How to save for your first home down payment

The first milestone in your wonderful journey of buying a home is to save enough for the down payment. Since most customers now opt for a home loan, it is mandatory that you fork out a part of the property cost (a minimum of 10%, computed on your entitlement), while the bank or housing finance company funds the rest of the amount. This sum, to be paid from your own pocket, is referred to as the down payment.

Saving up for your down payment clearly demands a lot of discipline and prior planning in terms of not only having the corpus in time, but also maximising your returns on investment, while keeping your other financial commitments. There are various ways to save for your first home down payment, like building your savings corpus, borrowing against insurance policies, seeking proportionate release payments, etc.

Our team of home finance experts at Pioneer Property can advise you on this matter to help you plan your life’s major acquisition.

Here are some tips you could follow:

# Create a corpus: When you start saving systematically from your early work-life, it gathers moss to become a significant sum over the years. With proper planning, this doesn’t pinch and is the simplest way to squirrel away funds for your first home down payment.

# Payment in tranches: Depending on their discretion and on new projects launched by certain reputed developers, banks and home finance companies sometimes offer the option of proportionate release of your down payment. You can then break up this sum and pay in smaller amounts spread out over a period fixed by the lender. This can significantly lessen your burden.

# Loan against insurance/PF: Another option is to seek loans against your life insurance policies or provident fund or any such long-term assets and then repay across a certain period using your savings. This of course needs to be a secondary consideration, just like liquidating a fixed deposit. You can also request partial withdrawal from your employee benefit plan (EPF).

# The 50-30-20 rule: Another avenue that could be explored is adhering to a 50-30-20 budget, where you set aside 50% of your income for fixed costs, 30% for other judicious spending and set aside the rest 20% for savings. It sounds like a simple formula, but in reality, takes a lot of fiscal discipline.

# Lifestyle adjustments: A little discretion in spending pattern and making small changes here and there can go a long way in cutting household expenditure. You can consider limiting family dine-out evenings, home parties, etc. and consciously curbing impulse buying just to satisfy your soul. Again, it requires a lot of will power and self-discipline.

# Profit-earning instruments: By planning well in advance, you can consider investing in profit-earning instruments like mutual funds, FDs and public provident funds (PPF). These money-growth avenues can earn you a decent rate of appreciation over a period of 5 or 10 years.

# Borrow from family & friends: Of course, this has to be the last resort and an option the appropriateness and timeliness of which you are the best judge.