Homes hold an irreplaceable value in our hearts. Apart from the obvious financial value, homes hold an emotional value and buying a home is considered the first major milestone in anyone’s life. Homes constitute a major chunk of hard-earned money so it’s quite obvious for the process of homebuying to take up its time. The opportunity to buy a home is limited in a lifetime, so it has got to be perfect in all aspects that include the location of your home, the price and its space. The decision of buying a home has to be made collectively in order to satisfy the requirements of all the members of your household.
What is Down Payment and how important is it?
A down payment is an initial payment that is made to the seller or financial institution, to secure expensive investments made such as cars or properties. It refers to a certain percentage of the total sale price, which is paid by the buyer to finalize the sale, before the start of EMI’s. It, therefore, acts as a guarantee of sale and good faith while minimizing the risk factor for the sellers. Most home buyers in India are reliant on home loans for buying a property or home, and a down payment is an indispensable part of a home loan. The size and the mode of accruing the down payment usually depend on the financial circumstances and preferences. It represents the difference between the cost of the property and the loan amount approved by your lender and it generally covers 10-25 percent of the total value of a property and is sanctioned depending on the total amount of loan taken. Down payment is done to verify the sale of the property and a legal report is submitted with the contribution receipt and the documents of the property.
Most lenders prefer higher down payments and it is better as opting for a higher down payment significantly increases the chances of getting the loan approved and earning a better mortgage interest rate. Though the lenders may specify a minimum amount for the down payment and an owner may opt to stick to the minimum or make a more substantial down payment if they can afford it. The other benefits of bigger down payments and smaller loans are:
- The owner owns larger equity in the property and thus, lowers his dependency on the borrowed funds
- A considerably smaller loan amount may fetch the owner a lower interest rate since it generally varies for different loan slabs
- Smaller loans offer greater comfort to the lending institution and enhances the chances of quicker loan approval which leads to cost-saving as processing fees, and home loan insurance premium depends on the loan amount
You must be careful while deciding on the amount of down payment. While it must not become a financial burden, you must also try to minimize the total loan amount so the decision must be made accurately.
Tips to save up for down payment
Owing to its additional benefits, saving up for a down payment is a smart decision. Here are a few tips that’ll help you save up for a down payment:
Make Monthly Savings – It is quite natural that you must save some money on a monthly basis to accumulate enough money to make a down payment on a home loan. It is also wise to make use of fixed deposits to enhance your savings amount.
Liquidate Your Assets – Selling of your assets like a car or a piece of land can aid in obtaining a substantial sum of money that can be further used towards home loan down payment. This can also be applied to investments like mutual funds, fixed deposits but you must also ensure to keep your financial security in mind before you plan to liquidate their assets or investments.
Avail a Loan – If your monthly income can sustain paying off two loans, you could apply for a loan to make a home loan down payment before applying for the home loan itself. Tools like the EMI calculator can be used to understand the financial commitment that you have to undergo before applying for these loans.
Borrow Money – Borrowing money from friends or family is not only convenient but also eliminates the additional burden of interest that would have to be paid in the case of a loan obtained from a financial institution
Apply for Government Schemes – The Indian government is mainly focusing their energy on making housing affordable for all, they have a lot of schemes for various classes of people. Do thorough research and figure out if you are eligible for such offers, and opt for them, if applicable. This will allow you to obtain your dream house at a subsidized price.
Get a Secured Loan – Taking a loan against your savings not only allows you to make a down payment on your home loan, but also ensures that your savings aren’t been exhausted
At Pyramid Lifestyle, we offer thoughtfully designed homes that are bound to satisfy the requirements of your family with the provision of world-class amenities that aim to enhance your lifestyle. Visit www.pyramidlifestyle.com to learn more about us and our work!