Buying your first home is a dream for most people, but if you are a late bloomer, like in your 40s, you might be concerned. When you are in your 40s, you barely have two decades ahead of you before you retire. You also don’t have much time left to fulfil all your material goals and aspirations. At a time like this, when it comes to buying your first home, you need to be strategic in your approach.
Analyze Your Overall Financial Position: “Bread-winners in their 40s typically may have multiple ongoing as well as upcoming commitments. When someone in his/her 40s is looking to buy his/her first house, various parameters are to be diligently examined. Analyzing the overall financial position is the starting point. Existing liabilities, available resources to make down payments, ability to bear the equated monthly instalments (EMIs), and upcoming commitments need to clear to proceed with the buying of residential property,” Arijit Sen, a Sebi-registered investment advisor and co-founder of Merry Mind said.
Conduct A Cash Flow Study: A cash flow study would reveal a family's present income, the fixed and variable expenses, and the available surplus. Considering other life goals, just as the surplus needs to be channelled towards various investments, a portion of it is required to be allotted towards home loan EMI.
Evaluate The Loan Tenure: “The loan tenure will play a vital role when opting for a house purchase. Ideally, considering the age, it is favourable if the loan tenure is not more than 15 years. Again, income stability and growth factors will allow the family to look for prepayment of loans in phases,” Sen said.
Choose The Property That Suits You Now: Start by assessing the location and size based on your and your family's needs. However, passing through your 40s can be challenging. Consider if you'll need a larger house if your children are due to move out in a few years for higher education. Also, think about whether this city is where you want to spend your retirement if you are planning on taking early retirement. These are key factors you must consider before making the decision. Other important considerations include the general cost of living, maintenance and upkeep charges, number of dependents, and debt-to-income ratio. Discuss these aspects with your family, seek advice from a financial advisor, and conduct a cost versus benefits planning before buying a home.
Cautiously Make Your Downpayment: If you're over 40 and have a steady job, you might have decent savings and investments. While lenders often offer loans covering up to 90 per cent of the property value, making a higher down payment will help bring down your EMI and reduce the interest component. “Plan for the downpayment. It typically ranges from 10-20 per cent of the value. However, in case your finances allow, you can plan for a higher downpayment as it will reduce the loan amount, and in turn, reduce your overall costs,” Priti Rathi Gupta, Founder of LXME, a financial platform for women, said. However, be cautious not to jeopardize other financial goals, such as children's education or retirement funds. Review your investments and prioritize based on their utility and performance. For instance, if you have investments with lower returns than your home loan interest rates, you can divert a part of the capital towards the down payment.
Try To Apply For A Joint Home Loan: Getting a joint home loan with your spouse, parent, children, or siblings can be advantageous, especially if you are availing of a home loan after 40 years of age. With a joint applicant, the lender considers their credit score and income, giving them the confidence to extend a higher loan amount. Additionally, sharing the loan responsibility with someone else can make repayment easier and help pay off the EMIs faster than the tenure. Another benefit of having co-applicants on your home loan is that all applicants can claim tax deductions on the mortgage. They can claim up to Rs 2 lakh per year for interest repayment under Section 24 and up to Rs 1.5 lakh for principal repayment under Section 24 and up to Rs 1.5 lakh towards repayment of principal under Section 80C (subject to the overall limit under the Section). This adds up to a total deductible amount of Rs 7 lakh for the household.
Make Lumpsum Payment Whenever You Can: It’s important to make regular EMI payments on time. But when you can try to take the opportunity to make a lump sum payment along with the EMI, as it can help you close the loan sooner. While this can help you pay off your loan sooner, it would also help you to reduce the overall loan tenure, improve your credit score, and fulfil your responsibility faster. The best way is to use unexpected financial gains, such as a bonus, a high commission on a project, a gratuity amount, or any inheritance you get to pay off your EMI. “ During the loan period, you can consider making a prepayment as this extra money deposited in your loan account directly reduces your outstanding principal balance, leading to savings on interest costs and faster loan repayment,” Gupta said.
Consider Different Investment Options: “Based on the downpayment goal, period, and risk appetite, you can consider different investment options. If it’s a long-term goal (over three-plus years), you can consider allocating more money to equity and the balance in debt instruments. Alternatively, if the goal is for the short term ( less than three years), you can explore debt-based funds. Investing via SIPs is an effective and convenient way to plan for your financial goals,” Gupta said.
Make Use Of Various Tax Deductions: “Make use of various tax deductions available for home loans under the Income Tax Act like deduction of up to Rs 1.5 lakh on principal repayments under Section 80C, deduction of up to Rs 2 lakh on the interest amount under Section 24, etc,” Gupta added.
