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Should I save to buy a house or invest in equity?

Ashutosh Gupta talks about the factors to consider before buying a house

What is the ideal age to buy a house for a salaried person? I'm 22 years old, and I live in rented accommodation. Should I save most of the income for a down payment to buy a house in the next three years or postpone it and invest in equity funds?
- Rashed Mohammed

I don't think I can precisely answer your questions because I don't think a standard solution applies to everyone. But let me try and give the factors that I think you should consider and keep in mind while making this decision. Hopefully, it will help you make the right decision.

Buying a house is perhaps the biggest financial expenditure in most people's lives simply because of the ticket size involved here. One typically ends up assuming an enormous financial liability in terms of a home loan which has to be serviced over a long period on a monthly basis. So, before one gets into it, one of the critical considerations is to think about how settled one is professionally, how stable one is in their job, and therefore his stream of income. So, you should think it through. Do you believe you are well-settled professionally at this age, or do you think you will reach that stage in the next two to three years?

Secondly, don't put yourself in the extreme cost-cutting mode because of the EMI. Ideally, your EMI should be no more than a third of your income, so you have some headroom to take care of other expenses and hopefully save for some other goals as well. So, the other consideration to keep in mind is how big a component your EMI is of your monthly income.

Another consideration is, what is the kind of creditworthiness one has. Do you have a reasonable bank balance already? These are the kind of considerations that a bank takes into account while deciding what kind of rate of interest it is willing to offer to you. So higher your creditworthiness, the better or lower the rate of interest you can get from the bank.

Also, it is not purely a financial decision. Many people see it as a decision where their spouse or the life partner will have an important role to play. So, they'd instead buy a house after they've married, mutually think about their life goals, where they'd like to settle, what kind of accommodation they want, and then plan for it.

Broadly I suggest reflecting on these things. Think about these factors, and hopefully, you will be able to decide for yourself whether right now it is an opportune time to go for it or would you like to defer it.

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