Owning a house is a different feeling which comes with lots of happiness and self-respect. With the increasing price of property owning a house has become difficult. In this situation Home loan is the only option which helps to turn the dream of owning a house into reality. But beside Home loan a major part which is generally 20% to 30% of the total price of the property needs to be deposited as the down payment amount, as all the home loan companies provide home loan up to 70-80% of the property’s value. Here the most important point is banks don’t provide you money for this down payment. You need to pay this from your pocket.
So, if you are planning to buy a home in near future say by the end of 2018 you need to have money for down payment. Generally in a city like Bangalore the price of house starts from 50 lakh and goes till 1.5 crore (we are discussing for a normal property). So, in this case the down payment you need to give is much high and hence you need to plan your budget to have that much amount with you by the time you go for a home loan
Generally, the amount you need to buy a house can be divided into two parts-
- The margin payment/ Down payment
- The lump sum payment.
Understanding Margin Payment
Margin payment is also known as down payment. This is the one we discussed above. The amount you need to pay for this is using your funds only. This amount is generally 20% of the property value and is something that is sometimes difficult to arrange.
What is the Lump Sum Payment?
Lump sum payment is the rest 80% of the property price which is left after paying the down payment. If you apply for a home loan, then your lender can lend money only to a certain extent. The extent of this amount for house loans can be calculated according to the Loan to value (LTV) ratio and on your eligibility too.
Generally, the amount you need to buy a house can be broken into two parts: the margin payment and the lump sum payment.
How to Manage Down Payment of Your House
- Save for it – The best way to arrange for the margin payment/down payment is to save money for it. The time needed for saving that particular amount depends on your monthly income and expenditure. The more you will put towards savings more easily and earlier you will be able to gather the required sum. The amount required totally depends on the value of your property.
- Borrowing from Friends/ Family– This depends on you, whether you find it right or not. If you feel it right, you can borrow the required money from your friends and relatives who are ready to help you. If you are not able to save for the margin payment this is also a good option and people generally go for this option. One of the advantage of borrowing from friends/family is that you don’t need to pay the interest for the borrowed amount.
- Go for a Personal Loan– If you are not able to gather the total amount for the down payment then going for a personal loan is also an option. Personal Loan is unsecured and hence no security or collateral is required. This loan is offered by almost each and every bank so you have an option of choosing here according to your requirement and eligibility.
- Liquidation of Assets and Investments– This is the Last option left to you in order to arrange money for the down payment of your property. You can sell assets like an old car, bike, a stretch of land or another property you own which is no longer in use. You can also liquidate your investments made in fixed deposits, mutual funds, PPF etc. Before liquating any of these assets, make sure you are getting good price against it.
Things You Should Keep in Mind Before Buying a House:
- First analyse yourself that how much money you have and how much you need more for buying a home.
- Calculate whether the resources you own will be adequate to cover the margin payment.
- Evaluate yourself that whether you will be able to pay the EMI of your home loan. The amount you have to pay as EMI depends on the amount you borrowed.
- Go for a personal loan only if you are getting it at an affordable price as paying EMI for two loans can be difficult.
- Before opting for a Home Loan do research first, compare all the option available and then choose the one which is best suitable for you.
- Make sure that the documents required for the home loan are ready and up to date.
Owning a house is everyone’s dream and to make you dream come true you need to manage your finances well and take wise decisions.