5 Ways To Plan Your Home Loan Down Payment

Buying your dream home has come that much closer with the easy availability of a housing loan. There are many lenders offering a home loan to buy both resale and new properties. 

One important thing to remember while opting for an online home loan is that lenders do not finance the entire purchase price of the property. They generally finance between 65% to 90% of the value of the property. This is called loan to value. The remaining amount has to be paid by the borrower to the seller and is called down payment. 

When you look at a high value property, the down payment can be a substantial amount. It is necessary to thoroughly plan so that you can comfortably manage your down payment amount without affecting the rest of your investments. Before you apply for home loan, you must plan your finances. 

Here are 5 ways to plan your home loan down payment: 

1. Make investments to fund down payment:

It takes time to build up savings to buy a home. One of the best ways to build funds for a down payment is to start making investments for it a few years in advance. The type of investments that can be made depend on the amount to be raised as a down payment and the number of years to raise that amount. If you plan to buy a house in the long term, then you can consider making equity investments. If, however, you plan to buy a house in the coming few years, it is better to make investments in debt funds where the returns are assured and there is liquidity. 

2. Plan to sell a few investments:

One component of your down payment can be met from selling investments. These need not be long term investments since long term investments may or may not be profitable at the time you’re exiting from them. That does not mean you should not sell off any investments. You can exit from a few profitable ones and add that to your down payment fund. 

3. Put surplus funds in liquid funds:

If you’re looking to take a home loan, it is very important to build funds for both the down payment and the home loan EMI repayments. One way is to put all surplus funds into liquid or debt mutual funds where it will earn an income higher than a regular savings account. Some debt funds earn almost double the rate of a savings account. 

4. Pay it in installments:

Some real estate companies allow you to pay your down payment in a series of installments as well till the time the property is delivered. If you can negotiate with the seller to pay off smaller portions of the down payment in one lot, it will reduce pressure to raise funds all at once. Liquidating all investments to meet down payment expenses is not advisable because it is necessary to maintain some investments for other life goals as well as for contingencies. 

5. Borrow from other sources:

One way to arrange down payment is to borrow. Some options for this are: 

• Loan against PPF or Life insurance
• Current account overdraft
• Borrow from relatives 

These may not be for the entire amount of down payment, but they can definitely be used to augment the down payment amount.

It is possible to find out the down payment amount by using a home loan EMI calculator. This calculator will tell you the loan amount that will be sanctioned, which will automatically tell you the down payment amount. This way, you can start planning for it.

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Created on Jun 20th 2019 05:46. Viewed 384 times.

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