Get Your Down Payment Funds Ready with These 5 Easy Steps

For many people, buying their dream home is a significant and exciting milestone. It entails a thorough process of planning, saving, and decision making. While Home Loans are a reliable way to fund your needs and help materialize your dreams, you cannot borrow the entire amount of the property. Lenders usually approve up to 80-90% of the property value, with you providing the remainder amount in the form of what is called a ‘down-payment’.

Down-payment in detail

A down-payment is a one-time payment made to the seller by the buyer to help finance the purchase of a property. At the time of the transaction, it is typically paid as a percentage of the total purchase price. A down payment serves two purposes: firstly, it ensures buyer's commitment to the purchase and secondly, it reduces the amount of money that must be borrowed from a lender. The down payment amount may vary depending on the property's value. As a result, if the value of your home is higher, so will your down payment be. Having said that, how do you arrange for the sum in case you are a salaried employee or a self-employed individual with a limited monthly earning? Let us help you out with some tips.

5 Easy Steps to Get Your Down Payment Funds Ready

Your primary source to fuel a down-payment is your savings. To buy a home, it is assumed that you can arrange at least 10% to 15% of the home price. It could be in the form of cash, mutual funds, fixed deposits, gold or any other instrument that can be easily liquidated. But what if you still fall short of the number you are eyeing? Here are 5 easy methods you can arrange for that extra cash to complete your down-payment.

Step 1: Use Money from an Unsecured Loan and Add It to Your Savings

If you do not have the required amount of money saved up to pay your down payment amount, you can approach a bank or an NBFC and apply for an unsecured loan. For example, if your home loan down payment is INR 20 Lakh and you have INR 18 Lakh in savings, you can apply for a Personal Loan for the remaining INR 2 Lakh. In this case, you will have to consequently pay the EMIs for both – Home Loan and Personal Loan, simultaneously.

Step 2: Opt for an Employee Loan

Many companies offer loans to their employees – in which case, you could approach your employer and see if you have any such provision to apply for a loan. Although several factors influence this loan, such as time served with the company, tenor period applicable, and so on, these factors are solely dependent on the company for which you work. The plus point is that these loans require minimal documentation and funds are made available quickly.

Step 3: Withdraw Money from your Investments

Savings in the form of deposits can help you make the minimum downpayment on a home loan based on your affordability. You can withdraw money from mutual funds or fixed deposits if you have a diverse investment portfolio.

Step 4: Mind your Money

Well, obviously – the less you spend the more you save. Look for ways to cut down on your monthly expenses wherever you possible can - such as reducing spending on luxury items, comfort foods, expensive techs and gadgets and even by negotiating your bills. Having an adequate amount of savings by reducing your monthly expenses can help you avail of a home loan quickly.

Step 5: Look for Other Sources of Income

If you have another source of income in addition to your regular monthly salary or income from your regular business, you can consider using those sources of income or even the funds you have saved for retirement. Consider approaching your immediate family and relatives for assistance with the required downpayment amount; the most advantageous aspect of this is that you do not have to worry about late payment penalties or even interest rates; however, approaching your family should be considered as a last resort.

It is in your best interest to save a significant amount of money prior to applying for a home loan because this can help make your loan experience a lot less stressful, and if you have a surplus of funds while your home loan is active, you can even choose to foreclose your home loan before your tenor period expires.

How Can I Reduce My Down Payment Burden?

A home loan without a down payment is possible in India, but it is less common than in other countries. In India, many banks and financial institutions require a minimum down payment of 10-20% of the property value, though this varies depending on the lender and the type of property being purchased. Additionally, having a larger down payment can increase your chances of being approved for a loan and may result in a lower interest rate, so it is important to carefully consider your options before making a decision.

People Also Read: A Quick Guide to Securing a Better Interest on Home Loans

How Can I Get the Lowest Down Payment on a House?

Here are a few ways to get the lowest down payment on a house in India:

Utilize government subsidies

The government of India provides subsidies to qualified individuals through loan options such as PMAY (Pradhan Mantri Awas Yojana), which can be used to cover a portion of the down payment. 

Get a loan from a non-banking financial company (NBFC)

Some NBFCs in India offer low or no down payment home loans, though these may have higher interest rates than traditional banks.

Apply with a co-applicant

If you are unable to make a down payment, you may be able to find a co-applicant who will do so on your behalf. This can be a family member or a close friend, and they may be eligible for a portion of the loan as well.

Seek a low-down payment loan

Some banks and financial institutions in India offer low down payment loans, typically between 5% and 10% of the property value, which can make it easier to purchase a home without a large upfront payment.

Improve your credit score

A higher credit score increases your chances of loan approval and may result in a lower interest rate, lowering the amount of money you need to save for a down payment.

People Also Read: 7 Tips to Help You Improve Your CIBIL Score

Ensure that your Fixed Monthly Obligations are low

A low FOIR can increase your chances of loan approval because it shows the lender that you have a consistent income and the ability to repay the loan. A low FOIR also indicates that your fixed obligations are within a manageable range, lowering the likelihood of missing monthly payments.