How to Manage Finances to Purchase a House?

How to Manage Finances to Purchase a House?
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It is no longer a farfetched idea to own a house in India. The versatility of home loans in the market clubbed with the affordable housing scheme implemented by the government has made it more accessible for individuals to own a house. However, it is not a walk in the par either. One must manage finances well before choosing to opt for a home loan. Mentioned below are the steps you can follow to manage your finances better in order to avail a housing loan.

A Home Loan can be broken down into two parts, the down payment and the loan amount.

  • Down Payment – A down payment on a Home Loan is the money that you need to put forward out of your own pocket in order to avail the loan. Generally, banks and other financial institutions require you to bring forward 20% of the total value of the property as down payment. However, a borrower can choose to increase this percentage to whatever he/she wishes to. The higher the down payment value, the lower the loan amount, meaning that you need to pay lower EMIs. This also means that the likelihood of you obtaining the loan increases, since the lender has to give out a lower amount.
  • Loan Amount – The loan amount is the loan that the lender disburses to you. In other words, it is the total value of the property after deducting the down payment you have made. For example, if you wish to purchase a house worth Rs.1 crore and decide to make a down payment of Rs.20 lakh, the loan amount is Rs.80 lakh. This means that you need to save up for as much as you can for the down payment. Here are some tips to help you manage finances to purchase a home loan.

How to Manage Finances to Avail a Home Loan

  • Begin Saving – The easiest thing to do in order to avail a home loan is to begin saving on a monthly basis. If this is diligently done, you will have enough money to pay a down payment to avail a home loan required for you to purchase your dream house.
  • Borrow Money From Family and Friends – Borrowing money from family and friends is quite different from borrowing money from a bank in the sense that you need not pay interest while repaying the loan. Therefore, it makes sense to borrow from friends and family and increase the down payment, as opposed to obtaining a larger loan amount.
  • Liquidate Your Assets – Liquidating your assets in order to make way for a down payment maybe a good idea depending on the type of asset. If you speculate the asset to rise in value more than the house you purchase would during the same period, it is not a wise decision to do so. However, if you think the asset won’t increase in value as much as the house would, it is a wise financial decision to liquidate that asset.

Things to Keep in Mind Before Purchasing a House

  • Calculate the EMI you need to pay. Ensure that you are capable of repaying the loan without having to compromise on your lifestyle.
  • Make sure you do your research on the various home loans available in the market before finally choosing one. Make sure you opt for the loan that best suits your needs.
  • Ensure that you have all the documents you need in order to obtain the loan. Not having certain documents may get your home loan rejected.
  • Ensure you have a decent credit score before applying for a loan. Having a low credit score will not only get your home loan rejected, but will deplete your credit score even further. This will also cause all future applications to get rejected, putting you in the downward spiral of obtaining a home loan.

Although home loans are more accessible in this modern day and age, it is still important to manage your finances before applying for one. Also, ensure to speculate the financial outflow you need to incur towards the home loan. At the end of the day, you should not have to compromise on your lifestyle for a home loan. As this is a long term commitment, ensure you don’t go beyond your financial comfort zone to pay off the loan.

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