Gone are the days of the unwritten rule that you can start planning your home purchase only once you are “settled” in life (read you’re married and have kids). Countless youngsters are now seeing merit in the proposition that it’s better to start out early as it pertains to probably the biggest investment of their lifetimes. Then there are those who want to buy a small house quickly as a pure investment move.
And buying a home early has certain advantages: you either reach spend a major part of your working life free of rent woes, or the house continues to provide great returns as an appreciating asset. You can even make it a great way to obtain additional income (and bring down your loan EMI burden) if you plan to hire it out. That being said, you need to tick certain important boxes if you’re likely we buy homes Memphis at a young age. Here are some tips that you’ll find useful.
1. Be Financially Disciplined to construct Down-Payment
Financial discipline is the cornerstone to causeing this to be dream affordable. It is advisable to pay the down-payment on a residence from your own pocket. This can be anywhere between 10% and 25% of the property’s market value. If a 2BHK apartment costs around Rs 60 lakh, then your down-payment will be between Rs 6 lakh and Rs 15 lakh.
To build your down-payment fund, start cost-cutting, avoid wasteful spends, clear your financial situation and may be try to expand your income pool. Let’s discuss a few important pointers in this context:
2. Stick to Your Budget
Where does the majority of your monthly income go? On rent, groceries, eating out, shopping, entertainment? Start analysing this. Categorise your expenses and regulate how you’re spending your hard earned dollars and then make a budget. In this digital age, you don’t want to do anything manually. There are lots of apps out there to help you set a budget. You can compare your income to bills and track how you spend your money.
This can help you cut down on frivolous expenses and save for your down-payment. You don’t have to cut off your lifestyle expenses completely, just trim them. One example is, if you’re currently eating out 10 times a month, cut it down to 5 or 6 and save some money. Similarly, rather than buying ‘branded’ groceries for cooking at home, consider switching to ‘house brands’ or generic ones that will come cheaper. The same goes for skipping expensive gym subscriptions to workout from home, taking public transport (or possibly a bicycle, if that’s feasible) to work, etc and etc ..
3. Research on Your Dream Home
We all dream of owning a home, but have you got the details sorted? Are you looking to buy an apartment, an unbiased house, female? How many bedrooms do you want? What amenities are you willing to cover – car parking, swimming pool, club house? Where will it be situated – in the heart of the location or on the outskirts?
The cost of owning a house varies predicated on all (plus more) factors mentioned above. For example, a house in the outskirts costs way below one in the location for the same square footage. Knowing these details means you’ll know exactly how much to save. However, it’s crucial to set a budget that’s consistent with your current repayment capacity. At times many go for a house that they can’t really afford, and have a problem with the EMIs later.
4. Don’t Just Save – Invest
Simply setting aside your excess income in a savings account might not fetch you enough returns. Consider investing it. Let’s compare a few options for clearer understanding.
A savings account will earn you a maximum interest of 4% p.a. A fixed deposit (FD) account will earn you interest beginning from 6% p.a before tax. A recurring deposit (RD) account will get you interest beginning from 7%-8% p.a before duty. In contrast, some mutual fund investments may offer between 10% and 15% (or higher), depending on fund.
FDs and RDs are risk-free, i.e. they are not damaged by market fluctuations. Yes, mutual funds are risky and be based upon market conditions, nonetheless they have the potential to beat inflation over time. This can be a great advantage because you’re saving today for a house tomorrow. Exactly the same house will cost more tomorrow thanks to inflation. So, higher risk = higher reward. Also, usually younger you are, a lot more risk you can take because of your fewer financial commitments.
5. And Set Aside the Money for Future EMIs
Buying a home without a home loan seems impossible today. And mortgage loans don’t come cheap. You’ll have to pay EMIs every month, and that’s likely to be a lot more than the rent you’re paying currently. So, use an online EMI calculator to determine how much you may need to set aside each month for your home loan repayment. Once you’ve a clear figure, it might be a good idea to start out channelizing your savings and investment returns to placed aside that much amount every month even before you truly start repaying your EMIs. This will be a good rehearsal of how you’ll deal with finances when the EMIs actually begin.
6. Prepare for Other Expenses
Apart from the down-payment, there are other out-of-pocket costs involved. For instance, stamp duty (from 5% to 7% of the property value), registration cost (at least 1%), memorandum of title deed charges (0.1% of the loan amount), interior decoration, electricity connection, water supply, etc and so forth. There are also brokerage fees, legal fees, home insurance, etc. too. While it might be difficult to accurately factor in all the non-loan charges, try to have at least an estimate, and strategize accordingly (your EMI savings, discussed in the last point, will be of great help).
7. Improve Your Credit Score
A good credit score (above 750) not only makes you qualified to receive a home loan, but also increases your negotiating power for lower interest rates. Due to long tenure of home loans, you actually finish up paying much more as interest – a lot more than the key amount, in fact. 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 you were charged an increased interest rate due to a poor credit report, you may wrap up paying a lot more. As an illustration, the same loan given to you at a rate of 10.5% will lead to an overall total interest of Rs 1.97 crore over 30 years.
So, if you have a good credit score, you could get a lower interest rate. Transform your life credit history by promptly paying your outstanding dues completely, not trying to get too many credit products within a short period, not utilising more than 30% of your credit card limit and correcting credit report errors, if any.
8. Compare Home Loans
Apart from researching on the sort of home you wish to buy, also compare home loans on third-party websites to narrow down your alternatives. Interest rates start from 8%+ p.a. and are usually pegged to the bank’s MCLR (Marginal Cost of Funds Based Lending Rate) if you select a floating rate loan. Fixed interest rates begin with 9%+ p.a.
Also consider other aspects such as processing fees (0.25% to 1% of the loan amount), pre-closure charges (up to 5% on fixed-rate loans), and late payment fees. Comparing all the aspects of a mortgage package will give you insight into the actual cost of borrowing.
9. Why Now Is a Good Time to Buy a House
Floating rates are pegged to the bank’s MCLR. The MCLR is dynamic and changes in tandem with prevalent macroeconomic conditions. The Reserve Bank of India’s (RBI) Repo Rate, which is the policy rate that influences all loan and deposit rates in India, also influences the MCLR. A hike in the Repo Rate can lead to a hike in the MCLR, thereby increasing the eye rate of the house loan.
In August 2019, the central bank slashed the repo rate by 35 basis points, the fourth rate cut in a row. This has started to bring down the some banks’ MCLR, thereby reducing mortgage loan interest rates. So, if you apply for a home loan today, chances are it can be cheaper than what it was a couple of months ago.
10. There Are Tax Benefits As Well…
Home loan repayments enjoy tax deductions. Under Section 24 of the TAX Act, you can claim up to Rs 2 lakh per financial year on the eye paid on your home loan. And under Section 80C, you can lay claim up to Rs 1.5 lakh per financial year on the main repaid.
Buying a home isn’t a fairly easy task, but delaying the program may not be profitable either. Yes, your earnings increases in future, but so will your expenses because of more financial commitments. So, be informed, and learn to manage your money well. You may have to be sure sacrifices too, but then it will all pay off when you get those coveted keys!