Owning a house is a dream for most people. If you have already chosen your dream home and found a lender for your home loan, you must be wondering about the down payment. Let’s learn ‘how much down payment for home loan’ needs to be made.
A home loan is a secured loan provided by banks to purchase a property or a house. Due to the high price of properties, home loans are generally of high amounts. You need to find the right lender whose terms and conditions match your financial situation.
Before you know how much down payment for home loans needs to be made, you need to know what exactly a down payment is. Down payment refers to the lumpsum amount paid from your side before you apply for a loan.
Usually, lenders approve home loans for 75%-90% of the property price. The remaining amount is to be invested by you and is referred to as the down payment.
The minimum down payment for home loans is usually 20% of the property price. But the exact amount depends on factors like your credit score, debt-to-income ratio, tenure, and price of the property.
Home loans do not cover 100% of the property value and only 75%-90% of it. The remaining amount is to be paid as a down payment.
Even though the minimum down payment may vary depending on your case, you can pay a higher amount as a down payment.
Even though making the minimum down payment for a home loan can be enough, there are many advantages of making a higher down payment if you can afford it. The benefits are mentioned below -
Making a high down payment will ensure that your loan amount is lower. This will help your loan get processed easily.
When your loan amount is lower, it will be more affordable for you. The EMIs will be lower and you will be able to clear your debt faster.
You will have a higher equity in your property, making the bank consider you a less risky customer.
There will be no risk of a negative equity situation, where the price of the property falls below the mortgage balance.
You will be able to negotiate better terms for your home loan, like lower interest rates.
If you have a low credit score, a high down payment will make it easier for you to get a loan.
Will help you increase your creditworthiness for future loans.
Now that you have understood how much home loan down payment you need to make, let’s look at some tips to arrange for the downpayment -
Start planning at least 4-5 years before you have to take the loan, so you have enough time to accumulate funds for the down payment.
Make use of good investment schemes, so you can earn interest while saving money for the down payment.
Consider making changes to your lifestyle to cut unnecessary expenses.
Making a high down payment while applying for a home loan will reduce your dependency on loans. You will be financially independent and your house will be mortgage-free sooner than if you pay a small down payment.
According to the rules of RBI, most banks fund only 75%-90% of the property value. The remaining amount is supposed to be paid upfront by you.
However, there are some disadvantages to making a high down payment. They are -
You will be locking in a huge part of your savings, which means you will have lesser cash flow. At such a moment, a financial emergency can make it difficult to manage your finances.
You might find it difficult to invest in furniture or other things you might need to make your new house your home.
You can make use of personal loans in such conditions, to arrange for a down payment or to manage any cash crunch you experience. Instant personal loans from moneyview can come in handy at such times. You can get loans up to Rs.10 Lakh from us with minimal documentation and affordable interest rates.
The minimum down payment for a home loan depends on your creditworthiness as well as the property value. In general, 20% of the property value is the minimum down payment required by banks.
The EMI amount of a Rs.30 Lakh loan for 10 years will depend on the interest rate. For example, if your rate of interest is 9% per annum, your EMI will be Rs.38,003. You can this this home loan calculator to calculate your EMI.
According to the guidelines of the Reserve Bank of India, a bank cannot fund 100% of the price of your property. Thus, to get a home loan, you have to arrange for a down payment.
Interest rates for home loans are generally lower than that of personal loans as they are secured loans. The property you purchase acts as the collateral for a home loan. Home loan interest rates start from 8.40% and go up to 14% for most major banks.
The amount of home loan you can get does not depend on your salary alone. Factors like your credit score, the price of the property, your debt-to-income ratio, etc play a role in deciding the loan amount you can get.
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