Owning a house is a dream come true for many Indians. The easy availability of Home Loans at competitive interest rates has made this wish attainable for many. However, the real challenge is making the down payment while taking a Home Loan. According to the latest RBI guidelines, a borrower should contribute at least 10-20% of the property’s cost as a down payment, and the housing finance companies fund the remaining amount with a loan.
Those planning to purchase a house with a Home Loan will find these tips extremely helpful in accumulating Home Loan down payment.
Tips to Save Money Quickly to Buy a House Within a Year
Suppose an individual is planning to purchase a house worth ₹ 40 Lakh. If the loan company funds 80% of its cost, they can get ₹ 32 Lakh as a Home Loan and arrange the remaining 20% (₹ 8 Lakh) as a down payment. If the applicant plans to buy the house within a year, explore these quick money-saving options to arrange the down payment within a short period:
- EPFO (Employees’ Provident Fund Organisation): EPFO allows its members, the PF scheme’s contributory employees, to use 90% of their EPF accumulations to make a Home Loan down payment. However, the individual must have served at least five years in the same organisation to avail of this benefit.
- Employee Loans: An employee working in the same company for several years builds loyalty and trust, and the employers agree to offer them general-purpose loans at low-interest rates.
- Liquid Instruments: Homebuyers looking for quick funds might consider investing in one-year maturities liquid instruments like fixed deposits and commercial papers. They give decent returns in short periods, helping individuals accumulate the magic figure quickly.
Tips to Save Money in 3-5 Years
Before approaching a housing finance company to apply for a Home Loan, here are a few tips to save money for the down payment in the next 3-5 years:
- Invest in the Right Instruments: If the property’s value is ₹ 75 Lakh, the 20% down payment will cost around ₹ 15 Lakh. So, adopting a low-risk and safe investment plan is essential, such as investing in bonds, SIPs, and recurring deposits for 3-5 years.
- Equity and Mutual Funds: While accumulating money for the Home Loan down payment, focus on the time in hand, risk profile, and the target amount. Those with 3-5 years in hand might invest in aggressive hybrid or equity mutual funds. For equity, stay with large-cap or multi-cap equity funds. For five years, invest a decent sum each month and get good returns on equity funds. Families with multiple earning members will find it easier to accumulate money quickly.
Remember, saving for a bigger down payment will automatically reduce the Home Loan requirement. That will eventually lead to smaller EMIs and less stress on the monthly budget. Use an eligibility calculator to determine the loan amount and an EMI calculator home loan to decide how much you can pay in EMIs each month. Ensure the EMIs consume 30-40% of the take-home salary.
Dos and Don’ts While Saving Money for the Down Payment
- Try accumulating money for a bigger down payment instead of just the minimum 10-20%. The higher the down payment, the smaller the loan principal and interest amount.
- Invest in high-yield debt funds or fixed deposits to accumulate money within three years. Hybrid funds are appropriate for 3-5 years, and equity mutual funds give good returns over five years.
- Maintain a decent credit history, review investments regularly, create a budget, and control monthly expenses to meet the financial target within the stipulated time frame.
- Refrain from disturbing your earmarked investments for other purposes, such as retirement, a child’s education, or a wedding. Doing that will prevent achieving the set goals and cause losses with market-linked instruments during fluctuating market conditions.
The real estate market is growing rapidly, and investing in a property would be a wise choice to get good returns in the coming years. Investing in a house can help you get good returns if you plan to sell it in future. So, saving money for a sufficient Home Loan down payment makes sense. Apart from helping you fulfil a dream, it also enables you to attain financial security in the long term.
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