Larger Down Payment Vs Buying an Affordable House, Know What Suits Your Pocket

Home buying is certainly one of the most important decisions that a person takes in his life. But what is much more confusing is to decide what kind of housing will be more suitable for him. Given a set budget, a buyer has several options to choose from, but the most typical one is to decide between- a big home and a large down payment or an affordable home with fewer mortgages.

Here's is a brief analysis:

The down payment scenario

If you have liquid cash, assess the situation as what kind of home you should opt for. Buying one large home means high pressure on your pockets along with higher EMIs and another monthly outflow. Even if you have high disposable income, it can put excess pressure as every month a significant part of it will go into the monthly instalments. Moreover, if there is no fixed income, you might have to foreclose the loan, in case you missed out on EMIs and be a loan defaulter. Whereas if you are opting for a cheaper home your loan amount would be much less.

Sample this:

Rajesh Keswani lives in a metro city and has Rs 20 lakh liquid amount as cash to invest in his home. He aspires to live in a gated community where there are resort-like amenities of a tennis court, swimming pool, gymnasium etc, which will cost him Rs 70 lakh. While Rs 54 lakh will be the loan amount, at an interest of nine per cent, after paying 20 per cent down payment his monthly instalments will be close to Rs 50,000. There is another home with similar amenities but not in a gated society. It does not have a sprawling private park but is right in front of the public park. The cost of this home is Rs 50 lakh. With Rs 10 lakh down payment and Rs 40 lakh as the loan amount at an interest of nine per cent, the EMI will be Rs 36,000. Keswani will be saving Rs 14,000 per month from his disposable income along with an extra Rs 10 lakh in hand.

With lesser EMI to be paid, a buyer can use the remaining amount in other investment avenues and can earn returns to save for another home or even for his retirement nest.

Hidden cost

The cost of buying a home is a sum of the property price, service tax, stamp duty, registration charges, parking fee etc. Do factor in these costs before you finalise on a home. These are one time hidden expenses which are often overlooked by buyers.

Apart from these, there are few monthly expenses such as property tax, home insurance, minor wear and tear which will be your responsibility as a property owner. These expenses will be paid from your disposable income which would add up to your monthly budget.

Benefits of buying a cheaper home

Cheaper home has its own benefits. For instance-

1)      You can save for purchasing your retirement home or another property to take the maximum benefit of real estate market.

2)      You can invest in any other investment avenues for a shorter period of time where you can better returns than real estate.

3)      Maintenance cost of a small home is far less than a big one.

What are your options?

If there is a certain set of aspirations attached to the type of property you want to buy, you can shop around and look for better deals and negotiate the price. Since the property prices are at the lowest, this can be the best time to make the deal, provided you look around diligently.