Owning a home is one of the biggest aspirations for Indians. As per the 2019 Aspiration Index Survey by Kantar IMRB, ‘buying my own house’ is the topmost goal for many Indians. Home loans help in fulfilling this aspiration. However, lending institutions do not finance 100% of the home ownership costs. Typically, you’ll receive up to 80% of the sale agreement value. The rest needs to be arranged by you as down payment, which assures the lending institution of your own stake in the property purchase.
The down payment usually ranges between 5-20% of the property of the value and is a significant amount to arrange at short notice. With many financial commitments to tend to, arranging the down payment may appear to be a daunting task. Also, note that you also have to cough up another 10-15% for registration and stamp duty charges, furnishing costs, brokerage, and the assortment of charges associated with a new home.
So, all put together, the liquidity you need to buy property can exceed 30% of the basic cost of that property.
If you are planning to buy a home, here are a few tips to keep in mind for arranging the down payment.
Save To Build A Corpus
Buying a home of your own requires meticulous planning. Once you have decided to buy a house, start with the simple yet crucial step of budgeting. It will help you segregate your income for necessary expenses and the savings required to fund the down payment. Your savings can be allocated to different investment instruments for growth. One of your investments can be earmarked for the down payment. Fixed deposits and liquid mutual funds are two instruments ideal for this goal. You can also invest in equity mutual funds for higher returns and if you have a greater risk appetite.
Opt For An Unsecured Loan
If your budget permits, you can also explore the option of taking an unsecured loan. An unsecured loan needs no collateral and comes with a comparatively higher interest rate. You can opt for a personal loan that can easily be availed if you have a healthy credit score. However, go for an unsecured loan only after assessing your repayment capacity.
Loan Against Securities
Your investments like fixed deposits (FDs) and mutual funds (MFs) can also come handy in providing you funds. You can pledge your investments to fetch a loan at a lower interest rate against your securities. Taking a loan against securities will address your down payment need without breaking your investments.
Take A Soft Loan
You can also borrow from friends and family for the down payment. Such loans are known as soft loans and may carry more amenable repayment terms such as a low interest rate based on your understanding with the lender. Many employers also offer loans to their employees for home buying needs, so do check with your employer for the same.
Once you are ready with the down payment amount, you should start with your research to identify a good lender. Ensure that you have adequate liquidity for emergencies, even after meeting your various home purchases charges.
The writer is CEO, BankBazaar.com, India’s leading online marketplace for loans and credit cards.