joyous occasion for any individual. With the right financial planning, it can take away a lot of stress.