People say real estate is the best investment, and if you’re going to buy a house with a Home Loan, you get tax benefits too. Buying a house or land pays you rich dividends in later because the value of such assets only appreciate over time. As and when the area around the said property develops, the rates go up too.
Additional Reading: Don’t Forget About These New Home Loan Tax Benefits
This way, even if you think you made a mistake, you can always sell your property at a profit without too much regret. So, there’s no doubt that buying a house is a good investment. Of course, getting a place of your own has a very feel-good factor associated with it. But most importantly, if you’re an Indian, things like reputation, status, and stability are associated with making such a purchase.
Home Loans are lifesavers for many who have dreams of buying a home but do not have enough money to fulfil their dreams. Taking a Home Loan is a long-term commitment as it usually stretches over 25 to 30 years and thus, it is advised to opt for a Home Loan in your 20s so that it can be settled in full by the time of retirement. But if you are in your 20s and are thinking of jumping onto the Home Loan bandwagon, there are a few things you need to consider.
We at BankBazaar have summarised all the things that a 20-something should consider before deciding to take a Home Loan.
Is Buying A Home Your Priority In Life?
First and foremost, you must know why you want to buy a house. Sure, it could be peer pressure, or simply because you want to call a place your own. A lot of youngsters prefer paying an EMI on a Home Loan instead of paying rent to a landlord. Because, at the end of x number of years, you can call that property your own. That will never happen with a rented property you’re staying in.
That said, it all boils down to what you want to do in life. So, ask yourself if you should buy one, or if you need one. Is the security of having a house of your own something that you want? If your answer is yes, then go ahead and apply for a Home Loan as it is better to start early. But make sure you do your homework to understand what you can afford.
Here’s a handy EMI calculator to help you: Home Loan EMI Calculator
Are You In A Stable & Well-Paying Job?
The 20s are usually the time when people experiment with their jobs and are free to choose different career paths. Millennials aren’t afraid to pursue their passion in their 20s even though, academically speaking, they may have a degree in a completely different stream.
In case you are not happy with your job, then your 20s is the time when you can take a risk with your career. But if you take a Home Loan in your 20s, you lose the independence to try different careers as your finances are tied down to paying Home Loan EMIs.
And that’s why you need to exercise some career stability too. Because if you are going to switch careers, it could mean settling for less or risking losses. But given that you want to buy a house, you have to ensure that you’re in a fairly stable line of work that you enjoy and that you’ll receive increments at work every financial year.
Is It The Right Time To Buy?
Real-estate experts claim that the mid-20s are the best time for people to buy houses as it would give them enough time to repay the Home Loan before retirement. But you need to also consider other aspects, such as markets, real-estate prices, fluctuations in Home Loan interest rates etc.
Additionally, if you have any kind of debt in the form of an Education Loan or Credit Card bill, then you’ll have to clear it before you jump to the next loan. On the other hand, if you’re savvy and have smart investments up your sleeve already, then you can definitely think about getting a Home Loan.
Additional Reading: 6 Surprising Reasons For Home Loan Rejection
How Will You Manage The Down Payment?
The biggest headache a prospective house buyer has is to arrange for the down payment. Banks sanction only up to 90% of the home value and the rest needs to be paid from your pocket. So before you go on a Home Loan hunt, plan how you are going to handle the down payment.
And that’s why, it’s important to start saving right from the beginning. If you start putting aside Rs. 10, 000 every month from the time you start working, say since the age of 21, by the time you’re 25 years old, you will easily have Rs. 6,00,000 in cash, which can be used as the down payment for your house.
Additional Reading: All About The Down Payment For Your Home
How Good Is Your Credit Score?
Your Credit Score can make or break your Home Loan application. It is determined based on your previous history of borrowing and repayment of credit. If you have a high Credit Score, you are more likely to strike a favourable Home Loan deal with the bank. But if your Credit Score is poor, your Home Loan plea is likely to get rejected.
It’s very easy and common for youngsters to max out their Credit Cards and get into debt. So, it’s important to keep a check on your spending and lifestyle. Without a good Credit Score, it may seem like your wish to buy a house will remain only a distant dream. So, start repaying all your debtors and clear out your Credit Card bills as fast as you can.
How Much Home Loan EMI Can You handle?
The 20s are the years of enjoyment and carefree living. Not many at this age think about financial emergencies like loss of job, accidents or hospitalisation. But an emergency can come hammering at your door at any moment. Therefore, it’s important to build an emergency fund.
So, before you apply for a Home Loan, ensure that you are saving sufficiently for emergencies and that your Home Loan EMI won’t hamper your day-to-day living expenses in case of a financial crisis.
Additional Reading: How To Build An Emergency Fund
Would Someone Sign As Guarantor If Required?
Last but not the least, think if you can find someone to sign as a guarantor if required. A guarantor is a person who vouches for the borrower’s repaying capabilities and agrees to pay in case the borrower fails to repay.
Generally, banks do not ask for a guarantor if you are earning well and your requested loan amount is not extremely huge. But if your income is low as compared to your requested loan amount or your Credit Score is poor, then banks may ask for a guarantor to sign the loan plea.
Being a guarantor to someone’s Home Loan is a great responsibility and is considered extremely risky in the financial world. So, if you happen to encounter the worst-case scenario and need a guarantor for the Home Loan to be approved, then think if you can find some trustworthy friend or family member who will have your back as a guarantor.
Additional Reading: 5 Important Considerations Before You Become A Home Loan Guarantor
Once you have considered the above questions and have answered them satisfactorily, only then can you truly decide whether opting for a Home Loan in your 20s is a good idea or not.
Now that you know all the necessary things that you should take into account before boarding the Home Loan Express, make a wise and informed decision. After all, buying a home is a major life-changing decision!