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How to plan your finances to buy a house in 2018

BY Sangeeta 9th February 2018

Buying a house of their own is an important goal for most of middle-class working professionals in India. Unlike the previous generations who inherited houses made by their parents or would buy/construct their homes with their retirement funds.

The kind of house that you can buy, will depend on two factors – the margin money or down payment that you can make and your income level. As per the Reserve Bank of India (RBI) and National Housing Bank’s directions, housing finance companies and banks are not allowed to lend beyond a certain percentage of the fair market value of the property. This percentage is called the loan to value (LTV) ratio and it depends on the amount of loan being applied for by the borrower.

If you already have accumulated the necessary margin money, let us look at two examples, to understand the value of the house that you will be able to buy, the home loan amount that you will need to avail of and the required annual income to avail of such home loan. The value of the house in the following examples, does not include the cost of furnishing the house.

Those of you who are contemplating to buy a house in near future need to plan for accumulating the margin money. During this period, you have to accumulate the required 20 per cent of the cost of the house. You can start investing in debt schemes, through monthly SIP. Alternatively, you can start investing in debt-oriented monthly schemes of mutual funds, where around 10-15 per cent of the corpus is invested in equity, so as to give the scheme a chance to perform better, in case the equity performs better during this period.

In case your time horizon is more than five years, you can start investing through balanced funds of a good fund house. Balanced funds are basically equity-oriented funds, where a minimum of 65 per cent is invested in equity shares and the balance can be invested in debt funds. The flexibility, to shift up to 35 per cent of the debt portion, will help you reduce the volatility associated with investments in equity. This will ensure that you are able to accumulate your desired funds in the targeted period.