Owning a house is a different feeling and comes with lots of happiness and self-respect. However, with the skyrocketing property price owning a house has become a dream to many. But, thanks to home loans which has made it possible for millions of people to live their dreams. The loan is offered based on the borrower’s eligibility and comes with tax benefits. But one of the important factors which cannot be ignored here is – home loan funds only 80% of the total cost of the property. This means the remaining 20% needs to be funded by the borrower. This 20% payment is known as a down payment for the home loan.
So, if you are planning to buy a home in the near future say by the end of 2021 you need to have money for the down payment of the home loan. Generally in a city like Bangalore, the price of the house starts from 50 lakh and goes to 1.5 crores (we are here referring to a normal property). So, in this case, the amount you need to pay from your pocket becomes much higher. Hence you need to plan your budget and finances accordingly so that you can fund 20% of it from your pocket.
Generally, when you are buying a home through a home loan, the payments are divided into two parts-
- The margin payment/ Down payment
- The lump-sum payment.
Understanding Margin Payment
A margin payment is also known as a down payment. This is the one we discussed above. You need to pay for this from your pocket. This part includes an amount equivalent to 20% of the property value.
Down Payment Limit
There is no maximum limit on the down payment amount. You can pay as much as you can afford. Remember, the more you pay towards a down payment, the smaller is your home loan amount and so is your EMI. As a result the interest pay-outs also become smaller. So, it is always profitable to go for the maximum down payment that you can afford.
Understanding Lump Sum Payment
The lump-sum payment is the remaining 80% of the property price which is left after paying the down payment. For ready to move in properties, the bank disburses this amount at once while for the under-construction properties your lender will disburse the amount as per the construction phases. Your EMI will be based on the disbursed amount and the full EMI comes only after getting the possession.
How to Arrange Money for the 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. However, the time needed for saving that particular amount depends on your monthly income and expenditure. The more you will put towards savings more easily you will be able to gather the required sum. In case you are not able to save that much, you can always use your previous savings and small investments such as FDs and policies.
- Borrowing from Friends/ Family– Opting for this option depends on personal preferences as some find it right while others avoid it. If you feel it right, you can borrow the required money from your friends and relatives who are ready to help you. The plus point with doing this is you don’t need to pay interest. While there is a slight risk that it may affect your personal relationship. So, if you are not able to save for the margin payment this is also a good option that can help you out.
- 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. A personal loan is unsecured and hence you don’t need to give any of your assets as security or collateral. The loan is offered by almost every bank so you have multiple options to choose from as per 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 new home. You can sell assets like an old car, bike, a stretch of land or another property that you own and is no longer in use. You can also liquidate your investments made in fixed deposits, mutual funds, PPF, etc. But, before you liquate any of these assets, make sure you are getting a good price against it.
Things You Should Keep in Mind Before Buying a House:
- First, analyse 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 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 borrow, you can always use an EMI calculator to know the estimated EMI.
- 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 options 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.
An important thing to consider here is neither the home loan nor the down payment amount includes property taxes and registration charges. These costs are in addition to the down payment amount that you are required to pay out of your pocket. So, while planning for the down payment it is equally important to consider and plan for the payment of property charges and registration fees.