Wondering how to raise the down payment for your home loan? Here are some ways and means that may help you figure things out.
Nowadays, home loan applications are considerably easier, owing to online application procedures and other benefits. However, you should not forget that you need to pay at least 15-20% of the value of the property as your down payment amount. It is 10% for some banking institutions although even this is a big amount to say the least. Raising this amount is not as easy as getting a home loan once you meet all eligibility conditions. However, there are some ways and means that you can explore in this regard.
Table of contents
1. Personal Savings
You can use a major chunk of your own savings and investments in RDs, FDs, mutual funds and so on. You may even withdraw from EPF for this purpose. While you can liquidate your investments, chances are that you will have only a few investments remaining in your kitty or you may end up wiping out your entire corpus. Once your home loan EMI begins, you will have a lower corpus every month for investments. Hence, be careful about this. You can deploy around 20-30% of your portfolio towards the home loan down payment if it is sufficient, since you are building a future asset. Anything more than that is not advisable.
2. Taking Loans
Many people arrange money for the down payment by taking personal loans or loans against gold for instance. However, remember that you will have to pay a high interest rate of 12-20% for these loans. You will have to cover an additional EMI each month for paying off this debt as well. Handling two EMIs every month is tough and will eat into your net monthly income. The personal loan may also affect your overall credit score.
3. SIP Options
You should always save up as much money as you can before venturing into purchasing an asset. You can invest through SIPs in debt mutual funds for 4-5 years as per several experts. This will help you come up with the money required for your home loan down payment. Ultra-short-term funds are always preferable choices for these purposes. They also offer more financial stability in turn. You may have to invest a higher amount each month while making provisions for a 7-8% return. This is lower than equity mutual funds but these investments are safer and have lower volatility overall. You can then accumulate the down payment amount over some years without grossly compromising on your financial goals.
4. Securities or Post-Office Deposits
If you have post-office savings deposits or securities in your portfolio, you can pledge them for getting your loan to cover the down payment amount. Interest rates are lower on secured loans.
5. Pradhan Mantri Awas Yojana (PMAY)
It offers subsidies on interest up to 6.5% on the basis of your income segment and adhering to other criteria for eligibility. This will help in sizably lowering the EMI that is payable and you may use existing funds in your kitty for the down payment amount.
6. Mutual Fund Investments
When you are starting to accumulate money for the down payment with mutual funds, you should have ideally 6-7 years in mind. You can then take slightly higher risks with these investments for building a bigger corpus. Most home buyers choose loan tenures between 11-24 years and hence they may consider investing in mutual funds for swiftly clearing off their home loans. You can start parallel SIPs with your home loan EMIs for saving money for part or pre payment of ongoing home loans.
However, do not take the risk of using only one fund for building up your investment portfolio. You will have to invest at least Rs. 15-20,000 per month for reaching the targeted down payment amount as per estimates. This will take a long time so you should be patient. You can use simpler index funds from the Nifty 50 and 500 or debt funds for a shorter period.
Another way to maximize overall savings is to arrange the down payment through your own resources without taking a loan and investing over some years in mutual funds and other return-generating investments. Thereafter, you can readily use the returns to offset your monthly EMI costs. Income-generating investments will help lower your EMI burden and you can use the money you are saving to further invest and build back your corpus (that you used for making the down payment earlier). These are some steps that you can always follow.
However, the key thing to remember is that do not let the home loan down payment wipe you out financially. Wait till you have saved up enough and then apply for your home loan. This is the strategy that always makes sense.
