How can you arrange for a home loan down payment?

Purchasing a home of your own is a big financial decision, and raising funds to attain it needs a lot of financial planning and thought. Ideally, your home loan down payment to purchase the home must be 15 to 20 percent of the property purchase value. Note that this percentage can differ depending on the home price. Thus, you must save adequately before deciding to purchase a home. This is the reason why arranging for a home loan down payment is a financial goal, which requires a disciplined mindset.

Let us understand a few of the ways you can raise the down payment for your home.

Begin to save early

One of the most fuss-free ways possible to attain your down payment goal is to begin saving more as soon as possible. Start investing in high return instruments such as equity & pass on gains to safer financial investments like fixed deposit, recurring deposit etc. Make the monthly budget and remove unnecessary buys from the starting to put yourself on the path of financial intelligence.

Loan from employees PF (provident fund)

If you have a provident fund account of over 5 years, you still can consider opting for the loan from it to raise the home loan down payment.

Redeem some investments

You can mortgage or liquidate some of the investments and assets such as your mutual funds, old 4 wheelers, shares, life insurance policies, jewellery, etc. Loans are provided by many banks against RBI Relief Bonds, DEMAT shares, NSC, KVP and UTI bonds, among the others. A loan against securities offers you instantaneous liquidity with zero need to sell off your securities.

Unsecured loans

Take an unsecured loan or personal loan where the rate of interest will be high. But it would not need any security and will get approved instantly if you have a strong credit score and mitigate various other eligibility criteria.

Loan from the employer.

You can arrange a down payment for your home from your employer also. Many employers provide their employees with loans at low rates of interest.

Proportionate release option

Via this option, you simply can make a down payment in small instalments in place of an upfront lump-sum payment. As the construction takes a year, you can use periodic down payments in the interim period, depending upon which lender will release your loan amount disbursement. It frees you from making a massive lump sum down payment at once.

Pradhan mantri awas yojana option

Pradhan Mantri Awas Yojana (PMAY) provides interest subsidies of nearly up to 6.50 percent based on your income and various other eligibility criteria. It will lower your payable EMI, and then you will require using the existing funds for your home loan down payment.

Borrow from relatives or friends

Lastly, if nothing works, you can borrow the funds from your relatives, parents, or friends, who have some spare funds. This comes with zero interest but still would need you to conduct proper planning so that you repay it on time.

A story:

Are you very much familiar with VS Naipaul’s classic “A Home for Mr Biswas? If not, here is a gist in a sentence: the novel is a litany of various misfortunes that incessantly hound the protagonist, Indo Trinidadian male, all throughout his life until he dies due to cardiac arrest. However, content in the knowledge that he has formed a home, however, designed, faultily provides his kid and later generations a proper shelter.

Towards the end, all we need is – shelter – along with good food for subsistence. From Neanderthal in a small cave to Hollywood diva set behind high walls to real-life Mr. Biswas, a human nature fellow, first sought food and then went on to attain the goal of a roof above. Everything else is a frill.

Down payment

So thus, if you want a home to purchase, it is but one of your natural desires. But owning a home these days is not as simple as said than done, as the property price has reached the moon – literally. A new, average, 2-bedroom flat in big cities is usually at Rs 70 lakh; banks usually are cagey regarding providing loans for property which is older than fifteen years.

Talking about a home loan from Navi Home Loan, the maximum you can do is borrow an amount, which is capped at 75- 90 percent of property value, as per law. The rest, 10 percent, is what you must raise from your own pocket in the form of a down payment. Few lenders might ask the applicant to come up with the 15 percent as a down payment before you sanction the loan.

For the property with a price tag of around Rs 70 lakh, the highest sanctioned loan is Rs 56 lakh. This means you pay around Rs 14 lakh as a down payment. Add in another Rs 2 lakh in the form of miscellaneous expenditures (registration costs, property taxes etc.). It means you must raise nearly Rs 16 lakh.

In case you have not inherited the down payment, you must work for it. The actual question is: How do you go for it?

The reality is: Back of the envelope calculations show that the home buyer will require about 8 years to raise the amount of your annual salary is nearly Rs 8 lakh or around Rs 67,000 per month. Calculations assume that the 4th of income would be saved, and the usual increment would be somewhere negated by enhancing living costs down the lane.

Please remember that calculations assume the income is in nature post-tax, which is not the actual case in reality – TDS cannot be removed. Also, note that the chances are you might not avail this type of salary, to begin with.

Along with this, note that saving a quarter of your salary is tough and requires discipline. However, most importantly, the question is, are you willing enough to grind it for 8 years for a dream of owning an apartment? The prices are bound to arise, which raises the needed down payment amount also. Additionally, your liabilities also rise with age. Thus, unless you begin planning early and keep the horizon of 3-5 years, your down payment would be tough to attain.