We all know that buying a home is a life time commitment and especially if we thinking of taking a Home Loan to buy it. Whenever we go to any Bank/ NBFC and request for a home loan, financial institutions like Banks and Non-Banking Financial Companies (NBFCs) usually lend 80% of the property’s value as a loan amount. The remaining 20% of the property value has to be arranged and paid by the borrower. This 20% amount to buy the property is called the Down Payment.
For example, if someone wants to buy the property worth Rupees 1 Crore. Most lenders will calculate the eligibility and on a good note will lend you a loan for Rs 80 lakhs. The rest amount of Rs 20 lakhs have to be arranged by the buyer. Though, even paying a 20% of the desired property’s value is not easy as it sounds and paying such a huge amount at one go to the developer/builder requires a sincere planning.
The following points can help you in planning your home’s Down Payment in advance:
Paying for the down payment can make a huge dent in your pocket. One should ideally finance the property’s down payment through the savings. This is why savings are important for your home’s down payment. Savings on the behalf of the down payment should be spread out in regularly over years and should be done in a phased manner too. There are few financial instruments that can help you to make such savings possible are Fixed deposits, Recurring Deposits and Mutual Fund Systematic Investment Plans (SIPs) etc.
There are surely other ways also to finance your loan down payment – One can take a loan to pay your down payment, borrow from a friend or employer or relative. However, both of these ways are not recommended in a long run. If you borrow a loan to pay for the down payment then again the borrower will be under the burden of two set of EMIs – one for the home loan and the other one for the down payment loan. Moreover, if a loan is borrowed to pay for the down payment then the borrower might get it at a higher interest rate and also if a loan borrowed to pay the down payment, it can adversely affect the credit score of the borrower.
Mortgage or liquidate the Assets & Investments
Down payment for the property can also be done by liquidating or mortgaging the assets and investments. Any kind of asset like an old car, gold or silver ornaments, mutual funds, shares, a surplus property or stocks – one or all of them can either be mortgaged or liquidated to pay for the down payment.
A secure loan can also be borrowed against the insurance policies, rent amount received, fixed deposits or public provident fund (PPF) etc. to pay for the down payment. Additionally, the government now allows people to withdraw 90% of their Employee Provident Fund (EPF) to purchase a new property or construct their home. The borrower can also save on taxes with an EPF withdrawal.
Other Available Options
Since the rise of ‘Affordable Housing’ and ‘Housing For All by 2022’, the initiatives taken by the government in urban and rural development has become a major focus point for the Ministry of Housing and Urban Poverty Alleviation (MHUPA). Many large and mid-sized Housing Finance Companies (HFCs) and Non-Banking Financial Companies (NBFCs) have come up in the market to offer attractive interest rates on loans and higher loan eligibility. This compels that borrowers will be able to borrow 90% of home loan against their property cost which means that the borrower only have to pay 10% of their property value as down payment.
Not only this, the Banks/ NBFC’s, housing finance companies (HFC’s)and other financial institutions are also lending to the borrowers for the purposes like stamp duty payment, paying property registration amount, renovation or extension of homes, and paying conveyance deed etc. There is also a plan to postpone the payments where the borrower can pay the down payment to the builder in installments. This means that the borrower can pay the down payment just like the home loan EMI’s.
Housing sector is immensely growing to fulfill the dreams of a common man and needs the Indian residents. Since in early 2000s’, the doors for foreign direct investment opened for the sector and since then the growth of the sector has been recommendable. However, the sector needs to cover the country as a whole to provide a long-lasting solution to the accommodation needs of the country’s residents. With the increasing demand of housing need the housing loan comes as a good solution to the problem by paying off the property’s down-payment and the future loan EMIs require a sharp planning and smart saving at the borrower’s end and the above mentioned methods can easily help to do that.