How To Start Saving Money For Buying Home; Guide For First-Time Buyers

One of the most common financial goals that people aspire is buying new home. Investing in a residential space can easily be classified as a big-ticket purchase, especially in the wake of skyrocketing property prices across the nation. One needs to understand one’s cash flow and requirements to adequately finance this goal. Buying your own home is a privilege many have to strive hard for. It is a lifetime decision that involves hefty investments.

Though there loan and mortgage options to buy property, you still need to save enough to pay for the down payment. Moreover, you also need to meet out the additional expenditures such as property tax, stamp duty, and registration charges. While buying your dream home is a privilege, arranging funds for it can be a challenging proposition; and it is better to start planning early. At whatever age you begin, you would take 7-10 years to finance it in part or full.

Let us explore how taking small steps lead us to big savings later.

Saving Ideas & Tips

1. Begin with small savings

You can start by saving small. Decide your budget and when you would like to buy and calculate the number of months left to your purchase. Simply divide the amount that you need for your down payment by the number of months you have. This is the amount you would be willing to pay upfront. If you are planning to take a home loan, on an average you must not spend more than 25% of your net salary towards the mortgage.

Ideally, before you decide to invest in real estate, you must reduce your expenses and try and earn some additional income. You can open a recurring deposit which means that a certain amount of your regular salary will go directly in a savings account.

2. Invest in profit earning instruments

It is advisable to invest in different kinds of money growth instruments to earn a decent rate of appreciation in a given period of time be it mutual funds, or fixed deposits (FDs), or even Public Provident Funds (PPF). Depending upon the policy you buy, mutual funds can help you to earn returns between 10-18 percent. On the other hand, PPF offers a fixed interest rate of nearly approx 7.6 percent, compounded annually.

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Also Check: Different Types of Home Loan

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3. Go for a Systematic Investment Plan (SIP)

A Systematic Investment Plan (SIP) allows an investor to invest a fixed amount in a mutual fund scheme regularly. You can invest in a mutual fund scheme via SIP with a minimum investment of Rs 500. You benefit from the power of compounding and rupee-cost averaging. So you tend to get more units when the market is low and fewer units when the market is high. This significantly reduces your overall cost of investment.

Even with all the planning, it is hard to evade the fact that home purchases take a hefty toll on the savings and salaries of aspirational homebuyers.

4. Check whether you are eligible for PMAY-CLSS Scheme

In case you wish to avail a home loan to finance your home, you may even check whether you are eligible for the Credit-Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana PMAY. This scheme covers the economically-weaker section (EWS), the lower-income group (LIG), and the middle-income homebuyers. The scheme offers a subsidy on the interest payable on your home loan, subject to certain conditions and the subsidy is directly transferred to your account.

5. Open a high-yield savings account

Accumulating your funds in a savings account is an easy option that you can choose. However, the regular savings account usually offers a low rate of interest. You can check for options with banks or NBFCs for the same.

Before you decide to save, you need to have a fair idea about how much your dream home would cost in the future. Moreover, to save right, you need to study the market well and probably consult an expert to guide you through the process.

6. Multiple choice of Money Instruments

Ideally, you must choose to invest your money in instruments that will yield a higher rate of return than the current rate of inflation. For example, if you are planning to buy a house in the next 7 -8 years or more, you must invest in equity funds rather than debt-based instruments which will help you yield higher returns.

Additionally, we have observed that when people are looking to buy a house, if they stayed clear from these common financial mistakes, they successfully go on to planning, investing, and moving into their dream home.

Here’s what they need to do:

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Suggested Read:  Checklist of Activities before Applying for a Home Loan

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Points to ponder before you take the plunge

• You must avoid buying a house when you are in debt. Adding a home loan to the mix further weighs down your monthly budget. It is advisable to pay off your debt before you take on another loan.

• You must avoid buying a house you cannot afford. Adopt a realistic approach and fit a home within the perfect budget and not a budget into your perfect home.

• The down payment is very important and you must save enough for the same. If the down-payment amount is less not only does this increase the EMI burden, but the buyer ends up paying more as interest and fees too. It is advisable to pay a minimum of 20% of the property value to avoid this expensive error in judgment.

• Also, you must remember to incorporate costs related to moving homes such as legal fees, broker fees, property taxes, insurance, moving expenses, etc., which should be accounted for when you are saving up for your new home.

• Planning helps you avoid dipping into your emergency fund to meet these expenses.

So if you are looking to buy a home at some point in your life, start saving at the earliest when you are young. By getting the right advice from a financial expert and setting realistic expectations for your savings, expenses, and your new home, you can be a proud homeowner. All the best!