Arranging funds for your first home is always a challenging task. Thanks to the rise of the home finance industry, it has got a lot easier to manage funds for buying home. However, despite the home loan available at your disposal, you still have to source the down payment that is at least 15-20% of the total value of the property as banks only allow for a loan that builds up to about 60-85% of the property value.
Let us take the example of a home which costs $73,000. In such a scenario the home buyer would have no option but to arrange approximately $15,000 for the down payment separately. The loan is disbursed only if you can pay your portion of the remainder of the property value which the loan will not cover.
Therefore, smart planning and investment are required if you wish to accumulate funds for your first home. So what investment options can the first-time home-buyer resort to? Firstly, if you are looking at investment plans then planning for it early in your career may be a good idea. For the usual loan tenures of 20-30 years, the average working individual can get a good head start on their EMI burden if they set on this path early in their career. This is crucial in securing the desired corpus within the given time-frame. Compounding returns provide the home-buyer more time to work on their investment. This leads to lower unnecessary risks. Here are a few investment tips that may benefit first-time homebuyers looking to find out ways that can help in securing the down payment early on:
Invest in diversified Mutual Funds
Mutual fund SIPs allow for the regular investment of money over a long tenure. A SIP can be explicitly started to ensure an exclusive source for paying the down payment on the loan that will be taken later. A return of nearly 10-18 % can be expected depending on the type of fund selected and the tenure of investment provided.
For instance, if you invest in a mutual fund SIP at $360 every month with an initial corpus at Rs $1500, making a fund of $12,000-15,000 in a matter of 2 years should be a big deal, provided the fund clocks return to the tune of 12-18% a year.
If you have set a goal to arrange for a down payment in less than three years of timeframe, then you should invest on a monthly basis in debt instruments such as recurring deposits, or liquid funds that do not come with any lock-in period. It is not prudent to invest in equity funds or stocks. This is because, investment in equities and related instruments involve risk and uncertainty, and you may not find yourself in a favourable situation at a given time if the stocks you invested in getting into a bad shape.
It is imperative to play safe when you have goals that require money in the short term. If you are going with mutual funds, spread your allocation in debt and equity instruments as per your risk appetite. Do not invest in life insurance policies as they always come with a lock-in period of at least five years.
Factor-in gold loan
Most families have a considerable amount of gold jewellery available with them, and most times, a lot of jewels are unused. These can be a good resource to raise secured gold loan, which are less expensive than general personal loans. You can arrange a down payment from gold loan and pay it off as you go ahead in life.
Borrow from family and close network
If you are short of your target by a few lacs, it may be smarter to swallow some pride and ask friends or family for a help-out. When you ask for a help-out from your family and your close network, it won’t come with an interest cost. And also if you, unfortunately, fail to return the money in time the consequences are still managed as compared to the external borrowings.
Author Bio: –
Girish Bindal is the Head of Content at PropTiger.com, Makaan.com & Housing.com. He draws from more than a decade of cross-industry experience and has worked for brands in the Real Estate, Recruitment and Consulting domain. In his current capacity, Girish is known to gel the news, numbers and opinion to drive the content consumption. With an analyst’s approach and a sharp focus on numbers, Girish has been organically progressing the brand to build a growing base of audience. An audience who are keen to buy property.
August 10, 2018