Down payment for a Home Loan is the first and foremost step in securing your dream house along with financial planning. Building a house involves substantial costs, making it practical to opt for a Home Loan and repay the amount over time.
However, no bank gives a 100% loan! They will give you a loan of about 80% to 90% of the total cost with benefits and you need to pay the rest out of your pocket. For instance, Axis Bank Home Loan offers some great benefits like a higher loan amount, affordable EMIs and no prepayment charges.
Benefits of a higher down payment when taking a Home Loan
- Quick loan approval: When you make a higher down payment, the bank quickly trusts your creditworthiness. They conclude that your prudent savings indicate your ability to make the payment and hence, approve your Home Loan faster.
- Lower EMIs: If your mortgage down payment is higher, you need a lesser Home Loan amount. It means you will have to pay a lesser interest or EMI to the bank.
- Lower interest rate: Make a higher initial contribution to negotiate a lower interest rate as it reduces the LTV or loan-to-value ratio.
- Become debt-free quickly: - Your equity contribution becomes higher when you make a larger initial instalment. This way, you can pay off the Home Loan sooner.
How much Home Loan down payment should be done?
As per RBI regulations, for properties above ₹30 lakh, banks can lend up to 80% of the cost and you need to pay 20% as the down payment for your Home Loan. For properties under ₹30 lakh, the bank can lend up to 90% with the remaining 10% as your property deposit.
For example, you bought a house that costs ₹50 lakh. A bank will loan out only 80% i.e., ₹40 lakh. You have to pay the balance of ₹10 lakh as an initial down payment.
How to save for a Home Loan down payment?
1. Set a goal
You need to first have clarity on when you plan to buy a house - in the next 5 years, 10 years or later. Once you have set your timeline, you can plan your savings accordingly for the property investment deposit. Invest in safer options regularly like a Recurring Deposit, Fixed Deposit, Government saving schemes such as PPF etc. You can also invest in Mutual Funds after assessing your risk-taking capacity.
2. Start budgeting
Make an effective and practical budget for saving enough money for a deposit for your home purchase. You can follow the popular 50/30/20 rule for this. It says to spend 50% of your monthly income on regular expenses like rent, bills, and grocery, 30% on your wants like shopping and travel, and 20% on savings and other investments.
You can alter the division, however, stick to the basic idea of allocating funds to savings every month.
3. Automate savings
You may forget to segregate money for savings sometimes. To rule this out, request your bank to put an automatic transfer to a separate savings account. You can also start a regular monthly investment like a Recurring Deposit or Systematic Investment Plan (SIP) in a balanced Mutual Fund. This will help you prepare a corpus for your initial deposit for Home Loan.
Also Read: Types of Home Loans: 5 different kinds of Home Loans
Conclusion
Your dream of owning your own house can become easy to fulfil once you start your savings early on. Allocate monthly savings to build a good corpus for the down payment for Home Loan. You need at least 20% of the property cost available to pay for the property reservation fee. Maintain financial discipline and you are good to go! Check the Axis Bank EMI calculator to get a clearer idea of your Home Loan.
FAQs
1. Can I get a 90% Home Loan?
Yes, if the total house cost is under ₹30 lakh and all other criteria are met, you qualify for a 90% home loan.
2. How to plan the down payment for a Home Loan?
You should plan the down payment by first deciding when you wish to purchase a house. Study the place and the cost considering the inflation as well. Start separate savings, keep a budget and automate regular savings.
3. How much mortgage down payment is required for a Home Loan?
If your house cost is above ₹30 lakh, you need to pay a minimum of 20% of the cost as an advance payment or a down payment on the Home Loan.
4. Can I get a 100% Home Loan?
No, banks do not give a 100% Home Loan. You will have to make an initial contribution of 10% to 20% of the property value.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
