Buying a house is an important decision that involves several factors that can impact your life. The first thing which you need to decide is how you are going to finance the purchase of your dream home. Whether you want to use your savings or you want to take a home loan. Well, the first option is limited only to a few as most of us don’t have much savings in our 30’s and 40’s which can buy us a home.
Home loans are way convenient and help you to purchase your dream home without any hassle. Though it is the most convenient way to finance your home purchase, still you need to pay some from your pocket even after availing the loan. This is the down payment for your home.
Down Payment Challenges
When availing a home loan, you need to personally fund a portion of the cost of the home, which is generally a minimum of 10% and varies from 10 to 30% with most of the lenders. This portion that you need to fund from your own pocket as the bank doesn’t provide the entire funding for your house. Hence, making a down payment is essential to be eligible for a home loan.
Benefits of making a higher down payment
- you may get a lower interest rates
- Reduces your principal amount
- lower processing costs and insurance premiums
- You get a larger home equity
- Reduces your debt burden
After you decide to take a home loan, you may find yourself in a slightly difficult situation when it comes to the down payment. The price of the property is reaching the sky and arranging 20% to 30% of the total cost of it from your own is difficult for many of us. And if you decide to wait for some time so that you can save for the down payment, it is possible that the property price may increase again. So, it’s always better not to delay once you have made your mind.
To arrange for the downpayment you may need to set aside a few of your short term money goals and need to work on your money management skills more effectively. Although it seems tough to arrange lakhs of money still there are certain ways through which it can be made easier to fund your down payment.
Ways to arrange money for your home loan down payment
- Use money from your savings
- Seek proportionate release payments
- You can borrow against your insurance policies including PPF and term insurance.
- Borrowing from friends and family is also an option
- Use money from your investments such as FDs
- You can also take a personal loan of a small amount
Things to take care off while planning a higher down payment
- Lower liquidity
- Financial crunch during an emergency
- Less returns
- possible shortfall in funds for initial expenses such as home interiors
How much down payment is ideal to make
Well, banks ask for a particular portion from the total cost of your house as the down payment. Still ranging from minimum to maximum it varies from 10 to 30% of the property cost. However, there are both pros and cons related to it. But the fact of the matter is you should make a downpayment as per your affordability. Don’t rush to pay a high down payment by liquidating your investments and savings as this can backfire and you can face financial crunches in an emergency and fewer returns in the future. In case you are not able to arrange funds you can bargain with your lender and ask him to reduce the down payment percentage.