With a wide range of banks and financial institutions ready to provide you Home Loans, buying a home has become easier over the years. However, acquiring a Home Loan for the very first time is always an ‘educational’ experience.
It helps the loan seeker learn about several important things. For example, they may wrongly believe that banks grant loans equal to the entire property value. In reality, banks need the property buyer to contribute the margin money from his own pocket. This margin money is what we call a down payment.
The margin money on a property purchase may typically range around 15% to 20% of the entire value of the property. It means that if the buyer is looking to buy a home for Rs. 50 lakhs, he first needs to arrange a down payment of around Rs. 7.5 lakhs to Rs. 10 lakhs, while the bank will disburse the rest.
Arranging a down payment could be a difficult proposition for first-time home buyers. So, here are some ways through which the down payment amount can be raised.
Carefully planning your home purchase and saving money systematically can help you build the necessary corpus. If you come up with a long-term, well-thought-out plan, you can even reduce your need for a Home Loan.
You can start building this corpus by using tools like Recurring Deposits or Mutual Fund SIPs, which can also help you earn returns on your regular contributions, thus making it easier for you to get to your target.
You can adopt a save-first-spend-later strategy. This would also help you develop the mindset required to pay EMIs with discipline.
Borrow… Within Limits
If you have little time to raise the down payment amount, and if you feel you’ll lose out on a good deal, you could look to borrow from various sources to make the down payment.
However, you must exercise this option with due care. You do not want to be paying EMIs on this loan on top of the EMIs of the Home Loan you already have. Banks often insist that you clear existing loans before you take out a fresh loan if they feel that servicing multiple loans would burden your finances. This additional borrowing should only be done if you’re certain you can carry the load of multiple EMIs, or if you’re sure you can pay it off quickly.
You can borrow from a friend or relative, take a short-term loan from your employer, or take a loan against investments like your Fixed Deposits, Life Insurance policy, PPF, etc. You could also apply for an instant, paperless Personal Loan.
Mortgage Your Existing Property
When you are sure that your existing income would be sufficient to handle the EMIs of two concurrent loans, mortgaging your existing property could be a good idea to get funding for a down payment.
Not only can you mortgage any property you might own, but you can also take a loan against your gold and jewellery, against securities such as shares, or a loan against rent.
Defer Payment To The Builder
If you are buying a home from a reputed developer, you can ask them to provide the facility of a deferred down payment. Under this scheme, you can split the down payment into instalments, which you can pay as per a periodicity you can mutually agree upon.
Suppose you have to make a down payment of Rs. 9 lakhs for example, you can request the builder to allow you six months’ time to deposit this amount in six instalments of Rs. 1.5 lakh per month. This arrangement is down to the builder’s discretion.
Liquidate Your Assets and Investments
Disposing of your valuables and assets is another option. You can sell your old car or a portion of your existing property, liquidate your bank deposits, redeem Mutual Funds, sell gold or stocks – basically, redeem anything you may have in your portfolio, but do so in a controlled manner and only to the extent that it doesn’t impact your other financial goals.
For example, you are now allowed to withdraw 90% of your EPF corpus for the purchase or construction of a home. However, your EPF corpus is meant for your retirement, therefore you shouldn’t plan towards one goal at the expense of another.
Go To An HFC or NBFC
Apart from nationalised banks, there are some Housing Finance Companies (HFCs) and NBFCs which offer loans up to 90% of the property cost, thereby reducing your margin requirements.
They can also lend to the extent that you can cover costs of property purchase such as registration, stamp duty, furnishing, etc. However, the full loan eligibility will be decided by your repayment capacity.
Last but not the least, do not take hasty money decisions if you’re falling short of the down payment amount. Hold on for a while and you could get better property deals in the future.
(The writer is CEO, BankBazaar.com)