25-Year-Old Engaged Aspiring Homeowner: How to Buy a House with No Savings?

Ans: Congratulations on your increased salary! That's a great achievement. Let's discuss your situation and how to navigate between your financial goals:

1. Financial Snapshot:

Strong Start! Investing Rs. 22,000 per month in SIPs and having an emergency fund shows financial responsibility.

Balancing Responsibilities: Supporting your family while managing EMIs and rent is commendable.

2. Homeownership vs. Other Goals:

Family Pressure: It's understandable that your family wants you to buy a house. However, prioritize your financial goals first.

Owning vs. Renting: Homeownership comes with responsibilities and hidden costs. Renting allows for flexibility in your current situation.

3. Prioritizing Your Goals:

Debt Management: Focus on paying off your car and education loans early. This frees up cash flow for other goals.

Emergency Fund: Consider increasing your emergency fund to 3-6 months of your living expenses for unexpected situations.

Investing for Growth: Your SIPs in Small and Mid Cap funds are good for long-term wealth creation. Actively managed funds like these have fund managers who try to outperform the market by picking stocks they believe will grow.

4. Saving for a Down Payment (if needed):

Increase Savings: Once your EMIs are paid off, consider increasing your SIP amount or starting a dedicated SIP for a down payment.

Review and Rebalance: A Certified Financial Planner (CFP) can review your investments and suggest adjustments to potentially reach your down payment goal faster.

Remember, financial planning is a journey, not a destination. Consulting a CFP can help you create a roadmap that balances your financial obligations, long-term goals, and your family's needs.

Here's the key takeaway: You're making smart financial decisions! Focus on debt repayment, emergency savings, and long-term investing. Owning a house is a great goal, but prioritize according to your current situation. A CFP can help you create a personalized plan.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in

Ans: Hello;

If you make a monthly sip of 1.2 L in Kotak equity savings fund (moderate risk) then you may expect to accumulate a sum of around 50 L in 3 years considering modest return of 9%.

You may use this as down payment for your house purchase and fund the balance through loan.

Happy Investing;

Ans: As a fresher earning ?40–60K per month, focus on building a financial foundation first. Prioritize savings and investments through mutual funds to grow wealth and achieve other essential goals. Avoid buying a house immediately, as taking a home loan at this stage could strain your finances. Once you've built a substantial corpus and ensured financial stability, you can plan for a house purchase without undue stress.

Best Regards,
K. Ramalingam, MBA, CFP
Chief Financial Planner
www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: You are in a strong position, earning a combined income of Rs. 3.5 lakh per month. This is a good starting point to plan your future financial goals, such as buying a home worth Rs. 1.5 crore. Since you don’t have savings right now, your priority should be to build a solid financial foundation first.

Saving for the Home
You mentioned the goal of saving Rs. 40-50 lakh before buying the house. This is a practical approach because it helps you reduce the loan burden and increase your chances of securing a better mortgage rate. Here’s how you can go about it:

Emergency Fund: First, start by setting aside an emergency fund of around Rs. 6-8 lakh. This fund should cover 6 months of your expenses in case of unexpected events. You and your wife should have access to this fund in liquid forms like a savings account or liquid mutual funds.

Building Savings: You have the capacity to save a substantial amount. With your current income, you can aim to save Rs. 1 lakh to Rs. 1.5 lakh each month. You should consider directing this amount into systematic investment plans (SIPs) in equity mutual funds, given your 5-7 year horizon before buying the house.

Investment Strategy
Given your goal of saving Rs. 40-50 lakh over the next few years, here’s how you can structure your investments:

Equity Mutual Funds for Long-Term Growth: Invest in actively managed equity funds with a long-term view. Equity funds have the potential to generate higher returns over the long term. Choose funds focusing on large-cap and flexi-cap categories, as they offer a good mix of stability and growth potential.

Debt Mutual Funds for Stability: For the portion of savings you want to keep relatively safe, consider debt mutual funds. They provide better returns than savings accounts and fixed deposits, while keeping the risk lower than equity funds. This will balance out your portfolio and reduce the volatility in your savings.

SIPs: Set up SIPs for both types of funds. This will allow you to invest systematically, building wealth gradually, without trying to time the market. You could split Rs. 1 lakh into Rs. 70,000 in equity and Rs. 30,000 in debt funds, but feel free to adjust as per your risk tolerance.

Keep Track of Progress: Given your high savings rate, you should be able to accumulate Rs. 40-50 lakh in 3-4 years, assuming an average return of around 10-12% from equity investments.

Mortgage and Home Loan
Once you accumulate the required savings for the down payment, you can start looking for a home loan. Ideally, a down payment of 20-30% (around Rs. 30-45 lakh) is recommended. With your combined monthly income of Rs. 3.5 lakh, you should be eligible for a home loan. Ensure that your monthly EMI does not exceed 35-40% of your combined income, so that it remains manageable.

Key Points to Keep in Mind
Avoid Over-leveraging: Do not stretch your budget to the limit. Stick to your planned savings and down payment target. This will ensure that you do not end up with too high an EMI that affects your cash flow and lifestyle.

Review Your Expenses: Track your monthly expenses and cut down on non-essential spending. The money saved can be redirected towards your house savings or investments.

Spouse’s Income Utilization: Your wife’s income can also be used for the savings plan, particularly in the early years of your marriage. This can help you build the corpus faster.

Loan Eligibility: Once you have saved for the down payment, get in touch with banks to understand your loan eligibility. Keep a good credit score and avoid large purchases or credit card debts.

Final Insights
The combination of aggressive savings and systematic investments in equity and debt funds will allow you to reach your goal of Rs. 40-50 lakh within a few years. By setting aside a portion of your income for SIPs and maintaining a disciplined approach, you can gradually accumulate wealth and achieve your dream of buying a home. Moreover, always ensure that you keep a check on your lifestyle expenses to ensure that your savings rate remains high.

Best Regards,

K. Ramalingam, MBA, CFP

Chief Financial Planner

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment