We discuss how to invest for home down payment and how to save for a home down payment
Home down payment is your contribution in a home purchase financed by a home loan
Home down payment can be 10-25% of the property price
We will discuss why you need to save separately for a home down payment
Then, we discuss how to invest for a home down payment
When, going for a home loan, you will also need to be ready with a home down payment
Amount of your home down payment and home loan depends on profile and the property
For your profile, factors like your loan repayment track record comes into play
Also, important is home loan provider’s assessment of the property
You can’t be hurriedly organising home down payment at the time you need a home loan
People typically make the mistake of not earmarking savings for different financial goals
Not earmarking investments for needs like home buying, children’s higher education and retirement
You end up overdrawing for one need and end up leaving less for others
You end up using more savings for goals that come up first like home down payment
Since all major financial needs are equally important, it crucial that you save separately for them
A handy home down payment ensures that you only take up a more manageable sized home loan
This ensures a lower EMI and lesser interest pay out during the home loan term
EMI savings can be deployed to regular investments
A handy home down payment savings keeps you ready to grab home deals and discounts
Home down payment savings combined with a pre-approved loan helps you do that
With the combination ready, the home loan provider only needs to scrutinise the property
Separate home down payment savings helps you get a clear idea of your home buying budget
Thereby not overdraw on your savings
First step to invest for home down payment is find out your home buying budget
This gives you your savings target
You also need to know the time you have at hand
For a property worth Rs 50 lakh to be bought in 5 years, you can target 20% of the amount or Rs 10 lakh
The time available for savings target determines the choice of investments
More the time at hand, higher the risk you can take for your investments
With 8-10 years in hand, you can opt for equity investments like equity funds
These can be the same schemes you have for children’s higher education and retirement
If the period is shorter, like 5 years, you need a mix of equity and debt like equity-oriented hybrid fund
Fluctuations in equities can be managed even as you benefit from potential high growth
If you have less than 5 years, say 4 years, you can consider higher risk debt funds like dynamic or floating debt funds
They take advantage of fluctuations in debt markets
For regular investments, use Systematic Investment Plan (SIP) in the schemes of your choice
If you have more time at hand, consider Top-Up SIP that allow increase regular investment amount at regular intervals
Supplement regular investments with lump sum investments through mutual fund Systematic Transfer Plans (STP)
For lump sums, consider Fixed Maturity Plan (FMP), close-ended debt funds, with maturity at the time of need