Buying a home often tops the list when it comes to the aspirations of an average Indian. After all, who wants to keep paying rent all their life? But the skyrocketing property prices in cities, as well as small towns, make home-buying a pricey affair for the mid-income professionals. To assist them, banks and NBFC have launched several home loan schemes offering competitive rates which is the reason why taking the home loan route is not only a need but also a wise choice for middle-class buyers. As a result of this, the demand for home loans has increased by leaps and bounds with almost every bank and NBFC in India offering home loans at attractive rates.
For those who are seeking a house loan, even the amount of down payment can be quite substantial. Down payment is defined as the amount you pay upfront to the seller or property owner. The minimum down payment for home loan in India is set at 20%. The RBI has directed banks and NBFCs to grant only 80% of the property value as loan, and the rest 20% has to be arranged by the borrower; this 20% is the down payment. It provides financial cushioning to the lender and ensures that the customer will be committed to repay as a substantial amount of his personal funds are invested in it.
Key Features of home loan down payment
The following are some points you need to consider when you are planning to save towards the down payment for home.
- Down payment amount
As stated above, home loan down payment usually accounts for 20% of the total value of the property. For instance, if the house you want to buy is valued at Rs. 80,00,000 and the down payment amount is 20%, then the down payment amount you will have to pay is Rs. 16,00,000.
- Down Payment Limit
There is no maximum limit for the down payment. You can pay as much amount as down payment as you can afford. Remember, more the down payment amount, smaller the home loan amount that you have to apply for. The interest pay-outs would also be smaller in this case. So, try to go for the maximum down payment that you can afford without breaking the bank.
- Effect of property age
If you’re buying a house that is more than 15 years old, the age of the house will come as a limitation when seeking home loans from the banks. This is because banks are usually sceptical about providing loans for old houses; hence the home loan down payment amount goes up. In such cases, lenders are liable to sanction home loans amounts not exceeding 50% of the total market price of the house/flat at the time of valuation.
- Registration and Related Costs are not covered
Do not be under the impression that the down payment amount includes property taxes and registration charges. These costs are in addition to the down payment amount that you are required to pay out of your pocket.
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How to Arrange Down Payment for Home Loan
Home loan entails major commitment in terms of down payment, EMIs, etc. Looking at the scenario of price appreciation in real estate, it will take 8-10 years for a mid-income earner to save for the down payment for his house. So it is important to plan and save for it as soon as you start making surplus earnings. Start investing in the form of SIPs; look for options that give better returns and also provide maximum liquidity.
The following are some key tips to help you plan your home loan down payment better-
- Start Planning Early
The earlier you plan to buy a house, the easier it is to arrange for the down payment for the home. At the later stage, liabilities and family responsibilities increase leading to difficulties in arranging for the requisite down payment amount.
- Learn to Budget your Expenses
Most of us are not lucky enough to expect a windfall that solves our money worries. Therefore, you need to inculcate a habit of saving. In simple terms, your expenditures, especially the discretionary ones, should be the amount remaining after your savings and essential expenditures have been deducted from your earnings.
- Seek a Soft Loan
It is very common to seek help from your family in arranging for a down payment. Don’t hesitate in doing so if you are sure of your future finances. Apart from your family, employers may also provide soft loans to their employees. The key benefit of these loans is that they are soft loans i.e. little or no interest charges are applicable to these, hence you will end up saving quite a bit of money in the interest accrued on the home loan.
- Personal loan as down payment financing
At times, when nobody comes to your rescue, work out your budget and apply for a personal loan to arrange for the down payment. This is probably the most expensive option to fund your down payment requirement and there is no tax benefit on a personal loan taken out with the intention of making the down payment on a new home.
A roof over the head is extremely important but you must put in a lot of efforts in planning your home purchase, especially the down payment for home loan. You should start saving and investing soon enough along with keeping enough funds for the emergency. Good financial planning will ensure a smooth execution of a complicated buying decision, which is, buying a house.