It cannot be said enough but buying a home is definitely a challenging financial decision to make. This involves a lot of planning and careful consideration of various factors. It is important to know exactly where to begin. Don’t worry, we can tell you.
Considering a Home Loan?
With the recent additional tax benefits offered on Home Loans, the demand for Home Loans has rapidly skyrocketed. Given this, you might be thinking about opting for one. But there’s something you need to remember. The long winding road to your dream home begins at Down Payment. So if you are pondering over whether to take a Home Loan to fund your home purchase, the first thing you will have to be prepared for is the down payment on the loan.
Additional Reading: What Is The Perfect CIBIL Score For A Home Loan?
The Down payment
The down payment on your Home Loan can be a rather substantial sum of money. It pays to be prepared with the finances to manage fulfilling the payment of the down payment.The minimum down payment usually required for a Home Loan is 20% of the value of the house property. Many banks grant upto 80% of the property value as a Home Loan.
Additional Reading: 10 Ways To Save For The Down Payment For Your Home
Getting to know your Home Loan down payment better
Let us tell you about a few important features of a Home Loan down payment. Here’s what you will need to consider.
What’s the down payment amount?
The down payment amount constitutes a rather significant portion of the Home Loan. This is generally 20% of the property value.
For instance, in case the house you have your heart set on is worth Rs. 80 lakh, the down payment for the loan will amount to 20% of Rs. 80 lakh, which is Rs. 16 lakh.
The sky’s the limit
There is no upper limit for the down payment payable on your Home Loan. Follow this simple rule. The higher the down payment is, the lower the Home Loan amount becomes. As a result, a lower Home Loan amount will mean lower interest payable on the loan. More savings. Yay! So, consider paying the maximum possible as the down payment on the Home Loan.
Old is gold? Not quite
The age of the property that you are considering buying has an impact on the Home Loan. Let us say you are buying an old apartment that is 15 years old or more. This advanced age of the property will most likely limit the chances of your Home Loan being approved. You must remember that banks are usually hesitant to grant a loan for the purchase of an old building. Banks might undervalue the property and this will result in a higher down payment amount, if the loan is approved.
Did You Know: 6 Surprising Reasons Why Home Loan Applications Are Rejected
Remember This: In case you are buying an old house property, a lender will be able to sanction only upto 50% of the total market value of the property as the loan amount, after the necessary inspection and valuation.
Additional Reading: What Happens Once Your Home Loan Is Approved
What isn’t covered
Don’t labour under the false impression that the down payment amount payable on the Home Loan also includes registration charges and property tax. They are not part of the down payment. These associated costs involved in a Home Loan are over and above the down payment amount.
Additional Reading: Why You Must Get A Home Loan Now
Tips to fund your Home Loan down payment
Here are a few useful tips you could consider to help you fund your Home Loan down payment.
Start planning early
The early bird gets the worm, they say. You will definitely find it easier to plan your Home Loan purchase if you begin to save for the down payment early in your career. The earlier you start, the more you will manage to accumulate. This will mean a lower Home Loan amount and less debt liability.
The longer you wait to start planning and saving for the home, the more financial responsibilities you will have to take in consideration. Begin saving when you are single and have the least financial responsibilities and more freedom when it comes to your finances.
Additional Reading: Important Tips On Buying A Home
You must inculcate the habit of creating and sticking to a monthly budget if you want to successfully build savings to buy a home. Assess your finances to ascertain how much you can comfortably put aside every month towards the house purchase. The more you can salt away, the less time you will take to achieve your goal of owning a home. Learn to live within a strict budget and watch your bank balance multiply.
Try and get a soft loan
That is a loan of money from your family. It is common practice to get the down payment amount on a Home Loan sorted with financial aid from your family. A huge advantage of this type of financing is that there are low or no interest charges on the loan. It ultimately saves you a rather sizable sum of money.
Take a Personal Loan
The relatively high interest rates attached to Personal Loans is a significant deterrent to using this financial product as a method to finance the down payment on a Home Loan. Another disadvantage of using Personal Loans as a way to fund the down payment is that there are no tax benefits on taking a Personal Loan for a down payment on a Home Loan. For these reasons, a Personal Loan should ideally be your absolutely last resort when arranging finances for the down payment.
Check This: Home Loan Handbook: All Questions Answered
Now that you know more about managing the down payment on a home, are you Home Loan ready?
If I opt to increase my EMI, can I decrease the EMI in the future?
Hi Balkis, You can opt to do this if your bank agrees. Please check with your bank.