Saving up for a house when finances are low…

Saving up for a house when finances are low…

It seems like it’s never a right time to buy a house. But careful planning and lots of saving up can help you achieve this important milestone.

Growing up, you dreamed of someday having your own house and sharing it with your family. But as each day passes and real estate prices jump skyward, the home dream becomes a mirage in your eyes. Try as you might, you cannot imagine buying a house that is wonderful in all respects except for its price!

And so, you settle for rental accommodation, telling yourself that you will buy a house someday…

Why buying your own house matters

Nothing compares to the feeling of ownership that you feel with a house that you bought out of your hard earned money. As homely as the rental house that you currently stay in is, you are always a temporary tenant there. No amount of special attachment to the house will ever make you anything more than a tenant in that space, unless you buy it from the current owner. Besides, you are forced to move and look for other accommodation every time the house owner decides to lease the house out to some other tenant.[1]

When you have your own house, you are free to live in it as long as you wish, the way you wish. There is no restriction on your exit and entry times, you can renovate the house to your taste and have as many people live in it as you desire. You are literally the King of your castle, and having a permanent shelter over your head is an incomparable feeling!

Why you need to save up for your dream home

You may be in your 20s and already engaged or planning to settle down with your partner. At the moment, you may not have the financial means to purchase a house, so you decide to live on rent instead. But do have a plan – if you are moving into rental accommodation, you must put a cap on the number of years you will stay in a rented house. Living on rent means you must pay a monthly rental fee, plus a yearly security deposit. You must also settle the flat’s power, gas and cable bills. Multiplied over many years, and counting a 10% increase in rent every year, this is a big sum of money!

In contrast, if you were to take a home loan to buy a house, you would still make a monthly EMI payment to the bank or financial institution. But the major difference is that the EMI would be paid towards securing your ownership of the house. While the rent you pay only serves to maintain somebody else’s property, the home loan lets you assume ownership till you settle the loan completely. You are free to move into the house the moment it is fully paid for, even if you have an unpaid home loan to contend with.[2]

The first step towards buying your own home, is to save up for the purchase[3]. These are the following heads you must save for:

  • To pay the token booking amount for the house you wish to buy. Paying the booking amount indicates to the seller that they must stop negotiations with other interested parties. If the seller wishes to deal with another buyer, they must return your booking amount in full. Some sellers may deduct a part of the booking amount if the buyer pulls out of the deal for any reason.
  • To make a down payment on the house you wish to buy. This amount is normally counted up to 20% of the house’s value, or more if you can manage it.
  • To pay stamp duty and registration costs on the house.
  • To apply for a home loan. Whether you apply online or offline, the lender charges application fees.
  • To pay the pre-EMI cheque to the lender at the time of signing the loan agreement. The pre-EMI accounts for the number of days between the date of loan disbursal to the date of first EMI deducted from your account.
  • To pay the stamp duty on the loan agreement, post the loan disbursal.
  • To pay the society transfer fees and security deposit in case of renovation work, post moving into the new house.

These are various heads of expenses, and you will need a sizeable fund of money at your disposal to pay for all of them. So when you plan your future finances, do take all of them into account.

Let the rest come from a home loan

After saving as much money as you can, you may decide that the time is right to buy a house. It is now time to seek out suitable home loans, basis prevalent home loan rates and the loan amount you should borrow.

  • Having a large savings fund also reduces the need to take a large home loan. If the principal borrowing is low, then the overall money you repay the lender and also the EMI are low. You can also repay the loan faster since the amount is smaller.
  • However, if you are borrowing a home loan to account for about 80% of the house’s price, then you must shop for the best home loan rates. The lower the home loan rate of interest, the lower is the EMI and overall amount of money you repay the lending institution.
  • When looking for a good home loan product, use an online home loan interest calculator. The home loan interest calculator lets you manipulate the other figures (principal and tenure) so that you arrive at a desirable EMI and interest rate.
  • Once you are satisfied that you have found the best home loan rates, you can proceed to apply for the home loan.

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