One of the key reasons why the extended suburbs are a preferred residential destination for first time home buyers is the mathematics of the transaction. Typically, a lending institution will extend about 75-80%, of the purchase price or agreement value; at times 90% under very special circumstances. So, the remaining 25-20% or in some cases, 10% needs to be your own contribution.
Now let’s try and put this in perspective. If you buy a flat for Rs. 30 lakh; your personal contribution would be in the range of Rs. 3 lakh to 7.5 lakh depending upon how favourable the terms of the lending institution are. No wonder entry level home seekers opt for peripheral areas of the Mumbai Metropolitan Region; after all those are the zones where you can book a home with minimal investment of your own.
The question that arises here, is how to come up with that all-important initial contribution. After all, it is a mandatory step of the process, whereby you would be initiating the transaction, so that just cannot be avoided. However, there are several dos and don’ts that if followed, can help make the difference between success and disaster.
Plan it out
The amount spent on marriage rituals can be considerable. Families are known to take loans to ‘make a good impression’ and give their children ‘the wedding they deserve.’ With the parents nearing retirement age, often the burden of repaying those loans ends up on the bride and groom. This delays their ability to even contemplate a home purchase to a considerable extent.
Instead, taking a planned decision to consciously reduce costs on the wedding and using the saved amount to create a corpus for the home purchase is a much more sensible approach. Similarly, close relatives who are expected to gift ornaments and apparel can be informally requested to instead, divert the amount towards the home purchase transaction.
Those who are astutely able to save on marriage costs and invest in their own house would definitely get a head start over other couples. With a systematic approach, they could well start the new innings of their life together in their own residence instead of moving from one leave and licence accommodation to another!
Avoid personal loans
This is a mantra to be followed at all costs. While home loan rates can increase, the difference to be paid by the borrower towards the equated monthly installments or EMIs tends to be marginal and most importantly, it can be managed even by those having a fixed income. One can either get the tenure extended or prepay part of the loan with annual bonuses during Diwali or the financial year end.
Personal loan rates tend to be quite higher and the repayments can quickly spiral out of control. Many home buyers who tried to bridge the gap between the loan amount and the total purchase price with a personal loan have repented at a later stage and eventually requested loans from family members and relatives to ease up the financial pressure they are under.
Never use credit cards
It is one thing to manage EMIs with your salary on a month-to-month basis and face problems if your employer suddenly changes the payroll terms. However, it is a very bad idea to pay the EMIs with your credit card. Unless if you have a very disciplined system of managing your finances as well as a dual income setup, credit card payments can also get out of hand.
The interest rates charged, can again be quite high and a borrower can easily find oneself saddled with high-cost debt at a crucial stage where there is already a steady monthly outgo. So, manage your margin money well and you will have set the stage for owning a house without unnecessary tensions.
Did you know?
You can get an in-principal home loan approval in advance from the lending institution by submitting your income records and other related documentation. That way, when you identify your dream house, the process will go through much faster!
