How to Buy a House without Having Money for Down Payment?
When it comes to our biggest life achievements, there is one dream that we all share – having a house of our own.
As per the Census 2011, in India, only 69% of urban households own a house. If you fall under that percentage, congratulations to you, and even if you don’t, there’s nothing to worry. With housing finance becoming more affordable at present an introduction of amazing housing schemes by Indian Government such as Pradhan Mantri Awas Yojana (PMAY), you can realize this dream easily.
|Lender||RLLR||Interest rate (Min)||Interest rate (Max)||Processing fee|
|PNB||7.80%||9.35%||Up to 0.35% of the loan amount + applicable GST|
|SBI||7.80%||8.30%||Up to 0.50% of the loan amount + applicable GST|
|Bank of Baroda||8.00%||8.30%||Rs. 8,500 + GST|
|HDFC||8.00%||9.80%||Up to 0.50% of the loan amount + applicable taxes|
|Bank of India||8.00%||8.40%||Up to 0.25% of loan amount + + applicable GST|
|Corporation Bank||7.90%||8.90%||0.50% of loan amount + applicable GST|
|ICICI||8.25%||9.25%||1% – 2% of the loan amount + applicable GST, Rs. 2,000 for Mumbai, Delhi & Bangalore|
|Axis Bank||8.55%||9.20%||Upto 1% of the loan amount + applicable GST|
|Bajaj Finserv||8.55%||11.15%||Upto 0.80% of the loan amount + applicable GST|
|Kotak Mahindra Bank||8.60%||9.30%||Up to 2% of the loan amount + GST|
The Home Loan Interest Rates are starting from as low as 7.90% at the present moment, converting the dream of owning a home a reality for many Indian households. To reduce your burden further, you can buy a house under PMAY scheme to get a subsidy of up to 2.67 Lakhs.
However, getting a Home Loan is not as easy as it seems to be. The first question that comes to the mind of most of the borrowers is – How to qualify for a Home Loan?
Even if you found out that you are eligible enough to avail a Home Loan, the bank will not provide you 100% funding. They require you to arrange for cash down payment by yourself, and if you are unable to do that, your Home Loan request will not be processed.
In India, as per the rules of Reserve Bank of India (RBI), banks are authorized to lend money (known as Loan to Value or LTV) only up to a certain limit on the purchase cost of a property. Banks or other housing finance companies can provide 90% LTV for a property worth up to 20 Lakhs, 80% LTV for a property worth 20-75 Lakhs, and 75% LTV for a property valuing above 75 Lakhs. The borrower has to arrange the balance balance amount by himself/ herself as “down payment”.
Now, the next question arises – Can I buy a house with no money for cash down?
What if we tell you can buy your own house without arranging for down payment from your pocket?
Yes, you read it right! Here are some ways through which you can do so:
1. Pay Your Cash Down Amount with an Unsecured Loan
If possible, make sure you get a pre-sanctioned or pre-approved Home Loan before finalizing the property you want to purchase. Doing this will help you analyze how much amount you will be provided by the bank you’ve applied with. Once you know the exact amount bank will be offering, you can take an unsecured loan such as a Personal Loan or a Business Loan to make down payment for your Home Loan.
For example, if the value of the property you are purchasing is 30 Lakhs, and the bank is offering only 90% of the property’s value (i.e. 27 Lakhs), you will have to pay 10% (3 Lakhs) as cash down. If you don’t have that amount available, you can take an unsecured loan of 3 Lakhs, make down payment, and pay back that amount in EMIs, thus reducing your upfront financial burden to a great extent.
After 6 months of availing Home Loan, if the purchased property’s value allows, you can pay off your outstanding Personal Loan amount by availing a top up on your Home Loan. Doing this can reduce your loan burden and save money as the Interest Rate on Home Loan is comparatively much cheaper than that of a Personal Loan. However, it is advised to refer your loan agreement carefully before availing Personal Loan as the lender may charge you prepayment fee during the foreclosure of your loan.
In addition to being a cheaper alternative, Home Loan can also get you a tax rebate under Section 80C of Income Tax, 1961 whereas the Personal Loan is taxable.
2. Use Home Loan for Furnitures & Fixtures
Let’s understand this better with an example:
Looking at the above case, the value of the property you want to purchase is 30 Lakhs, and the bank is ready to provide 90% (27 Lakhs) funding on the market value of your property. However, there is an alternative for you. If the market value of the concerned property allows, you can get more funding from banks as furnitures and fixtures cost. So, in this particular case, you can avail a Home Loan of 3 Lakhs as furnitures and fixtures cost and use it to ake down payment.
You can consider some other ways too including:
Taking a loan from your employer. Many employers provide general purpose loans at low-interest rates to their employees. The process is much usually simple and requires less documentation. So, if your employer offers such facility, make use of it to make down payment.
Taking a loan against securities. Many banks offer loan against financial assets such as securities, shares, insurance policies, and others. So, if you have demat shares, mutual funds, RBI Relief Bonds, UTI bonds, KVP, or NSC, you can pledge them to get funding and arrange for down payment. Also, you have/ had an Employee Provident Fund account for over 5 years, you can avail a loan from that account for making the down payment.
Taking an HDPL or Home Loan Down Payment Loan. A few financing companies such as Muthoot Finance offer such loans to finance home loan down payment or for a home extension, modification, renovation or refurbishment. The borrower can secure a loan against the gold of an amount of up to 1 Crore at 11% interest (subject to change) for a term of 1-5 years. You don’t need to submit property papers to avail this loan and there is no processing fee or any other additional expenses involved.
Borrowing from relatives or friends. If you share a strong bonding with your friends and relatives, you can also opt for this option to arrange for Home Loan down payment. The terms may vary as per your relationship.
With these smart ways, you can easily arrange for your down payment. However, if you’re planning to buy a home, it is always advised to start saving early to reduce your debt burden. You may start investing in mutual funds, SIPs, fixed deposits, provident funds, recurrent deposits, and other saving schemes to prepare yourself for down payment.
If you have any doubts regarding Best Home Loan or related issues, you can talk to the Mortage Specialists of MyMoneyMantra, a leading fintech in India. They have an experience of over two decades and an extensive knowledge on the subject.