The feeling of owning your own home is a feeling like no other. Owning a home is a lifelong resolution and the start of the year is an excellent time to begin planning. Are you wondering how to manage your finances to buy a house in 2018? We have made it simpler for you:
Generally, the amount you need to buy a house can be broken into two parts: the margin payment and the lump sum payment.
What is the Margin payment?
Margin payment, also known as the down payment is the amount you need to pay using your funds. This amount is usually 20% of the property value and is something that you need to arrange.
What is the Lump sum payment?
Lump sum payment is the remaining 80% of the property value. If you apply for a home loan, then housing finance companies can lend money only to a certain extent. The extent of this amount for house loans can be calculated according to the Loan to value (LTV) ratio.
For example: For a property valued at Rs. 80 lakh, you can take a loan of Rs. 64 lakh, while the remaining amount of Rs.16 lakh + all incidental costs are incurred by you.
An important point to remember is that the home loan provider does not pay for stamp duty and registration charges. The homebuyer bears this cost, which is approximately 5% of the property value. However, the home loan tax benefit will be an advantage for monetary savings. The amount of tax benefit depends on the provisions of Section 24, 80C and 80E of the Income Tax Act.
How to save up for the Margin payment?
Now, let us discuss how you can arrange funds for the margin payment.
- Save up for it! – The best way to arrange for the margin payment is to save up for it. The number of years for which you have to save will depend upon your monthly salary, the amount of money you can put away each month and the price of the property you wish to buy.
- Borrow from friends/ family- If you feel it right, you can borrow the money from your friends and relatives if you are not able to save enough for the margin payment.
- Opt for a loan- If you choose not to opt for point 2 above and are okay with taking another loan apart from your home loan, you can get a personal loan for the margin payment.
- Liquidation of Assets and Investments- You can sell assets like an old bike, a stretch of land or another property you own. You can also liquidate your investments like fixed deposits, mutual funds, PPF etc. Before liquating these assets, make sure that they are not your only source of income.
Few things you should keep in mind before deciding on buying a house:
- Check on how much money you have and how much you need from a home loan.
- Calculate whether your own resources will be adequate to cover the margin payment and other accompanying costs.
- Evaluate whether the total amount of your financial resources are enough to afford the cost of the house you want to purchase.
- Once everything is in place, look up on the options for a home loan online.
- Keep a close eye on the housing loan interest rates.
- Make sure the documents required for a home loan are ready and up to date to avail of a home loan!