Tips to save for your home down payment
“There is something permanent and something extremely profound, in owning a home.”
Having your own house is a financial goal that every individual has. There are many financial goals but buying a home is above all else. Earlier generations had built their homes brick-by-brick, but today’s generation has taken a different approach. They prefer financing their home, through EMI’s as the price of houses is at peak, especially in metropolitan areas.
The uphill task that arises here is to arrange money for the down payment. The range of houses varies from location to location, but the general range starts from 50lakhs to 2crores and above. For such an amount arranging a down payment becomes an arduous task. This is where financial planning can help you achieve the goal of arranging corpus for a home down payment. Arranging for the down payment can be easy if you look at it as a financial goal”-Financial Planners.
Inflation: The Silent Killer
Inflation is referred to as the “necessary evil” for consumers, but in a wider sphere, it is actually needed for the economy. For house planning, you should have steer clear focus on two things, one is, ‘when are you planning to buy your house, and secondly, what is the price range you are looking at.
For instance, you are looking for a 3BHK apartment after 2 years, today it cost is 60lakhs, considering the 5% inflation rate, this price will be somewhere around 65.12 lakhs then. After accounting for the inflation, stamp duty, and registration costs you should calculate the amount for your down payment. Although stamp duty rates and registration costs tend to change, you should have an estimation ready.
Financial planners generally guide their clients to restrict their EMI Payments to be kept below 40% of your net take-home income. The lesser to tend you borrow/avail a home loan the better it is to repay the loan amount with ease.
Where should you Invest to Save for Down Payment?
The wealth creation for Home Down Payment solely depends on the tenure you have. You might have plans to purchase a house after 2 years or say 5 years etc. This tenure is a way to save and invest that money to earn returns on it so that the repayment of the loan amount will be less.
Now once you have set your down payment goals for either the short term or long term, consideration for investment options will come into force now. Let us have a look at the viable options-
- Debt Mutual Funds
If you plan to invest for, say, 1 to 3 years, then debt mutual funds are a suitable investment product for you. Here also, the risk is minimized and the returns provided are higher than your regular savings account. The best thing about this fund is that it is not influenced much by market movements. They are less volatile in nature. Based on when you’d like to purchase a home, you can select a debt fund and keep your savings, either in a lump sum or through SIP.
- Hybrid Funds
For down-payment on a house, you can also consider hybrid funds if you have at least 4-5 years for the purchase. This fund is a combination of debt and equity investments; thus, it offers an excellent combination of safety and high returns.
- Direct Equity Investment
Equity mutual funds, also known as Growth funds are predominantly invested in a company’s stocks/shares. This is quite a preferred choice of investment tool for investors. If you have more than 5+ years for the purchase of your home planning and you wish to generate handsome returns, then this investment option is the best along with professional PMS (Portfolio Management Services).
Get assistance with financial planners as they can help you earn higher returns while keeping the risks at a minimum. The best part is that you can also start investing through SIP (Systematic Investment Plan). Although investing in equity mutual funds comes with high risk, but eventually, you end up earning high returns too!
To sum up, you should budget an estimate by including the additional expenses and rising inflation in the real estate sector. Investment in mutual funds will be the best option to make a higher down payment.