How to build a strong portfolio before buying a house?

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   Young and working? And looking to buy a home? Don’t rush it. Most financial advisors suggest building a strong financial portfolio in order to derive an advantage when you apply for a loan. Here’s how

   The three letters that send a chill down everyone’s spine – EMI. If EMIs have you overwhelmed, here is a genuine and impartial advice from the experts: Plan your finances well throughout your 20s and early 30s so that you can leverage it to negotiate a loan with the bank, when you finally take the plunge to buy a house. Factors such as good credit history, a varied investment portfolio and a clear financial plan at the start of your salaried life can prove advantageous.

The experts speak:

   Personal finance advisor Rohit Shah stresses on the need to build a portfolio. “Youngsters feel they have to buy a home due to social pressures. But investing in a portfolio early allows you to leverage your financial assets and then buy a home. A case in point is a young client who wanted to buy a home, but was advised to build a portfolio first to avoid reaching a point where he wouldn’t be able to pay the EMI. Today, he can afford a bigger house than he did two years ago,” says Shah.

   Financial consultant Tarun Bharat asserts that newly-salaried adults should build their finances for three to five years before taking a decision, and offers a word of caution. “Many young people go for under-construction projects that don’t work out and regret,” he says.

   Amol Joshi, a financial planner, brings to fore the downside of opting for a home loan when you are young. He opines, “Taking loans at a very young age can be detrimental. In the Indian context, a typical investment is still in real estate.” Agreeing with him is Mumbai-based psychiatrist Harish Shetty, who says, “Home-buying is an emotional experience. People feel they are judged if they do not own a house and many end up buying homes when they cannot sustain themselves.” He adds that the threat of EMIs and repayment of loans are overpowering and can be psychologically traumatic.

   Hence, says Joshi, “With a good portfolio and 40-50 percent cost of the house in hand, you are in a better position to make a decision as opposed to generating the minimum 20 percent of the cost of the house that you have to pay.”

   Shetty concludes, “Shame stops people from sharing their woes. We need to create an atmosphere where people are not ashamed of opening up about the stress of buying a home or judged for not being a home-owner.”

Pros

   You are loan-free earlier than your counterparts and can retire early; You can sell off your first home and buy one that is better; Self-discipline of finances; Your salary will keep increasing, so will your liquid cash post-EMI increase.

Cons

   You are tied down because of the EMI; Non-payment of monthly down-payment for more than three or six months would put you on the defaulter’s list and make you a bad creditor for other loans; You may move and renting out your house might not give you enough returns as compared to your EMI amount.

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source: The Times of India

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