Most people buy their dream home with the help of a home loan. If your home loan application has been sanctioned, and you are now eagerly waiting for the funds to be disbursed, you will also be preparing to arrange the funds required for the down-payment on your home loan. This is a crucial part of the home loan process, with the percentage of down-payment required depending on your financial situation and the amount of loan that has been sanctioned by the bank or NBFC, based on your eligibility, credit score, and other factors.
Home loan LTV and Down-Payment
Most banks offer up to 80% of the value of the property that you intend to buy as the home loan amount. This is called the Loan-to-Value ratio. Your down-payment will depend on how much of a loan you have sanctioned or how much funds you can afford to put in as a down-payment on your home loan. Since 80% of the property value is the maximum that most lenders offer as a home loan, chances are high that you will have to come up with at least 20% of the property cost as the down-payment. If you already have the funds for this, then you can sail through with no problems. But if you are strapped for cash, then you will have to look at ways you can raise the funds for your down-payment.
Pros and Cons of a higher or lower Down-Payment
The higher the down-payment you can afford to pay, the less will be the loan amount that you require from the bank or NBFC. This translates to more savings in the long term as your Equated Monthly Instalment (EMI) will be lower with the lower loan amount. Your home loan repayment tenure will also be shorter because your home loan amount is lower, which means you will be saving considerably on the interest component of your home loan as well.
On the other hand, if your down-payment is lower, you will have to take a larger amount as the home loan, which would mean a longer repayment tenure and more interest paid in the long run.
How to raise funds for your home loan down-payment
If you do not have sufficient funds to afford to pay your down-payment, there are different ways in which you can arrange for such funds. Here are some of the ways:
- Free your investments or savings: Whether you have a fixed deposit, shares, or mutual funds, you could either pledge these or liquidate them to raise the required funds for your down-payment. You could even avail a low-interest loan against securities. If you have a post office savings deposit, you can also avail a loan against it if it has passed the required amount of time to avail a loan.
- Unsecured loans: Another way to raise funds for your home loan down-payment is by availing an unsecured loan or a personal loan. Interest rates on these are high but they do not require any collateral and can be approved and disbursed quickly if you have a high credit score and meet other eligibility criteria.
- PMAY scheme: The Pradhan Mantri Awas Yojana (PMAY) offers interest subsidies s Yojana (PMAY) offers interest subsidies of up to 6.5% based on your income category and meeting other eligibility criteria. Since this will considerably reduce the EMI that you will have to pay, you can use the existing funds in your savings for the down-payment and not need to look anywhere to raise funds for it.
Once you have arranged the funds for your down-payment, the journey to buying your dream home is just a matter of time.