If you are aware of the mounting prices of real estate, it may be well-known to you, that buying a home in the present day scenario requires you taking the help of a loan. While you can rely on one of the numerous Home Loan alternatives to realise this dream, there is still one more hurdle that you ought to face – Home Loan Down Payment.
Most of the banks and housing finance corporations in India make it mandatory for Home Loan applicants to pay at least 10% and in some cases even 20% of the value of their purchase as a down payment, while the financer pays the remaining 90% or 80%, which in turn can be repaid in the form of equated monthly instalments (EMIs). This mandate comes from the belief that the ability of the loan applicant to pay the recommended down payment with ease, proves their ability to repay the loan amount in the coming future.
Since a vast majority of homes, especially those in the urban areas, cost upwards of Rs. 20 Lakhs, even the minimum upfront payment of 10% to 20% can prove to be a daunting task. Hence, some home buyers have now started showing a keen interest in taking short-term loans to meet this necessary expense. Of course, taking credit to get a loan cannot be considered an ideal financial practice, but in some cases, it is the last resort. If you find yourself in such a situation, here is what you can do.
You can opt for a credit product such as ICICI Personal Loan, or any other such credit for that matter. Since the loan provider has no say pertaining to the end-use of the loan amount, you can easily use the same to make the down payment towards the purchase of your home.
While such a loan will help you in getting approval on your Home Loan application, you must remember that you will then have to pay EMIs towards two distinct loans – your Personal Loan as well as your Home Loan. This can significantly impact your quality of life, due to the additional strain on your finances. Hence, you must only resort to this method if you can qualify for a low Personal Loan interest rate. To this end, you may also approach online lenders, who are often known to provide low interest loans.
If you aren’t sure of the exact amount that you will need for the down payment, you can ask your Home Loan provider for a pre-approved Home Loan for the property that you wish to purchases. In this case, you will get to know the exact loan amount the lender is willing to offer. You can then analyse the amount that you will need for down payment, and depending on your own savings can go ahead and file a loan application for the remaining amount. Although this may seem a little cumbersome, this step will ensure that you borrow the exact amount that you need, and nothing less or more. While borrowing lesser than you need will defeat your purpose entirely, borrowing more money than required will also prove to be detrimental. The reason is simple. With two loans already looming over you, paying interest over an additional amount will further strain your finances.
Once you have procured the Personal Loan and made the down payment, it won’t be long before your home loan application is approved. That being done, somewhere between the next 6-12 months, you can place a request for a top-up loan to your home loan provider. You can then use the amount offered as the top-up to prepay your personal loan in full. This measure is crucial because of the two benefits that it provides:
While this may prove to be great when it comes to enjoying a lower rate as well as tax rebates, you may have to weigh the benefits against the prepayment penalty levied by your lender. Only if the deal seems to pay off, should you go ahead with the same.
All said and done, before you opt for a formal loan to make the down payment, you must consult with your Home Loan provider regarding the same, in light of the following reasons:
In a vast majority of cases, already having a loan under your name can lower your probability to get an approval for your Home Loan application, due to the less than ideal debt-to-income ratio.
As discussed earlier, your ability to make the down payment assures the lender of your ability as well as the willingness to service something as significant as a Home Loan. In such a case, the loan provider may not approve of your plan. If this seems to be the situation, you can arrange the amount for a down payment through some other measures such as – requesting your employer for a loan, opting for a credit against securities, taking a Home Loan Down Payment loan or simply borrowing the necessary funds from friends or family members.
Covering the down payment for a home may seem like a taxing task, however, if carried out with some planning and commitment, you can easily win this over. Of course, taking credit to this end is not recommended. Instead, you should save for this purpose, and if possible invest in options such as mutual funds, provident funds and fixed deposit or recurring deposits, amongst other investment alternatives.
So, what are you waiting for? Count your savings, or apply for HDFC Personal Loan and make the down payment right away. After all, your family shouldn’t have to wait for that dream home they have been waiting for!
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