Tips on your downpayment!

By | March 25, 2014

Try and pay the down payment from your own money, savings or by liquidating some assets. Opting for a personal loan can be a costly affair, as interest rates are very high. If you don’t have enough savings or assets to pay up the money, then its wise to wait and build assets and savings that can come handy for the downpayment, when the time is right.

Down payment generally amounts to 10-20% of the total cost of the home, as banks generally fund only about 80- 85% of the loan amount. This is to make sure the buyer has some stake in maintaining the property. Also, this ensures that the loan amount lent by the bank is always lower than the market value of the house.

Age of the building

Another factor banks consider while determining the total amount to lend, is the age of the building. Depending on the age of the building the down payment is likely to increase, the older the more down payment, you may need to shell out. The Bank always decides the home loan eligibility based on the property first. This means if the building is old and the down payment chunk is huge, banks will still insist on the down payment, even if your income can easily qualify for larger loan amount.  Banks adhere to such measures to safeguard their interests and to help them indulge in safe lending operations.

Make as much down payment as possible

Try and pay the down payment from your own money, savings or by liquidating some assets. Opting for a personal loan can be a costly affair, as interest rates are very high. If you don’t have enough savings or assets to pay up the money, then its wise to wait and build assets and savings that can come handy for the downpayment, when the time is right.

The concept of a down payment exists due the following reasons:

a. It indicates borrower’s credit worthiness due to access to the down payment

b. The amount of real investment a borrower has in their purchase, and their fidelity in continuing to make payments regularly are linked

c. It acts as a sort of insurance for lenders, since borrowers know that if they default on their loan; they will not only lose the property but their down payment as well

d. It ensures that the buyer (borrower) has some stake in maintaining the property

e. It ensures that banks are protected from fall in interest rates since the amount that they lend is lower than the market value of the house. Therefore, if there is a fall, they can still recover the losses

Additional Reading: Pay Your Property Tax Online

All information including news articles and blogs published on this website are strictly for general information purpose only. BankBazaar does not provide any warranty about the authenticity and accuracy of such information. BankBazaar will not be held responsible for any loss and/or damage that arises or is incurred by use of such information. Rates and offers as may be applicable at the time of applying for a product may vary from that mentioned above. Please visit www.bankbazaar.com for the latest rates/offers.

3 thoughts on “Tips on your downpayment!

  1. ravi sharma

    my family's monthly incom is 40000/- how much home loan will i get?

    Reply
    1. bijoy66

      it's not amount but you should take max. 10 lakhs for 15 yrs.

      Reply
  2. bhavesh

    To buy commercial property like shops, will the same rate of interest apply as in Home Loans ?? if not, how much will be the difference say for loan amount of Rs 10 lakhs, considering above example, income say Rs 40000/month.

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *