For many, buying the first house is a big personal milestone. To buy first house is a dream which many people cherish and work towards. For those who don’t have an owned property, a self owned home holds huge value and importance. With proper planning and financial discipline you can achieve this important goal with less problems and stress. Let us understand how we can plan to buy first house.
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Why buying your first house is always tough?
The first house is one of the most difficult assets to create. The vast majority of us may not have the capital or funds to buy a home upfront. The salary we earn may be relatively low and there may not be financial backing from our family. We have to start from zero and build a corpus to be able to afford a home. Moreover we may not have a benefit of capital appreciation because we simply don’t have any assets.
What is the average cost of a flat today in India?
The real estate rates in India have increased over the years. The below table shows the minimum average price of flats in different cities across India in year 2024. This data is sourced from NoBroker.
| Flat configuration / City | 1BHK | 2BHK | 3BHK | 4BHK |
| Bengaluru | 60 lakhs | 1.2 crore | 1.8 crores | 2.5 crores |
| Chennai | 39 lakhs | 75 lakhs | 1.4 crores | 3.1 crores |
| Gurgaon | 39 lakhs | 79 lakhs | 2.1 crores | 4.7 crores |
| Hyderabad | 29.71 lakhs | 58.54 lakhs | 1.4 crores | 3.8 crores |
| Mumbai | 65.5 lakhs | 1.5 crores | 3 crores | 9 crores |
| Pune | 40 lakhs | 65 lakhs | 1.1 crores | 3.8crores |
So from the above table it is clear that if you want to buy a flat today in 2024, you need to have a substantial budget. The budget will vary based on the room configuration. Also note, the average residential real estate inflation rate is 6% per annum. Meaning if the home cost Rs 100 today, it will cost Rs 106 next year.
The reason to display the table was to give our readers a ball park number of the average price of a flat today in the major cities of India. Please note the real estate prices in smaller cities would be generally lower than the cities mentioned here. Please use this table to know where you are today with your home budget and where you need to reach. This table acts as a reference point not as a ‘demotivator’.
Simple strategy to plan for your first house
Let us take an example to understand the strategy. Rakesh recently completed his education and found his first job. He is 23 years old. He earns Rs 50,000 gross salary per month. He stays in Pune and wants to buy a home. Now it is clear that he cannot buy a home immediately. He will need to save money for it first. Rakesh follows the below spelled out strategy.
Step 1: Check your home loan eligibility
Rakesh first checks his home loan eligibility at his current gross salary on the website of a leading national bank. Here he knows the exact amount of home loan which he is eligible to receive to buy a house as of today. Please note the bank only finances maximum 90% of the home value. The buyer has to pay the stamp duty, registration charges and any other taxes in connection with property purchase from his/her own funds.
Step 2: Save and invest in large cap mutual fund SIP
The second step is to start saving and investing money to allow it to grow. The best place to put your money is large cap mutual funds. Here your money stays largely protected while also making decent returns. You can build a decent corpus of funds in 7 to 10 years. Use the SIP calculator to get an estimate of the corpus that can be built over a period of time.
Rakesh starts investing Rs 10,000 per month in large cap mutual funds from the second month of his job. Every year when he gets an increment he increases his SIP amount and finally ends up building a corpus of Rs 34 lakhs in 10 years time.
Step 3: Quietly build a credit history
Credit history is important when you approach a bank for a loan. The loan processing is generally faster if you have a strong credit history. The easiest way to build a credit history is to use a credit card for daily transactions. As you use the card and pay the credit card bills on time regularly, a strong credit history is built which eventually helps in getting a loan from the bank.
Step 4: Financial discipline and consistency
It is important to follow the above 3 steps consistently month over month for a few years (ideally 10 years). You need to be absolutely committed to your goal. Buying a house does not happen overnight. You have to work towards creating a pool of money. Also, the sooner you begin the better it is. We recommend you start saving as soon as you get your first job.
The Situation after 10 years:
Rakesh is now 33 years old. He has already built a corpus of Rs 34 lakhs in mutual funds. He is now ready to buy his first house. Also Rakesh received an average annual increment of 10% every year and now draws a gross salary of Rs 16 lakhs. At his gross salary he is eligible for a home loan of Rs 90 lakhs for a period of 27 years (i.e. until he is 60 years old). So now Rakesh has a budget of Rs 1.24 crores (Rs 90 lakhs + Rs 34 lakhs in mutual funds).
Step 5: Look for a property based on your budget
When looking for a property, always arrive at the budget first. Knowing how much you can afford can bring more clarity to your property search. Understand that it is okay to buy something less lavish. Always ensure you are paying for sensible utility amenities like security, lift and service lifts, parking slots, piped gas and solar water heating facility etc. Concentrate on buying a property with decent living space and everyday utility amenities.
So continuing with our example, Rakesh finds a property within his budget and buys it. Also over time his income grows, his savings in SIP increase and there is also capital appreciation of his flat. After a few years using the above strategy, Rakesh manages to sell his current property and buys a bigger house with a negligible loan component.
Conclusion
Rome was not built in a day. All good things take time and difficult roads often lead to beautiful destinations. Do not get bogged down in the journey towards your first home buy. Maintain financial discipline, save and invest in SIP and you will reach your goal comfortably. Also do not compare your journey with someone else. Each of us has a different and unique financial journey because our circumstances and situations are also different. The crux is, we have to make the most out of the resources available with us. This is all that matters.
