Tips to buy your Dream Home

Buying a luxurious abode may be difficult but not impossible, believes Anil Rego, CEO and founder of Right Horizons, an advisory and wealth management firm. Read and follow these informative tips on how to save money to make that most important purchase of your life.

One of the biggest dreams for almost all of us is to have our own home – be it a large villa or a small apartment. However, for most of us, this is the largest investment we ever make in our lives, and often it’s not possible to buy a house without financial assistance. Even if one takes a loan, the downpayment is likely to be a substantial sum (typically around 20 per cent of the total cost), and one needs to save for this. Here are a few options you can look at to save for your dream home.

Plan in advance

The first and most important aspect is to plan for this well in advance. For example, if you want to buy a house when you are 40, then you need to start saving from the time you are in your early 20s, or else you will not be able to save up enough for the down payment. The earlier you start to save, the more benefits you will get from the power of compounding. It is advisable to invest in long-term growth assets – both debt and equities via a Systematic Investment Plan (SIP) route from as early as possible. For example, if individual X invests A10,000 each year at 10 per cent, then the individual has to save for 22 years and five months to have A1 crore. However, if the same individual X invests A10,000 each year at 15 per cent, then the individual has to save only for 17 years and six months to have the same amount.

Make a budget

You need to create a detailed budget, not only of your monthly income and expenses, but also of the estimated cost of your dream house. Do not forget to factor in inflation and rising real estate prices (what costs A50 lakh now could well cost over Aone crore within 10 years). Then, determine the approximate amount of downpayment you need to put down on the house. This will give you a clear financial goal that you need to work towards.

Control your cash flow

Keeping a tight control of your cash flow is very crucial to ensure financial success. If one is not sure where the money flows to, it is difficult to avoid the debt trap. Ideally, one should have a monthly budget charting out the income and the various expenses. This will ensure that the savings and investments are done each month and unnecessary debt doesn’t build up.

Invest regularly

It is advisable to invest on a monthly basis (through a systematic investment plan/systematic transfer plan or any other mode of investment). This will give you two benefits. Firstly, you will invest regularly and compound it and secondly it will negate the possibility of you overshooting the budget and delaying your savings. Ideally, you should automate this process to avoid any last minute delays in investing. Automating the investment process by a direct bank transfer to a mutual fund/recurring deposit, etc. will help to ensure that the savings objective is met and also curtail the number of impulse buys–thus keeping you within budget.

Maintain your savings

It is imperative to keep almost 3-6 months of income as savings/liquidity. This should be used only in emergencies and kept aside from other investments and savings. One can use this to fall back on in case of any unforeseen situation which leads to loss of monthly income. This will be essential in ensuring that your financial goal is met, since this will offset the requirement to tap into your savings in case of any emergency.

Assess your eligibility

This is the final step for a loan. This depends on the repayment capability, income levels, existing debts and age. The amount of loan sanctioned will vary from borrower to borrower and between banks themselves. Since this is the most preferred method of purchasing a new home, it’s advisable to check the eligibility early on in the process. Ideally, you can do it once the budget is made, to ensure
that the financial goal is in line with reality.

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