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Having trouble with the down payment on your home loan? Here are some tips


Having trouble with the down payment on your home loan? Here are some tips

Buying a home is one of the major decisions one ends up making in one’s lifetime and while banks are there to cover the major part of your home financing, you still need to arrange for the down payment yourself. You also need to make provisions from your salary for the EMIs that you have to pay each month.

However, before all of that, you have to arrange a sum for the down payment for booking the apartment. The millennial is used to swiping his card for every purchase he wants to make but that is not so easy when it comes to buying a house and immense financial planning is required beforehand.

Things to keep in mind

Here are some tips one can follow:

  • First time home buyers often choose Systematic Investment Plans in mutual funds. The cash that is accumulated is usually enough to pay the deposit for the house. Banks mostly sanction about 80% of the home loan whereas the non- banking financial institutions cover 85% to 90% of the property price as the home loan although the interest may be slightly higher. If one has a goal in mind, then an investment plan can be crafted to meet the target of down payment for one’s dream home.
  • The idea is to get the numbers right and if the plan is to shop for the house within the next two or three years, one should make space for inflation. So, a unit that costs Rs 50 lakhs now will probably cost around Rs 55 lakhs within the next two or three years and likewise the quantity of the deposit will also go up. Next, one also has to keep the stamp tax and registration charges in mind along with GST.
  • It is important to recollect that the lesser one borrows, the better it might be to repay the house loan later. It’s a much better idea to save more in the beginning and pay the maximum amount as deposit as possible, than acquiring an enormous home equity credit and missing out on the EMIs later. This might end in the bank foreclosing the property if you fall back on the payments for a few months. Such a risk is just not worthwhile so it’s important to pay special attention to the deposit from the very beginning.
  • Hence, it’s important to extend one’s income through investments and alternate employment to arrange for a higher deposit. Just in case there is another priority, it’s better to postpone the home purchase till one is in a financially secure position
  • One could consider saving in equity mutual funds or maybe aggressive hybrid funds to accumulate the cash if one has around five years in hand. For those with shorter tenures, one could still increase the cash somewhat with the assistance of fixed deposits and recurring deposits.
  • That is because markets are volatile within the short term and investing in mutual funds could end in the investor finding himself with even less money than what he began The motivation here should be accumulating money instead of wealth creation and therefore the closer one is to creating the deposit, one should move to money accumulated to less risky ventures.
  • A mixture of equity and debt open-end funds is additionally possible provided one has good knowledge of market upheavals and pitfalls. Some home buyers consider getting a private loan to pay the deposit but that is not a good idea because not only do consumer loans themselves come with higher rates of interest, you will have to repay two loans together.
  • Having two loans simultaneously to repay may impact your credit score while putting in considerable financial strain as well. As a result, it is always a good idea to arrange for a solid down payment early on.

With careful planning, it’s quite possible to accumulate the cash for the deposit over a period of 3 to 5 years, especially in a double income household. Some careful planning and investments are all that is required to secure the down payment for purchasing your dream home.

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