How to Plan Your Home Loan Down Payment

Home Loans are typically given on 80-85% of the entire property value. The rest of the amount (15-20%) which is to be paid to buy the property is called the Margin Money or the Down Payment. The banks require the property buyer to pay this Down Payment amount from his/her own pocket. To pay such a corpus which can range in tens of lakhs of rupees, it is crucial for you to gather your down payment amount in such a manner that it doesn’t burden you financially when the time comes to disburse the same. For this to happen, it would be beneficial for you to be aware of thebelow planning methods which can help you pay your Down Payment:

How to Plan Your Home Loan Down Payment

How to Plan Your Home Loan Down Payment

  • Save then Spend: If you plan to buy a home, then save for your home systematically. A well-planned saving which is spread-out in phases can help you in paying the down payment amount without causing much concern. Savings of this corpus can be done through initiatives like Recurring Deposits and Mutual Fund Systematic Investment Plans. It is vital for you to pay your EMIs on-time to keep your credit score up and that can only happen if you save for the down payment and pay it in the initial stage so that later you can timely pay the home-loan EMIs. Moreover, be careful if you plan to borrow from other sources to pay the down payment amount as such borrowing can lead to you paying two sets of EMIs-one for down payment loan amount and other for home loan payment amount. Additionally, if you are taking a loan for paying the down payment, then the bank may become uninterested to lend you a loan as the bank may stringently re-evaluate your capability to repay. Hence, ideally pay for your down payment through your savings rather than borrowing from a bank. Furthermore, if borrowing is the only option, you can consider borrowing from a friend or your employer or a relative too.

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Golden Rules to Arrange Down Payment for Your Dream Home

When you start working in the direction of owning your dream home, you will be advised by a number of people about how to manage your finances. Easy availability of home loan has made it possible for a middle class individual to buy his own home. Recently, the government has also set the LTV ratio at 90% for properties below 30 lakh to support affordability. Although a major part of your home’s value can be funded through loan, you still have to arrange the down payment on your own. It takes a calculated planning in advance to avoid any regrets related to your property purchase later on.

First of all, you must decide on the percentage of your property’s value that needs to be funded through loan. Though the banks are ready to fund as much as is allowed by the RBI, it is important on your part to know how much EMI you can afford in a month and how long do you wish to keep the tenure. This largely depends on your take home salary. For example, if your monthly salary is 1,25,000 and your expenses are 55,000, your surplus income will be 70,000. So now if you wish to buy a home worth 85 Lakh, you can easily pay 45% of your take home salary as EMI. So, you can get a loan of 52 lakhs for 15 years at 10% interest rate. [Read more…]