Like many we grew up believing buying a house is one of the major life goals and if you fail to achieve it you are a failure one way or the other. For both of us it was tied to something or the other from our childhood. A few years back when we found ourselves with a more money than we were used to we decided to take a look at few of the flats being constructed around. When we started it was just to get an idea. We actually ended up buying our house within a week of stepping out to see the very first house we had seen.
By the time we got possession of the house it was time for us to move out of the city once again and we are currently looking for a tenant. Our reasons for buying were far different than now, at that point of time we thought one of the parents would live there thus freeing up the rent we would eventually pay. They shifted out even before us and we now have two rents and an empty house.
The logic might not sound that convincing but at the time it was what seemed like the right thing to do. Even if I do doubt whether we did the right thing in buying a property when we could have clearly done without it, there were undoubtedly things we did right. These very things have helped us in equating our loan and maintain a consistent savings rate as well as a lifestyle which can easily take care of minor emergencies without dipping into our funds.
What we did right
Since this is my blog I do believe in recounting my good decision than the embarrassing ones, so below are the things we did right.
We bought a house we could afford
It is pretty easy to be swayed by shiny things which builders sway in front of you , being in a profession where you have seen how these things get processed helps in keeping the resolve but I have seen people buy houses they clearly cannot afford.
Remember if the bank tells you, you are eligible for x amount of loan it does not mean you can afford that loan. It does get easier as the time passes but if you enjoy being slave of the bank where you keep on working to repay back the loan go ahead.
We were clear on what we could afford and also what were our deal breakers. We wanted a gated community where we would feel safe about our parents living. A flat suited our needs, as long it was well ventilated had decent amenities and proximity to transport options. Anything above that be it a zen garden or a swanky squash court was not our requirement.
We stuck to our figures and ended up spending less than half of what most of our colleagues did around the same time. Result was we had a shorter loan with a smaller EMI. This freed up capital which we could park in our OD account and thus equate the loan in less than 3 years.
We researched the interest rates before we committed to a bank
We have a relative who works in the banking sector and his only advice to us for loans was to go with the bank which offers you the lowest interest rates. Nothing else tops that and today we are reaping the benefits of that decision. A lot of people take loans from trusted advisers (?) or convenient banks who jump at the chance of lending you money.
These banks charge higher rates and for good reason they would probably finance a few unreliable properties as well.
Our choice was the nationalized SBI, with lowest interest rate and one of the best loan accounts we have heard of.
Right bank got us the right kind of loan account
We can only claim half of the credit for this, we just chose the bank and like most others decided we would put in regular top up payments to reduce our principle. Imagine our surprise when a colleague educates us about a loan account type where we don’t have to part away with the money but still enjoy 0% lending rate.
This is the MaxGain Loan account of SBI which is what I believe they register all loan accounts right now. You can read in detail about the account and how we leveraged it to our advantage in this post.
We maximized our EMI and reduced the tenure
We did this before we knew we had the overdraft facility and I believe it did help us out a lot. If we had not been able to equate the account (shit happens all the time) we would have still been done before we were 40. This also meant that once we were paying back at an accelerated date especially when we did start putting in the extra amount.
I am still wondering should we have done it differently, i.e. taken a longer loan and just matched the emi amount by putting in extra each month. Still I believe our success had a lot to do with the fact that we were never going to pay installments throughout our life especially as the interest portion is off the roof for longer loans.
We were consistent and focussed
It is nice to want it but not same as to work on it. The ‘it’ for us was the urge to be debt free and be able to call our home truly ours. We put every penny we could spare after our requirements and a minimal surplus in the OD account. Every bit even 5000/- a month make a big difference down the line.
What we did wrong
We did not negotiate enough
We are pretty straightforward people and negotiations make us uncomfortable even now. You’s be surprised to see what we do every day if you realize we hate negotiating. A friend of ours got another flat in the same block for almost the same prices but with a lot of additional benefits like a corner flat, modular kitchen (which isn’t coming in but the builder probably will adjust the price) etc. They also managed to convince 3 other friends and thus landed a free parking which we paid a decent sum for.
It is fairly easy to feel down after hearing about all of this but we realized we would not have managed to convince people to buy flats because we are far more private. Still I believe we would have had a better deal if we had negotiated a bit more.
We did not research the details of our loan early enough
We had already paid over 15 installments till our colleague enlightened us about the virtues of our loan account. Every penny we were saving in our regular savings account till then was earning us at best 6%. The same amount when parked in the loan account would have saved us 10.25% (which was the interest at that point of time) while helping us equate the loan even quicker.
We kept money separate
We keep a separate account of our side hustle money which we use to see the world and occasionally buy ourselves some luxury items like those recliners. Since our overdraft did not allow us to use the money we had parked before we had possession of the house we kept the money separate. Our fault was not pushing it in immediately when we got access to the account.
Some might say that the fact we spent on travel and occasional luxuries means we missed the mark. We believe in living our lives, while most people call us cheap or simply too miserly we don’t mind spending on things we love like travel (we backpack obviously). We understand the privilege of seeing the world when my legs can haul me up those steps and I can sleep in the bamboo huts. I can create lacs if I invest it all right now but I won’t be younger than 30 again and doubt I’ll have the same energy ever again.
We must have probably made a few more mistakes or done things we didn’t realize would help us get closer to our goal- owning our house before we were past 30.Had it been a few months earlier we would have made it before both of us turned 30.
What do you believe are your good and bad decisions when you bought a house or took a home loan/Mortgage?