Ways to plan your Home Loan Down Payment
Whenever you borrow a home loan, lenders such as banks and Non-Banking Financial Companies (NBFCs) usually shell-out 80% of your property’s worth as a loan amount. The remaining 20% of the property value is to be paid by you. This 20% amount is called your Down Payment.
For example, you are buying a property worth Rupees 1 Crore. Most lenders will lend you a loan for Rupees 80 lakhs. The rest, Rupees 20 lakhs will have to be arranged by you. 20% of your desired property’s value is not a small amount and paying such a huge amount upfront to the developer/builder requires intricate planning.
However, following the below shared ways can help you a great deal in planning your home’s Down Payment in advance:
- Save for it: Paying your down payment can make a sizeable dent on your pocket. You should ideally finance your property’s down payment through your savings. This is why saving for your home’s down payment is important. Savings in lieu of the down payment should be spread out over years and should be done in a phased manner too. A few instruments to make such savings possible are Recurring Deposits and Mutual Fund Systematic Investment Plans (SIPs) etc.
There surely are other ways to finance your loan down payment too – You can take a loan to pay your down payment or you can borrow from a friend or employer or relative. However, both of these ways are not recommended. If you take a loan to pay your down payment then you will be under the burden of two set of EMIs – one for your home loan and one for your down payment loan. Moreover, if you take a loan for paying down payment then you will get the same at a higher interest rate. Besides, a loan borrowed to pay down payment can adversely affect your credit score too.
- Assets & Investments mortgaging and liquidation: Down payment can also be paid by liquidating or mortgaging your assets and investments. An old car, a surplus property, gold or silver ornaments, mutual funds, share, stocks and any kind of asset – one and all of them can either be mortgaged or liquidated to pay your down payment.
You can also secure a loan against your insurance policy, rent amount, fixed deposit, public provident fund (PPF) etc. to pay your down payment. Additionally, the government now allows people to withdraw 90% of their Employee Provident Fund (EPF) amount to purchase or construct their home. You can also save on taxes with such an EPF withdrawal too.
- The Other Options: Since the advent of ‘Affordable Housing’ and ‘Housing For All by 2022’ initiatives, 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 forth in the market and are offering attractive interest rates on loans and higher loan eligibility too. This essentially means that borrowers will now be able to borrow 90% home loan against their property cost which consequently means that they will only have to pay 10% of their property value as down payment.
Not only this, banks, housing finance companies and non-banking financial institutions are also lending to borrowers for purposes such as stamp duty payment, renovation or extension of homes, paying property registration amount, paying conveyance deed etc. There is also a deferred payment plan where you can pay your down payment to the builder in instalments, i.e. pay your down payment just like your home loan EMI.
Housing sector is currently required to grow at a mammoth pace to be able to fulfil the dreams and needs of the Indian populace. Since early 2000s’, doors for 100% foreign direct investment opened for the sector and since then the growth of the sector has been remarkable. However, the sector needs to encompass the entirety of the country to provide a long-lasting solution to the accommodation needs of its populace. Here the housing loan comes as a good solution to the problem however paying off the property’s down-payment and subsequent loan EMIs require intelligent planning and smart saving at the borrower’s end and above methods can help you do that.