Our previous generation would be satisfied if they were able to own a house by the time they retired. And that is frankly, a really big achievement. But times have changed and youth of today, have become smarter. Many people in their 20s are purchasing their houses as soon as they start earning. Is this approach correct? Lets try to evaluate it in this article:
When a person is in his early 20s, it is the time when one starts earning and the expenses are also at their lowest. And most people in this age group do not have any major financial responsibility. Even the day-to-day expenses are relatively Low at young age. These are some of the biggest advantages for someone who is in his 20s, unmarried and earning decently, without any major responsibilities.
And the above advantages make the 20s an ideal time to think about buying a property. With no financial commitments, one can use a major part of the income to service home loan EMIs. And as and when a person gets his or her annual bonuses, same can be used for doing part-prepayment of the loans too. The benefit of buying a home early on is that you are completing a major goal of your life very early in your life. This leaves you to focus more on building other financial assets like stocks, mutual funds, etc in the remaining part of your life. Or you can even think about putting money in additional properties as investments.
Another point about buying a property in your 20s is that a young person has a potential to work for around 30 to 40 more years. Banks also recognise this potential and are ready to lend easily and on favorable terms to such young earners, who can easily payback the home loan in coming years due to expected rise in income.
But there is one problem with buying a property so early on. And the problem is for arranging the down payment. When you just start out, it is very tough to arrange a few lakhs for the down payment. Generally, people end up borrowing from their parents or well-wishers. This problem does not occur if you plan to buy a property in late 30s or 40s. By that age, it is expected that you would have accumulated sufficient amount of money to at least pay for the down payment. Also, buy the time you reach 30s and 40s, your income has also risen and hence you can look at buying larger property with bigger loans.
But there is another negative aspect of buying a property early on in one’s life. One does not get to put money in financial assets like mutual funds, stocks, etc. which will miss out on the compounding which otherwise would have been in effect for 10-15 years.
But at the end of the day, its more of a personal decision. If one is comfortable to stay attached to a big housing loan from the start of one’s career, and that too for 10-15 years, then it makes sense to buy a property in your 20s. Else, one is better off accumulating enough funds to buy a property later on with higher down payments.Tweet