Many people postpone their home buying as they find it difficult to raise money for the down payment. Some others realize the need of making down payments at a much later stage and end up with debilitating debts through heavy borrowing at the last minute. Procuring money for home loan down payment is not an easy task, but there are several ways for it now. Easy availability of home loans is a boon for home buyers; but banks in most cases sanction only up to 85% of the property value. This means, the balance 15% has to be raised by you, and the sanctioned loan amount would be released by the bank only if you have invested the down payment. It is not easy to scrape together that 15%, yet the fact remains that the more cash you pay upfront, the easier the loan payments become.
Here are five tips for raising that money for the home loan down payment.
Opt for ‘Proportionate Release’ option:
If you are considering a home loan for a property being developed by a reputed builder, you can request the bank to consider a proportionate release option. Many banks enter into a mutual understanding with reputed developers whereby home loan borrowers can pay the down payment money in installments rather than in a lump sum amount. Banks would however release the full money to the builder only after the buyer makes the full down payment. However all banks do not consider this option, and even if they do, the option is limited to a few developers only.Check with your bank if they offer a proportionate release option for your shortlisted properties.
Consider a Bridge Loan:
Are you are planning to sell off your ancestral property or your old house to raise finances for a new buy? You might have identified a seller, but the process of selling may take some time, and for the same reason, your new buy is getting delayed. If you are facing this situation, a bridge loan can address your temporary financial needs. Bridge loans are short term loans offered for 12 months to 24 months, helping you to raise money for down payment for your new property, if your older property is getting sold soon. You can apply for a bridge loan even without identifying a seller. If you are unable to sell off your property in the stipulated period, the bank can simply convert the bridge loan into a mortgage loan. Since home bridge loans are short-term loans, they charge a higher rate of interest than normal home loans.
Build a corpus:
It is advised to build a corpus for home buying with small savings in high growth options like equity investments, right from the early years of your career. First-time home buyers are usually in the early years of their career, and cannot afford a huge amount at a single stretch. Small steps taken judiciously within a minimum timeframe of 3-5 years would help to build a separate corpus for house buying, without shattering the piggy bank kept for your other financial goals like retirement planning, children’s education, etc. If you are investing all your money in long-term close-ended plans, you will be cash starved even with all your savings. Do not liquidate your entire investments. Keep aside some contingency fund for any financial emergencies that are likely to occur, and for other related expenses like registration expenses, furnishing expenses and others, which you may incur at the time of possession or soon after.
Take other loans:
You can take other loans for raising money against down payment. However, this should be done with care as the combined EMI of the home loan and the other loan can whittle away at your disposable income in no time. Many people consider going for a personal loan to raise money immediately, mainly because they are not aware of other loan options available. Personal loans charge an exorbitant interest rate (anywhere between 16% and 25% or even more in some cases) and come with a limited tenure, leading to very high EMIs. This would mean adding an undue pressure on your monthly finances and will be increasing your chances of a possible loan default in the future. Try out other loan options like loan against your insurance policy, loan against FD, loan against property (if you have another house or a parental property), gold loan etc., which are quick sources of funds irrespective of end use.
You can pay a token amount to the builder for booking and get the loan sanctioned against the buy. The only thing is that you will have to wait for the loan disbursement till you pay the down payment. In the mean time you can build a financial corpus with the help of your parents or immediate family members, rather than walking the risky path of raising money through personal loans and personal debts. Once sanctioned, the bank may wait for you for up to one year for disbursement, and if the builder or seller is also co-operative, or if it is a project in the pre-launch stage, you may get some time to raise the balance money. Whatever the strategy you are choosing, aim for a home you can really afford. The expenses towards your home don’t end with a down payment and home loan. You will have to ensure at least Rs.5-10 lakhs depending on the property size for the other related and unavoidable expenses like property registration, interior works, society charges, advance maintenance charges, etc.
Adhil Shetty, BankBazaar.com