If we go by a popular saying, the three most important needs of every human being are food, clothes and a home. While the first two are bare essentials that one can afford rather easily, getting a roof above one’s head requires a hefty financial commitment. This is where home loans have emerged as the saving grace for tens of thousands of people.
But there’s often a misconception that one will get the entire property cost as a home loan from a lender. What people forget to take into account is a home loan down payment. Yes, as per RBI guidelines, lenders are limited to financing a maximum of 80% of any property value above INR 30 lakhs. The rest has to be paid upfront by the borrower.
Such an upfront payment is what is termed as the down payment required for a home loan. Now, you must be thinking that this is a huge ask for borrowers to pay such a sum. However, once you learn about it, you will realise that paying a down payment has its own benefits.
Let’s learn in more detail.
Saving up for Down Payment
When you use a home loan eligibility calculator to check how much home loan you are eligible for, be sure to factor in the down payment into it. This will enable you to plan your home purchase better.
Remember, a down payment to buy a house is not a minor investment. As an example, if you want to buy a property in India which costs on average INR 50 lakh, the bank will only fund up to INR 40 lakh. In fact, depending upon your eligibility status as a result of age, income, tenure, credit score etc., the loaned amount could even be lesser.
This means that you will still need to make a minimum down payment for home loan of INR 10 lakh which is a big amount. Hence, when considering a home purchase via a home loan, make sure to plan how you will save up for a down payment. Here are some tips:
- Invest early
A good idea is to plan early and invest money for a few years to build up a corpus from which you can make the payment. - Seek proportionate release
With regards to certain properties and real estate projects, some lenders are willing to let customers pay the home loan down payment in instalments rather than as a lump sum. This is especially true in the case of under-construction properties. Try to avail a proportionate release to make things easier for yourself.
How Not to Make a Down Payment
- The last thing you want to do is dip into your long-term savings or seek a loan against your insurance to fund the down payment to buy a house. That may leave you financially handicapped or overburdened, and your other EMIs or investments might suffer.
- Moreover, an additional loan for a down payment will hurt your EMI to income ratio and prevent you from getting a good home loan deal.
- Dipping into emergency funds is also not recommended as it will come in handy during actual medical contingencies, disasters or unforeseen situations.
Must Read: How to Improve your Home Loan Eligibility?
Benefits of Making a Larger Down payment
Making more than the minimum down payment for a home loan will enable you to possess more equity in the property. This means that your need for borrowing a large home loan amount goes down.
- As you pay a higher down payment required for the home loan, you can avail more favourable terms for the reduced principal amount. Given the fact that many lenders have different loan slabs, a lower loan slab may yield a lower rate of interest and a lower EMI too.
- Of course, the lesser the money borrowed, the more quickly you can pay off your home loan. You also get to save on additional home loan processing costs or insurance premiums.
- Lastly, a lesser loan amount provides more comfort to the lending institution and, as a result, increases the likelihood of faster loan approval.
Conclusion
When you put down more money, you will get better home loan terms and home loan interest rates – that much is a given. Hence, if planned better, a home loan down payment can be a vital tool to avail a much more affordable and practical home loan. Of course, the keyword here is planning.
At PNB Housing, we provide great flexibility to all customers for their down payment. Consult our experts today to figure out the ideal down payment for you and any other home loan query.
