Home Loan is a medium that has opened the doors for many to buy a home. However, home loans have proved to be a boon for the buyers, banks, and real estate but at the same time, the down payment remains a point of concern for many before they decide to buy the home. Many people postpone their home buying as they find it difficult to raise money for the down payment. Banks do offer home loans but most of them only sanction 80% of the total amount and the remaining 20% has to be arranged by the borrower.
The key components of home loan:
- Home loan down payment
- Interest rate
- Home loan tenure
Home loan down payment refers to the amount the buyer has to contribute in addition to the amount of loan sanctioned by the banks and HFCs. The down payment usually varies between 10%-20% depending on the bank and the amount of the loan being sanctioned.
Interest rate: the Interest rate is the rate at which the banks or HFCs sanctions the loan.
Home loan tenure: It is the time period under which the loan has to be repaid to the bank or lender by the borrower.
An overview of home loan down payment:
The RBI has authorized banks to lend up to 80% of home loan amount while the remaining 20% has to be paid up-front by the borrower. Basically, down payment is the margin money for a loan which is paid by the buyer. RBI decides the LTV (Loan To Value) according to which the down payment ratio is decided. LTV i.e. Lender to Value is how much a lender can fund a borrower against a property for which loan application has been filed:
The RBI allows LTV of
- 90% for home loans up to INR 30 Lacs
- 80% for loans between INR 30 and INR 75 Lacs
- 75% for loans beyond INR 75 Lacs
Factors that affect down payment:
The following factors affect the home loan down payment:
- Price of the home – Usually down payment is 20% of the total value of property. For example, if the value of the property you are willing to buy a property worth 80, 00,000 lac then down payment will be 16,00,000 lac.
- Age of the property – Those who are willing to buy an old property like 10 or 15 years old or more it might limit the possibilities of getting loan sanctioned from the banks ,as banks are dubious about giving loans for old house. Even if banks are ready to provide you loan, the amount sanctioned is not more than 50% of the total value of the house.
- Other costs –If you are under an impression that down payment will cover the cost of registration and property taxes then it’s a myth. You need to separately pay this cost.
The next big question that comes to the mind of buyer is the arrangement for the funds for down payment, here is a list of options you can harp on :
- Liquidate your Savings and Investments like gold, FDs, PF, mutual funds, etc.
- Borrowing from Friends and Family.
- LAP or Loan Against Property – You can choose this option, the interest rate is 1-2% higher than home loans, so, choose this option wisely.
- Loan Against Investments – This loan is availed against your investment like gold, mutual funds, LICs etc. but the interest rate is higher than a home loan.
- Personal Loans and Private Financing – This is a good but expensive option as interest rate may range between 14%-20%. This should be your last resort
The golden rule is that your EMI should not be more than 50% of monthly salary.
Loanyantra guides you in the process of availing loan at the best interest rate. Moreover, we give you a choice to choose the bank of your interest. Our priority is to cater to the requirement of the customer first and then provide them with a matching option. You can entrust us for the complete home loan process.