Should I Take a Personal Loan for Property Down Payment?

Having a property in one's name or being a property owner is probably one of the proudest moments of one's life. To attain such everlasting proud feeling, everyone has to undergo many hard times. One of those hard times which one has come over is the down payment of a house.

The dream of owning a home has become achievable for many of us because of home loans. Buying a home become much easier than before because of the funding from banks and HFCs but the lesser known fact about the home loan is that a home loan funds only up to 80% of the total cost of the property. The rest of the 20% of the property price has to be paid by the homeowner. Along with the down payment, one has to pay the registration fee and the stamp duty charges by himself. A home loan amount is calculated by the 80% of the property value which excludes rest of the 20% and the registration charges.

Arman belongs to a village of Tamil Nadu and presently posted in Chennai. After completing his studies, he got a job in Chennai and now he likes to have his permanent address there itself. In other words, he wants to purchase a flat in Chennai. He selected a flat which is worth of Rs. 30 lakhs. He was eligible for getting a home loan for a property which costs Rs.30 lakhs. But Arman was astonished to know that lenders will lend him a home loan of a maximum of 24 Lakhs which is 80% of 30 lakhs. The rest of the 8 lakhs he has to pay directly to the builder.

Arman has to pay Rs. 8 lakhs for down payment of the home and almost 2.5 lakhs for registration and stamp duty in order to buy the home. So Arman must have 10.5 lakhs in hand to complete the property purchasing procedure. He started thinking different ways how this needed amount can be arranged.

Here are some ways by which one can arrange money for a home loan down payment

• Savings- The ideal way of arranging money for a down payment is saving for it. When purchasing a home is a long-term plan, one can save for it by investing in mutual funds, fixed deposits etc. Savings is the best and the safest way of arranging money for the down payment.

• Liquefying assets- One can liquefy assets such as gold ornaments, land in native, unwanted stuff etc to arrange money.

• Borrowing family and friends- The next way of arranging money is to ask from family and friends. If you have such friends of members of the family who are able to help you financially then taking a monetary help is not a bad idea. But one has to be very cautious on those matters as it may spoil the relationship if any misunderstanding arises between the lender and the borrower.

• Personal loan- The next and probably the most efficient way of arranging money for a property down payment is a personal loan. With a personal loan, one is certain to get the desired amount without much hassle. But the other side of the coin says that a personal loan is the costliest way of arranging money.

Arman was one of them who neither had enough savings nor assets to liquefy nor friends and family from whom money can be asked. So the only way out was getting a PERSONAL LOAN. No one can deny the fact that personal loans work as a life-saving element when one has to face disappointment form all other ways.

The eligibility of a personal loan is gauged with the repayment capacity of an applicant. The standard way of measuring the repayment capacity is checking the FOIR of a person. The FOIR stands for Fixed Obligations to Income Ratio which is a parameter to check a person's total outgo as EMIs. The loan applicant should restrict all his fixed obligations including the currently applying loan EMI to 40% of his monthly income.

Arman was in need of 10.5 lakhs including the registration fee of the property. He had a savings of 4.5 lakhs with him and the rest 6 lakhs he was about to arrange by a personal loan. For a home loan of 24 lakhs which is 80% of the total of the property, he has to pay an EMI of Rs.20,600 for a tenure of 20 years and at an interest rate of  8.35 %. Arman opted for a personal loan of Rs. 6 lakhs for which his EMI was Rs 15,771 for four years at the interest rate of 11.9 percent. So his total outgo becomes Rs 36,371. If Arman goes for the same amount total payable every month, his monthly net income must be around Rs 91,000 as the sum of all your EMIs cannot exceed 40 percent of your net monthly income.

The other way of bringing the FOIR down is to expand the tenure of both the loans. If the tenure of the home loan becomes 30 years and the tenure of the personal loan becomes 5 years, both the EMI amount will go down and the possibilities of getting both the loan at the same time will be easier.  One can apply for online personal loan if the money is needed urgently.

personal loans which are also known as Instant Loans should be used as the last option for arranging money for a home loan down payment as they are costlier than other suggested options. Though such loans are costlier still it is true that personal loans help best when there is no other option left with a person. One can reduce the total cost of the borrowing by prepaying or part paying the loan.