Home loans are a smart way for borrowers to afford their dream home. Property prices have increased significantly and it makes no sense to splurge one’s entire savings on buying real estate. Even if you can afford to buy a home without the help of a home loan, you must refrain from making such a choice and instead avail of a home loan. Home loans allow homebuyers to pay for a home in a systematic manner and in the form of EMIs spread over a period of 15 to 20 years. The borrower must only arrange the required down payment and meet their lender’s eligibility requirements to be eligible for a home loan. Thus, home loans reduce the burden of buying a home and help borrowers keep their savings safe for a rainy day.
The question is what is the down payment and why must a borrower make this payment? When home buyers avail of a home loan to help them fund their property purchase, lenders ask them to pay a part of the property price, i.e. about 20% to 30% as a down payment. Lenders sanction the remaining amount as a home loan. Borrowers can choose to pay a higher down payment if they wish to minimize their EMI burden and also avail of the loan at low interest rates. Those planning to avail of a home loan must therefore start saving for the down payment as soon as they make the decision. The higher the down payment one makes, the easier it becomes for them to repay their loan. In this article, we share some tips on what home loan borrowers can do to save enough for their down payment.
Handy Tips on What You Can Do to Save Enough Down Payment
1. Practice Financial Discipline
Life has changed and the same goes for how people live it. Today, couples spend more money on shopping and dining out than they do on their monthly rent. If you want to save enough money for your down payment, start making changes to the way you live. While it is okay to splurge on a good or fancy dinner if you are celebrating something special, you must learn to eat at cheaper restaurants on normal weekends. Similarly, you can even consider moving to a smaller apartment and saving on rent. Learn to cut down on shopping too and you will also have to learn to stay away from all the designer-label stuff that you find so fascinating. Making these lifestyle changes won’t be easy, but it will certainly be worth the effort.
2. Do Budgeting
If you want to save enough money for your home’s down payment, create a budget and stick to it. Most young people know nothing about budgeting and spend their salary as they like. This often leaves them penniless and in desperate need of cash towards the end of the month. Therefore, budgeting is important. While creating a budget, people should keep the 50-30-20 rule in mind. As per this rule, all employed individuals must use 50% of their income to take care of their fixed costs, such as rent, EMI, etc. 30% of their income must go towards discretionary expenses, such as taking a small holiday or enjoying a nice dinner. All those drawing a salary must save 20% of their salary and keep it aside. If one follows this rule, with clear planning and patience, they will easily be able to save for their down payment.
3. Monetize Your Other Assets
Home loan borrowers must pay 20% to 30% of their property’s value as a loan. Saving up such an amount is not easy and can sometimes take years. If you want to go ahead and finalize your home purchase as soon as possible, you can consider liquidating your other assets. For instance, most of us keep fixed deposits. You can break an F.D. if you need money urgently. Similarly, you can even consider selling your shares or taking a small loan against your life insurance policy. However, you must do this only if you absolutely cannot wait to buy a home. The ideal option would of course be to save enough money to clear your down payment.
4. Try and Take a Side Job
If you want to become a homeowner and can afford to take a side job, take one. Though a second job might make life difficult for you, it will most certainly help you save enough money for a down payment quickly.
Final Words
Saving enough money for a down payment won’t certainly be easy. However, you must save as much as you can and make as high a down payment as possible. This will allow you to reduce your EMIs and therefore, minimize the burden of loan repayment. Paying a higher down payment than required or is necessary will also allow you to avail of a loan on the best terms and conditions, such as a low home loan interest rate and a long repayment tenor to help ease the burden of loan repayment. Following the above tips will certainly make it easy for you to save money. However, if nothing else works, you can consider borrowing money from family and friends as a loan. However, one must take this decision after thinking and planning well as matters of money can easily come between people.