A to Z of Housing Loan Down Payments..!

A dream that most of us nurture when living in a rented accommodation is purchasing our own home. When you can not provide cash upfront, a houisng loan is the next possible way of making the purchase.

Down payment..!

Normally, lenders (banks, housing finance companies - HFCs) would require some amount to be paid upfront as a 'down payment' because normally banks do not offer a '100% loan'.

A 'down payment' simply put is the difference between the purchase price of a property & the mortgage loan amount.

It underlines the property buyer's commitment to complete the deal and indicates the home buyer's fidelity in making the loan payments.

System of down payments ..

The system of down payment exists because...

1. It indicates loan borrower's credit worthiness due to access to the down payment

2.  The amount of real investment a borrower has in their purchase, and their fidelity in continuing to make payments regularly are linked

3.  It acts as a sort of insurance for lenders, since borrowers know that if they default on their loan; they will not only lose the property but their down payment as well

4.  It ensures that the buyer (borrower) has some stake in maintaining the property

It ensures that banks are protected from fall in interest rates since the amount that they lend is lower than the market value of the home.

Therefore, if there is a fall, they can still recover the losses.

 

Important facts regarding down payments

1. Amount of down payment..!

Normally, down payments range from 15 %  to  20 % of the total value of the property.

For example, If a house property costs Rs. 20 lakh, and if the down payment required by the lender is 15 per cent, then the down payment will be Rs. 3 lakh.

2. Limit of the down payment..!

There is no set upper limit to the amount you can pay as down payment - it all depends on how much cash you can manage to set aside.

The more you are able to pay as down payment, the lesser is the amount of loan taken from a bank, resulting in easier monthly payments or shorter loan tenure. Try to put down a sizable amount of down payment.

3. Age of the home affects down payments..!

The older the property, the more apprehensive banks/HFCs are to finance them.

This increases the amount of the down payment required. Look for properties, which are not very old.

4. 'Zero-down payment' loans are not necessarily helpful..!

Banks / HFCs might offer you a 'zero -down-payment' loan based on good credit history.

Typically, zero-down-payment loans are offered for smaller houses and are hard-to-get and hard-to-qualify.

Moreover, 'zero down payments' mean that you are borrowing more, making your monthly installments higher & defaulting on even a single payment might initiate foreclosure proceedings against you.

5. Down payments do not include miscellaneous costs..!

Down payments normally do not include costs such as property taxes, registration charges, transfer charges and stamp duty costs.

Most banks include these costs in the total loan amount.

Tips for Arranging Down Payments..!

 

In case you are wondering how you would arrange the down payment, here are some tips:

1. Plan early..!

The earlier you start planning to buy a home, the sooner you can come up with the down payment amount.

2. Save every month..!

- Regular savings go a long way in building up a sizable down payment amount.

3. Borrow from parents / orrelatives..!

- It's not unusual for parents or relatives to help with the down payment.

4. Apply for a personal loan..!

 -Based on your cash flows, apply for a personal loan for the down payment.

5. Save from tax Refund..!

 - Save your income tax refunds as fixed deposits in a bank.

6. Try pledging securities..!

 Try to see whether pledging fixed deposits, insurance policies or / shares are considered against making the down payment.

7. Look for straightforward solutions..!

Try asking for a raise or getting a higher paying job.

Source: BankBazaar.com - An online marketplace for your personal loan and home loan needs.

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