protect your wealth

Before taking the all-important decision to buy a home, ask yourself, “Have I assessed my finances?” Apart from your credit score, annual earnings, and savings, various other important factors determine the mortgage down payment you can afford. In this regard, one of the most critical pieces of information is your debt-to-income ratio or DTI ratio.

Understanding Your DTI Ratio

The DTI ratio determines the amount of mortgage you can afford to take on, given your current income and other liabilities. It determines if you (the borrower) can make the payments every month. The DTI ratio is the total of all your regular debt payments and housing-related expenses (including mortgage, mortgage insurance, homeowners’ association fees, property tax, homeowners insurance etc.) as a percentage of your monthly gross income. The Federal Housing Administration (FHA) advises that a borrower should not have a DTI of higher than 43%.

protect your wealth

If your DTI ratio is higher than 43%, there will still be some lenders willing to lend money to you, depending on the real estate market and the general economic conditions. But usually, it is best to maintain a DTI at 43% or less.

Here are some top tips from financial experts that can help you prepare to buy your home by accumulating a down payment –

Build a Corpus

Perhaps the best advice to those who wish to buy a home is to start saving early. Saving well from a young age can help you build a solid financial portfolio. Make a budget, record your expenses and save as much as possible from the beginning of your career. Consider making high-return investments to protect your wealth to grow as you earn. Over a few years, you will be able to create a meaningful corpus. You could also make efforts to pay off any high-cost loans to increase your monthly savings gradually.

The ‘Proportionate Release’ Option

Some lenders give you the option of making your mortgage down payment in small portions over time instead of paying in a lump sum. This facility is for people investing in housing projects by selected developers. As construction takes years, your down payment amount will be disbursed periodically by your lender. The proportionate release option takes the burden of a one-time mortgage down payment off your shoulders.

Loan Against Your Life Insurance Policy or Provident Fund

Unlock your long term savings to boost your ability to make a down payment for your dream home. Even though life insurance policies and the provident fund save for retirement, it is not bad to use these long-term savings when buying a home. A home is a long-term investment that appreciates over time. Therefore, taking a loan against your life insurance policy or provident fund makes sense, especially if you don’t have any other option.

Leverage Money Club to Build a Mortgage

Prepare for your mortgage down payment by including your family and friends in your very own chit fund. Use an online chit fund app like Money Club to create a chit fund with a pool of funds contributed by all your family and friends. In a chit fund, all the members contribute a pre-decided amount to create a collection of funds. This pool of funds is then available to anyone in the group who needs a loan. The Money Club will hold an auction among the members to grant this pool debt.  An online chit fund is an excellent saving and borrowing avenue.

A home loan is essential to buy a good home for your family and yourself. Invest wisely from an early age to build the capability of making a down payment on your dream home when it’s time. The size of the down payment you can make and how you can accrue it depends on your financial circumstances and career growth.

Author Bio:

Aatish Khanna works with the Content Marketing team at Money Club – a digital chit fund platform that makes saving, borrowing, and investing your money more efficient. He writes on topics to help his readers understand processes so they can make better financial decisions. He’s the go-to person that his family, friends, and colleagues turn to for all their money matters. He loves to play board games and aspires to one day build his one finance-related board game and app.

By Anurag Rathod

Anurag Rathod, as a blogger he used to spread all about app-based business, startup solution, on-demand business tips and ideas and so on.

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