Buying House

“Making Your Dream Home a Reality: Simple Steps”

In movies, we often hear about “Roti, Kapda, and Makan” together. Having our own home brings a feeling of security, pride, and happiness. It’s a big decision, both financially and emotionally.

Yet, getting your own home is not easy. Real estate prices in many cities are very high. To buy your dream home, you might need a home loan. But remember, the interest you pay on the loan can be more than the actual loan amount. This means a big part of your monthly income will go towards paying off the loan.

This financial pressure can be tough. So, it’s important to plan carefully.

Planning: A Solid Financial Foundation

Before embarking on the journey of purchasing your dream home, comprehensive financial planning is vital. This proactive step helps you sidestep potential financial pitfalls. Take the case of Mr. Kunal, who sought financial guidance after encountering financial turmoil merely three months after buying a home through a loan. Financial planning prior to purchase is crucial, especially when acquiring a home through a loan. Here are key points to consider:

Monthly Household Expenses: Buying a home can stretch your finances, necessitating a 25%-40% reduction in household expenses. Build a safety net of at least six months’ worth of expenses to ease the transition.
Loan Amount: Typically, banks offer loans up to 80% of the property’s value, requiring a 20% down payment. Contributing 40% from savings can lessen the loan burden. Factor in additional costs like stamp duty and registration.
Next Six Months Liabilities: Prepare for impending obligations, such as tuition fees or insurance premiums, in the next six months.
Existing Loans/Debts: Clear existing loans to enhance your creditworthiness and streamline your financial obligations.
Three Months EMI as Reserve: Safeguard against unforeseen circumstances by maintaining a reserve equivalent to three months’ worth of EMIs.
Budget for Interiors/House Furnishing: Define a budget for interiors to prevent overspending post-purchase.
Regular Income Source: Ensure stable income, especially if the industry is susceptible to recessions.
Emergency Fund: Create an emergency fund equal to six months’ household expenditure for unexpected situations.

Smart Property Purchase: Key Points

In the pursuit of homeownership, prudent decision-making is paramount. Adhering to the following guidelines can bolster your property purchase journey:

Loan Limit: To avoid financial strain, limit your home loan EMI to 30% of your income.
Downsize Dreams: Should your dream home surpass your budget, contemplate downsizing to a more feasible option.
Invest Wisely: Mutual funds serve as an effective tool for accumulating the down payment. Choose funds based on your time horizon and risk tolerance.
Location Matters: Prioritize location based on career stability, and avoid purchasing until career paths are established.
Insure Your Loan: Mitigate financial risk by securing term insurance that covers the outstanding loan amount.

Achieving Your Dream Home:

Planning for your future is essential, encompassing goals like owning a dream home. It’s a shared aspiration, with each person envisioning their unique ideal dwelling. However, beyond the allure of home loans, other viable options exist to turn this dream into reality. One such avenue is the Systematic Investment Plan (SIP) in equity mutual funds, a strategic approach to saving for your dream abode that mirrors the systematic nature of Equated Monthly Installments (EMIs) for home loans.

Mutual Funds for Your Dream Home: Steps

To embark on the journey to your dream home, follow these steps:

Calculate Needs: Determine the anticipated cost of your dream home, accounting for inflation and additional expenses.
Down Payment: Prepare for a down payment of 20% of the property value, a critical initial investment.
Monthly Investment: Craft a plan for systematic monthly investments to accumulate the necessary down payment.
Investment Timing: Initiate a mutual fund SIP for the down payment, removing the pressure to time the market.

By blending prudent financial planning with wise investment strategies, you can unlock the doors to your dream home and turn it into a reality.

Figuring Out How Much You Need for Your Dream Home

First, let’s find out how much money you’ll need to buy the house you want. Don’t forget about extra costs like registration fees, stamp duty, and making the inside of the house nice. The bank’s home loan won’t cover these extra costs, so it’s smart to plan for them ahead of time.

It’s also important to think about how prices might go up in the future. People say that the average price of houses in the top 10 cities might go up by about 4% each year for the next 10 years. So, if a house costs around Rs. 1 Crore now, you might need Rs. 1.48 crore in the future.

Calculating the Amount You Need to Get

When you take a home loan, the bank doesn’t give you all the money you need for the house. Usually, they give you up to 80% of the house’s price as a loan. The other 20% is what you have to get on your own. This initial payment you make is called a down payment. The bank will start giving you the loan only when you’ve paid the down payment.

But it’s a good idea to pay at least 60% of the house’s price from your own money. The rest can be covered by a bank loan. If you pay this big part from your money, you won’t have to pay too much interest on the loan. And your monthly payment (EMI) won’t be too heavy.

In this example, if you’re buying a Rs. 1.5 crore house, you might get a loan of up to Rs. 1.20 Crore. But it’s better to wait, save up more, and pay a bigger down payment. This way, your monthly payment will be lower.

Look at this table to see how your financial load will go down if you save more for the down payment and get a loan for only 40% of the total cost of the house.

Lower EMI with a higher down payment
Loan Amount	₹ 1.20 Crore	₹ 60 lakh
Loan Period	20 years	20 years
Interest Rate	7.75%	7.75%
EMI	₹ 98,514	₹ 49,257
Interest Payable in 20 Yrs	₹ 1.16 Crore	₹ 58.21 Lakh
Total payments made over the loan term	₹ 2.36 Crores	₹ 1.18 Crore

Cut your 50% interest amount by making a larger down payment.

Calculating Your Monthly Investment for the Down Payment

Once you’ve determined the down payment needed, the next step is investing to reach your goal. But before diving in, ensure you invest the correct sum to achieve your target. To find the amount, you must also decide when you need the money. Let’s calculate the investment using our previous example i.e. 60% of house amount. If you aim for Rs. 90 lakhs and plan to buy a house in 10 years, here’s the monthly investment required.

Monthly Contribution Amount to Collect Down Payment
Down Payment Amount Required	₹ 90 lakh
Investment Duration	10 years
Expected Annual Returns (CAGR)	12%
Monthly Investment Amount	₹ 40,172

Saving for Your Big Goal: Use Equity Mutual Funds : Since you’re saving up a lot for a long time, equity mutual funds are a great way to do it. They have a history of giving good returns over many years. You can start putting a amount regularly by way of SIP for your dream home.

“Making Your Dream Home a Reality: Simple Steps”

In movies, we often hear about “Roti, Kapda, and Makan” together. Having our own home brings a feeling of security, pride, and happiness. It’s a big decision, both financially and emotionally.

This financial pressure can be tough. So, it’s important to plan carefully.

Planning: A Solid Financial Foundation

Monthly Household Expenses: Buying a home can stretch your finances, necessitating a 25%-40% reduction in household expenses. Build a safety net of at least six months’ worth of expenses to ease the transition.

Loan Amount: Typically, banks offer loans up to 80% of the property’s value, requiring a 20% down payment. Contributing 40% from savings can lessen the loan burden. Factor in additional costs like stamp duty and registration.

Next Six Months Liabilities: Prepare for impending obligations, such as tuition fees or insurance premiums, in the next six months.

Existing Loans/Debts: Clear existing loans to enhance your creditworthiness and streamline your financial obligations.

Three Months EMI as Reserve: Safeguard against unforeseen circumstances by maintaining a reserve equivalent to three months’ worth of EMIs.

Budget for Interiors/House Furnishing: Define a budget for interiors to prevent overspending post-purchase.

Regular Income Source: Ensure stable income, especially if the industry is susceptible to recessions.

Emergency Fund: Create an emergency fund equal to six months’ household expenditure for unexpected situations.

Smart Property Purchase: Key Points

In the pursuit of homeownership, prudent decision-making is paramount. Adhering to the following guidelines can bolster your property purchase journey:

Loan Limit: To avoid financial strain, limit your home loan EMI to 30% of your income.

Downsize Dreams: Should your dream home surpass your budget, contemplate downsizing to a more feasible option.

Invest Wisely: Mutual funds serve as an effective tool for accumulating the down payment. Choose funds based on your time horizon and risk tolerance.

Location Matters: Prioritize location based on career stability, and avoid purchasing until career paths are established.

Insure Your Loan: Mitigate financial risk by securing term insurance that covers the outstanding loan amount.

Achieving Your Dream Home:

Mutual Funds for Your Dream Home: Steps

To embark on the journey to your dream home, follow these steps:

Calculate Needs: Determine the anticipated cost of your dream home, accounting for inflation and additional expenses.

Down Payment: Prepare for a down payment of 20% of the property value, a critical initial investment.

Monthly Investment: Craft a plan for systematic monthly investments to accumulate the necessary down payment.

Investment Timing: Initiate a mutual fund SIP for the down payment, removing the pressure to time the market.

By blending prudent financial planning with wise investment strategies, you can unlock the doors to your dream home and turn it into a reality.

Figuring Out How Much You Need for Your Dream Home

First, let’s find out how much money you’ll need to buy the house you want. Don’t forget about extra costs like registration fees, stamp duty, and making the inside of the house nice. The bank’s home loan won’t cover these extra costs, so it’s smart to plan for them ahead of time.

It’s also important to think about how prices might go up in the future. People say that the average price of houses in the top 10 cities might go up by about 4% each year for the next 10 years. So, if a house costs around Rs. 1 Crore now, you might need Rs. 1.48 crore in the future.

Calculating the Amount You Need to Get

But it’s a good idea to pay at least 60% of the house’s price from your own money. The rest can be covered by a bank loan. If you pay this big part from your money, you won’t have to pay too much interest on the loan. And your monthly payment (EMI) won’t be too heavy.

In this example, if you’re buying a Rs. 1.5 crore house, you might get a loan of up to Rs. 1.20 Crore. But it’s better to wait, save up more, and pay a bigger down payment. This way, your monthly payment will be lower.

Look at this table to see how your financial load will go down if you save more for the down payment and get a loan for only 40% of the total cost of the house.

Lower EMI with a higher down payment

Loan Amount

₹ 1.20 Crore

₹ 60 lakh

Loan Period

20 years

20 years

Interest Rate

7.75%

7.75%

EMI

₹ 98,514

₹ 49,257

Interest Payable in 20 Yrs

₹ 1.16 Crore

₹ 58.21 Lakh

Total payments made over the loan term

₹ 2.36 Crores

₹ 1.18 Crore

Cut your 50% interest amount by making a larger down payment.

Calculating Your Monthly Investment for the Down Payment

Monthly Contribution Amount to Collect Down Payment

Down Payment Amount Required

₹ 90 lakh

Investment Duration

10 years

Expected Annual Returns (CAGR)

12%

Monthly Investment Amount

₹ 40,172

Saving for Your Big Goal: Use Equity Mutual Funds : Since you’re saving up a lot for a long time, equity mutual funds are a great way to do it. They have a history of giving good returns over many years. You can start putting a amount regularly by way of SIP for your dream home.