Buying a house is a decision one makes after careful planning and scrutiny. With a hefty amount to pay, many go for home loans as an option.
Checking your loan eligibility can give you an idea about how much you can borrow. But in home loans, an important part is the down payment. As per RBI guidelines, making a down payment on your home loan is mandatory.
What is Down Payment?
A down payment is part of the house’s value you should pay to the lending institution when taking a home loan. After determining the house value and checking your home loan eligibility, you can see how much down payment you can make. The RBI guidelines say that financial institutions can lend up to 90% of the house’s value, which is the Loan to Value (LTV).
The lending limit of the loan determines the percentage of the down payment that the borrower has to pay. These are as follows:
- For property values less than INR 30 lakhs, the lending amount is a maximum of 90% of the property value.
- For property value that is from INR 30 lakhs to INR 75 lakhs, the lending institution can lend a maximum of 80% of the property value.
- For property values over INR 75 lakhs, the lending amount can be a maximum of 75% of the property value.
Based on these conditions, you can gauge your down payment. Grihashakti offers home loans, personal loans, and more that you can choose from once you are clear about the down payment.
Smart tips for making your home loan’s down payment
When the down payment is considerable, arranging it can be challenging. Here are the tips for making your home loan’s down payment:
- Save for the down payment
The first tip is to save as much money as possible to pay the down payment. Assess the amount you would want to spend on a house. Aim for at least 10% of that value as a down payment. If you go as high as 20% or more, that is even better. Save through long-term investments like mutual funds, fixed deposits, PPF, etc. Saving money for this purpose can allow you to handle other expenses with fewer compromises. You can list your monthly expenses and assess which are unnecessary or can be avoided. Saving little by little over a long period can help pay the down payment and reduce the loan’s burden. Starting as early as possible will give a longer time to accumulate the funds.
- Don’t use your emergency funds
As necessary as it is to make your home loan down payment, your current and future finances should not take a hit for them. Setting aside a corpus for the down payment is a good idea. However, if you have saved for emergencies and use that money in haste, it can cost you. Emergency funds are there for a reason. Once you start your home loan EMIs, your finances will be tied up in paying. With the emergency funds used up for the down payment, you might suddenly need money if there is a medical emergency, a job loss, etc.
During such a time, you may need to borrow money which isn’t ideal, especially if it is a personal loan with a high-interest rate. Therefore, keep your savings for a house separate from your emergency funds.
- Borrow from friends and relatives
One way is to borrow from relatives or friends. But it strongly depends on your relationship with them. Borrowing can harm the relationship if you are unable to pay. If required, you can borrow a portion of the amount for the down payment. This way, there is no burden and anxiety of a loan for the down payment. Knowing your home loan eligibility will tell you how much you need to borrow besides your savings.
- Borrow against a life insurance policy
You can take a loan against your life insurance policy if you are short on funds. As it is not an investment you can liquidate, taking a loan is an option. You can repay the loan with applicable interest. However, if that is difficult, you can keep paying the interest and have the loan amount deducted from the claim amount that you make.
- Personal loan or loan against property
You can take a personal loan for the down payment or a loan against an existing property. But these should be your last resort. A personal loan, especially, will be burdensome because of the slightly higher interest rate and shorter loan tenure.
These tips can help you arrange your down payment amount. After assessing your loan eligibility, consider these tips to buy a house.