The biggest aspiration of an average Indian family is to buy a house. Though home loans have made it quite easy for people to make the payments over a span of 15 to 20 years, it does not offer a complete solution. Banks fund only 80% of the property value and the borrower has to arrange for the balance on his own. As the property prices are soaring high, arranging for this 20% down payment is also an uphill task. It would take a few years to set aside and accumulate funds for the down payment.
Here are 6 things that you should keep in mind while arranging for the down payment
Start planning early- As soon as you become financially independent, you must start putting aside a portion of your salary for this purpose. The price of the house you wish to buy, and the amount you can set aside each month will determine the time it will take to collect the required amount. Instead of keeping this fund in a savings account, you may also choose other options that fetch better returns. Investing in debt linked mutual funds through an SIP is a secure way of accumulating the funds. You can also invest in equity if the time frame you have in mind to buy the house is more than 3 years. By starting early and following a discipline financial approach you can easily achieve this goal.
You must handle your existing debt responsibly and take care of the factors that affect CIBIL score calculation to ensure that your credit profile is in good shape. Banks are flexible with the amount of down payment they ask the buyer to put forward if he has an excellent credit score.
Liquidate existing savings– If you are planning to buy a house very soon, then taking stock of your existing financial resources and then liquidating your investments (Stocks, Mutual Funds, Fixed deposits, gold, bonds) is the most effective option. When you do so, do not forget to keep a portion of your savings for emergency requirements and short term needs of cash.
Borrow from relatives- If your own savings are still falling short, you may seek help from your friends and family. Remember to take only the amount that you can easily repay after an agreed upon time. Though this borrowing is usually interest free, it is still your liability and you need to keep your word in order to avoid straining your relations.
Some employers offer soft loans to its employees at little or no interest charges. You can try and explore whether this option is available to you. An amount will be deducted from your income every month as repayment towards this loan.
You may also raise funds by borrowing against fixed deposits, mutual funds, stocks or jewellery, when liquidating them isn’t a wise decision. The loan amount will be only 70% of the savings value but it can be availed at a very low rate of interest.
You can also withdraw money from your provident fund to arrange money for the down payment.
Loan can also be taken against a life insurance policy at low interest rates. This is not an ideal decision, since it adds up to your liability.
A last resort can be to take a personal loan. But this is a very expensive option as the rate of interest can be as high as 20%. These loans can put a severe strain on your budget and hence they should be avoided as far as possible.
Calculate down payment amount correctly
As mentioned earlier banks finance upto 80% of the property value. However for property worth less than Rs 30 lakhs banks may even finance 90% of the value. Some banks may reduce it required and offer a greater amount of loan if the borrower has an excellent credit score. So check the loan to value ratio offered by your bank to estimate the down payment amount that you need to arrange.
If your credit score is low you may even be asked to put in a greater percentage of down payment. Find out the factors that affect credit score calculation and work to improve your CIBIL score to avoid such a situation.
When banks offer home loans, they do not include the stamp duty and registration charges in this amount. These expenses have to borne by the buyer completely. So make sure you are clear about the amount that you need to arrange.
Be sure of your capacity to pay the EMIs
Even though you can take a home loan for 80% of the property value, you don’t necessarily have to. Make sure you can pay the EMIs comfortably before taking on the liability. If you think that EMI will put too much strain on your monthly income, then you may want to postpone your plans so that you can arrange for a bigger down payment and reduce the loan amount.
With proper planning, budgeting and a disciplined approach you can ensure that the down payment amount is readily available when you need it to buy the house.