Living in your own home would be one of your biggest dreams. It not only marks your independence but also gives you the feeling of success. Your home is probably the biggest investment you will make in your life.
You have found the perfect home and have also checked your eligibility for a loan. The only hurdle delaying the purchase is the down payment. Lenders provide loans for up to 90% of the property price. The balance must be paid through your personal resources, which is known as the down payment.
Experts advise you to start planning even before you make the decision to buy a home. The habit of saving smaller amounts will also help to meet your down payment. Here are five ways in which you may save money to pay the same.
- Plan and budget
If you plan to buy a home in the next couple of years, it is important to start setting a budget from now. It is also important that you check your home loan eligibility to know the exact amount you will need as down payment. You must eliminate avoidable expenses to accumulate funds for down payment.
2. Liquidate smaller savings
If you have saved in precious metals like gold or hold bonds, you may liquidate these. This money may be beneficial in meeting the down payment needed once your home loan is approved. However, you must retain some savings to meet any emergencies.
3. Ladder your savings
Investing your extra money in corporate deposits (CDs) is a good way to earn decent returns. These are relatively low-risk investments and are easily accessible. One way to maximize your returns is to spread your savings in different CDs with varying maturity dates. This is known as laddering and provides the flexibility that adjusts your savings based on the interest rates. It helps you to invest when the returns are higher and ensure you do not have to invest for longer periods in case of lower interest rates. These funds may be used to make the down payment towards your property before the lender disburses the home loan amount.
4. Borrow against savings and life insurance
Insurance companies offer loans against life insurance policies at a lower rate of interest. Furthermore, you receive flexibility because of several repayment options. The loan against life insurance is repayable during the policy term and ensures you do not face any financial constraints. You may compare the interest payout on the loan against life insurance and housing loan using an online home loan calculator. This will enable you to make an informed decision. You may also avail of loans against your savings to make the down payment. If you liquidate these, you do not have to pay pre-withdrawal penalties.
5. Pay-off credit card outstanding
Ensuring you pay the entire credit card bill each month ensures you do not pay the huge finance costs. This will enable you to save more money, which may be saved over a longer duration to meet the down payment towards your home.
You may seek help from your relatives or friends or procure a soft loan from your employer to fund the down payment. Consider taking up another job to earn more income.
While arranging for the down payment is important, it is recommended you check the title of the property prior to making your decision. Ensuring there are no legal issues prior to your home loan application is important to avoid inconvenience and delays.