If you are looking forward to purchasing a house, you can avail a home loan. With home loans, you can buy your dream house without draining your savings. However, before applying, you must know that no lender funds the entire cost of your house. They ask you to pay a small amount upfront that is a certain percentage of the entire property value. This amount is called down payment. As a home loan applicant, you might have several questions about the down payment you need answers for.
Here are the answers to a few top home loan down payment questions:
How much do you need to pay as down payment?
Depending on the lender’s policy, you might have to pay 10-20% of the property value as a down payment. You can avail the remaining property value as a loan from the lender.
Can you pay a higher down payment? If yes, are there any advantages?
There is no maximum limit on the down payment you can pay. It depends on your affordability and financial viability. Experts opine that you should pay a higher down payment if you can. There are several advantages of paying a higher down payment. With a higher down payment, you pay less home loan interest amount, which reduces your home loan EMI burden. As a result, you can repay the home loan faster and save money for other financial needs. Paying a higher down payment also enhances your creditworthiness as lenders get an assurance that you have the funds to repay the loan amount.
Can you get a home loan with no or lower down payment?
Typically, lenders do not approve your home loan if you do not pay the down payment. However, you can avail a home loan with a small down payment in the following conditions.
- If your salary is higher than the EMI amount.
- If you are an existing customer with an exceptional track record.
- If you can convince the lender of your creditworthiness and can negotiate a good deal.
- If you have an excellent credit score.
How can you arrange for a down payment?
You can arrange the down payment through your savings. In the absence of enough savings, you can liquidate your investments. For example, you can utilise your underperforming mutual funds or can use recurrent and fixed deposits. You can also borrow money from your friends and family. You could also take a short-term loan against your provident fund, life insurance policy or any other asset to arrange money for the down payment. However, you should not use your emergency fund for down payment.
To sum up
There is a direct relationship between the down payment amount and the total cost of borrowing. If you pay a higher down payment, you would need to borrow a lower amount as a loan, which can help you get a lower home loan interest rate. However, you must ascertain your financial viability while deciding the down payment amount. The down payment should not jeopardise your daily finances. Now that your doubts about down payment are solved, apply for home loan today.