Buying your own home is a dream for most, but realizing that dream can be intimidating to say the least. Most people just try and save money with financial instruments their families have been using for generations. And that’s usually okay. However to be more efficient one needs to have a relevant financial strategy as well. In this article, we at Scapers give you a few pointers on how to start saving money to buy your own home.
- Decide When you Want to Make the Purchase: It’s not enough to think you will buy a home within the next couple of years. You need to have a more specific timeline in mind as this will help you calculate the finances you need. For example, let’s assume you want to buy your home 10years from today. Look at a few houses similar to what you would like to purchase. Take a look at their cost. Using the current rate of inflation, you can now get a realistic idea of the amount of money you would need to have in your account in order to buy your home 10 years from now.
- Work Towards Increasing Your Credit Score: A credit score is a number that indicates to banks and money-lenders, how likely you are to repay debt. The higher your credit score, the cheaper your loan will be. Clearing all bills including credit card and EMIs in a timely manner, helps maintain a healthy credit score. Additionally you can buy your Credit Information Report and correct any issues that may be reducing your score. For example, the report may reflect an account that you have actually shut.
- Examine Financial Instruments Available: Since you now know how much money you need and what your credit score is, you can look for a financial instrument most suitable to your goals. The rule of thumb is to invest in instruments that will give you a higher rate of return than the current rate of inflation.
- Plan for your Down Payment: The down payment is something most people don’t consider seriously. However, saving for this is of prime importance as it can determine the EMI you will need to pay, interest and further fees. Usually you need to pay at least 20% of the total property value as down payment. If you have not managed to raise this amount, you are not ready to buy a home.
- Plan for your Loan EMI: The loan you take must be comfortable for you to pay back. Most choose to take loans that have a low EMI. However, doing this increases your repayment period and the interest you pay as well. When planning your finances, plan for EMI payments as well. Ideally your EMI should be less than 30% of your take home salary.
- Plan for Other Expenses as Well: In our eagerness to own a home of our own, we tend to plan only for the main purchase. However, there are pre & post expenses that we need to incorporate into our financial planning. Legal fees, brokerage fees, property taxes, insurance, moving expenses etc. all need to be accounted for before the purchase. Post buying a home you may face interior decoration charges, woodwork and carpentry charges, water connection and electrification expenses, piped gas connection, flooring and furnishing charges, painting and waterproofing expenses, etc.
- Save on Household Expenses: Rent is probably the single largest expense in your monthly budget. You don’t need to completely downgrade your lifestyle but you should explore the option of moving to a slightly cheaper accommodation. As a guideline, try and follow the 50-20-30 rule. This ideally means that 50% of your income should go towards household expenses, 20% should go towards saving for your home and other financial goals and 30% should go towards food, travel and outings.
What you must remember in all of this is that buying a home is not the only financial goal one will come across in life so don’t overspend on it. Instead purchase a home that is comfortably affordable. Take a look at our website https://thescapers.in for accommodations that don’t empty your pockets.