Bollywood has taught us how to say Roti Kapda and Makan in the same breath. The idea of owning our home can fill us with a variety of emotions, from a feeling of security and pride to a feeling of satisfaction. It is not surprising that purchasing a home is both a financial and emotional investment.
It is much easier to say than do. Real estate prices are already at the moon in many cities. You will need to stretch yourself to the limit to purchase your dream home. You will need to borrow money to buy your dream house if you don’t inherit a large sum of cash. You will have to pay a large amount of interest in this case (usually greater than the amount of your home loan principal). You will have to pay a large portion of your income each month as EMI.
This can be a very stressful experience. Therefore, it is important to develop a plan to achieve this goal. This blog will show you how to invest money wisely to obtain the funds needed to purchase your dream house.
Calculate the amount you will need to buy your dream home
Calculate how much you will need to purchase the house you desire. When calculating the amount, don’t forget to include any additional costs, such as stamp duty, registration fees, interiors, etc. These costs are not included in the home loan. It is best to budget for these costs ahead of time.
It would be best if you also considered the real estate inflation rate when estimating the future values of your dream house. According to various reports, the annualized increase in average home prices in the seven largest cities will be 3.5% over the next decade. If you assume a similar increase every year for the next decade, you’ll need to save Rs. For a house that costs Rs. Now, 70 lakhs.
Calculate how much you need to collect.
Banks do not give you the full amount for a home purchase when you get a loan. The banks will usually lend you up to 80% of the value of your property as a loan. You will have to pay the remaining 20% yourself. The upfront payment you must make is known as a downpayment. Once your down payment has been paid in full, the bank will begin disbursing the loan.
However, you should pay 60% of the house’s value out of pocket, and the rest can be paid by a bank loan. By paying a large portion of the purchase price, you will be able to keep the interest costs down, and the EMI won’t burden you.
You will buy a house worth Rs. You can borrow up to Rs. 80 lakh. It is better to wait and arrange a larger corpus and make a larger down payment in order to reduce your monthly EMI.
This table shows the financial burden reduced if you make a larger down payment and borrow only 40% of the total property cost.
Lower EMIs with Higher Down Payment
Loan Amount Rs 80 lakh 40 lakh rupees
Loan Tenure 20 Years of Age 20 Years of Age
Interest Payable Rs 80.60 lakh 40.30 lakh rupees
Total repayments made during the loan term The Rs.1.60 Crore Rs 80.30 lakh
You can save up to 50% on your interest costs by making a larger down payment.
Calculating the Monthly Investment Amount Required to Collect Down Payment
The next step, once you have determined the amount of the down payment you will need, is to invest the money to get the desired amount. Before you start investing, make sure that the amount you choose is the correct amount.
You will need to know how long you require the money.
Using the example above, let’s calculate the amount of investment. You will need Rs. If you assume that you’ll buy a home in 10 years and you have 60 lakhs to invest, this is how much you need to save each month.
Monthly SIP amount to collect down payment
How much money is needed for a down payment? Rs 60 lakh
Investment Duration 10 Years
Expected annual returns 12%
Monthly Investment Value Rs26,000
Investing Rs. For most people, investing Rs. We all want our dream home, but we also have other goals, like a happy and secure retirement.
There is a simple solution. You can begin with a smaller amount and then increase it by a certain percentage every year. If you follow this path, in the example that we gave, your amount would be Rs. If you want to increase your amount every year by 10%, then it will come down to Rs.
Where should you invest in building your dream home?
Equity is the best asset class to choose if you want to achieve a long-term financial goal. Over the long term, equity has generated more returns than any other asset class.
Equity Mutual Funds are the easiest way to invest. Start a SIP with these funds to automate your savings for your dream house. You can choose a mutual fund within Equity Mutual Funds from the categories below.
You can look at the following categories of equity mutual funds.
Flexi Cap Mutual Funds
These Equity Funds are diversified and invest in companies across all sectors. You will receive a portfolio of large, medium, and small cap stocks in various sectors, creating a diverse portfolio. These funds are flexible, allowing fund managers to adjust their portfolios as market conditions shift.
Large and Mid-Cap Mutual Funds
These funds invest only in the 250 largest companies in India. You get a mixture of mid-cap and large-cap companies. Large-cap stocks represent the leaders of their respective sectors. They generate stable returns due to their size and strength. Fast-growing companies are the mid-cap space’s constituents. They are competing with leaders in their respective segments. These companies are able to deliver returns that can beat the market, but they can also be volatile over the short-to-medium term. Combining large-cap and mid-cap stocks gives you the best results.
Mid-Cap Mutual Funds
If volatility is not a concern, you may also choose pure mid-cap funds. These funds invest in companies ranked between 101 and 250 by market capitalization. As mentioned above, these companies can be volatile on a short—to medium-term basis. These companies aren’t as well-established nor as financially stable as large-cap companies. However, they are growing fast, and this gives you a chance to earn good returns in the long run.
Bottom line
The key conclusion is that you should factor in additional costs and the increasing inflation rate in the real estate sector when estimating your budget. If you only pay the minimum amount, you may end up with a huge financial burden in the future. It is, therefore, better to make a larger down payment and invest in a fund over time.
