Buying a home often tops the list when it comes to the aspirations of an average Indian. After all, who wants to keep paying rent all their life? But buying a house today is a pricey affair especially because of the skyrocketing property prices in small as well as big cities alike. As a result of this, the demand for home loans has increased by leaps and bounds with almost every bank and NBFC in India offering this loan option.
For those who are seeking a home loan, even the amount of down payment can be quite substantial. Down payment is defined as the amount you pay upfront to the seller or property owner. In India, the minimum down payment one has to make is usually 20% of the home value. This is also because, under home loans, banks grant a maximum amount of 80% of the property value only.
Key Features of the home loan down payment
The following are some key features of the home loan down payment that you need to consider when you are planning to buy a house or flat.
- Down payment amount
As stated above, down payments usually account for 20% of the total value of the property. So for instance, if the house you want to buy is valued at Rs. 80,00,000 and the down payment amount is 20%, then the down payment amount you will have to pay is Rs. 16,00,000.
- Down payment Limit
There is no maximum limit for the down payment. You can pay as much amount as down payment as you can afford. Remember, more the down payment amount, smaller the home loan amount that you have to apply for. The interest payouts would also be smaller in this case. So, try to go for the maximum down payment that you can afford without breaking the bank.
- Effect of property age
If you are buying an old house/flat (15 years or more) the age of the house will limit the possibilities when seeking home loans from the banks. This is because banks usually are skeptical about providing loans for old houses; hence the down payment amount goes up. In such cases, lenders are liable to sanction home loans amounts not exceeding 50% of the total market house of the house/flat at the time of valuation.
- Registration and Related Costs are not covered
Do not be under the impression that 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.
Tips to Fund your Down Payment Requirement
The following are some key tips to help you plan your down payment better.
- Start Planning early
The earlier in life you plan to buy a house, the easier it is to arrange for the down payment on your house. At later stage, liabilities and family responsibilities increase leading to difficulties in arranging for the requisite down payment amount.
- Learn to Budget your Expenses
Most of us are not lucky enough to expect a windfall that solves our money worries. Therefore, you need to inculcate a habit of generating savings. In simple terms your expenditures especially the discretionary ones should be the amount remaining after your savings and essential expenditures have been deducted from your earnings.
- Seek a Soft Loan
It is very common to seek help from your family in arranging for a down payment. Don’t hesitate in doing so if you are sure of your future finances. Apart from your family, employers may also provide soft loans to their employees. The key benefit of these loans is that they are soft loans i.e. little or no interest charges are applicable to these, hence you will end up saving quite a bit of money in the interest accrued on the home loan.
- Personal loan as down payment financing
At times, when nobody comes to your rescue, work out your budget and apply for a personal loan to arranging for the down payment. This is probably the most expensive option to fund your down payment requirement and there is no tax benefit on a personal loan taken out with the intention of making the down payment on a new home.