From finding the right property to arranging funds to buy it, buying a house is a big financial decision. While finding a suitable location and a well-constructed building might not take prior preparation, raising fund to purchase a property is a long-term plan.
With property prices going through the roof, it has become near impossible to purchase a house without a Home Loan. Banks typically fund 80% of the property value and the borrower has to arrange the remaining amount on his own. That’ll be the down payment corpus. Banks start disbursing Home Loans only after buyers have taken care of the down payment. Arranging the down payment money is always a challenging task. If you are a first time home buyers, keeping these five points in mind will help you strategies better to get your down payment fund ready.
Planning And Budgeting
Buying a house needs planning well in advance. Arranging the down payment is a long-term project and it needs a good deal of discipline and dedication. You can save for it through investment instruments such as Mutual Funds, Fixed Deposits etc. You must pick an instrument based on the amount of time you have in hand. Say, you want to buy a house after three years and the down payment you would need at that time is Rs. 10 lakhs. You can start by investing Rs. 25,000 per month in an Equity Mutual Fund through Systems Investment Plan. With return of 12% p.a., you would have a fund of more than Rs. 10 lakhs within three years.
Borrow From Family And Friends
If you are not ready with your down payment at the time of buying a house, you can borrow from a friend or relative for a short-term period. However, go for it only when you are falling short by some amount. Make sure you have a repayment plan in place before you borrow within the circle of friends and family.
Check LTV Offered By The Bank
Loan-to-value is the amount of money a bank is willing to lend for the purchase of a property versus the value of the property. As mentioned earlier, banks can fund up to 80% of the value of a property . However, if the loan amount is below Rs. 30 lakhs, banks can finance up to 90% of the property value.
Banks also consider the repayment capacity of a borrower before sanctioning a loan. So make sure your Credit Score is a healthy number.
Do Not Over Leverage
Do not over leverage your financial capacity while applying for a Home Loan. Even though banks offer a loan of up to 80% of the property value, you must check if the EMI is comfortable for you. If you have sufficient fund available with you, try to pay from your pocket or take a soft loan from family and friends. Make sure your aggregate EMI doesn’t become a reason for financial distress.
Add Stamp Duty And Registration Charges
Customers often miss out on the associated costs of buying a house. Stamp duty and registration charges are two such costs that need to be taken care of by the customer from his own pocket. While registration costs around Rs. 30,000, stamp duty costs about 5% of the circle rate/ready reckoner rate (charges vary from state to state) or the actual property value, whichever is more in value.
While you raise funds for the down payment, make sure you have a contingency fund to help you tide over in case of an unforeseen emergency. You should always have a backup fund handy to take care of your EMIs.
(The writer is CEO, BankBazaar.com)