When you take a loan from a financial institution, you are required to pay a certain portion of the loan amount. This up-front payment that you make out of your pockets is called a down payment. In case of a home loan, the down payment typically ranges between 10% to 25% of the total value of the house, and the rest is covered by the financier.
Many challenges are attached to the financing of down payment. This amount has to be taken aside from your savings, despite your other pressing financial requirements. If there is a delay in the arrangement of down payment, the actual purchase of the property also gets delayed which might result in increased property prices. For first time home buyers, it is even more difficult to arrange for such large funds. However, there are ways to efficiently plan down payment for a home loan:
Build Your Corpus
Savings is the simplest way to accumulate funds for your down payment. You can begin by investing in instruments that give high capital returns like equity shares, and eventually move these funds to safer investments with steady, fixed gains like bank deposits or government securities. Monitor your gains by following market trends and keep your losses and gains in order.
The construction of a house takes years to get completed (on an average) and this allows for the option to make periodic release of the down payment. Certain banks provide for the proportionate release of the down payments in small portions over some time instead of an up-front, lump sum payment. The bank also disburses the loan amount for the housing finance in line with your down payments. This reduces the burden of a large fund transfer on the borrower.
Saving your income is as crucial as gathering surplus funds when you are planning for a down payments for a loan. Setting up a financial goal, allocating budgets, and keeping your expenses in check are the steps to a prudent financial plan. It is recommended to cut down on impulsive or unnecessary purchases and adopt savings as a habit.
Loan Against Investments
Borrowing funds against your long-term investments like insurance policies or provident fund can also be considered as an option to cover for lump-sum payments. This loan can be repaid over some time using personal savings. Liquidating or mortgaging your assets like an old car, mutual funds, shares, jewellery, etc. could also be considered as an alternative.
By following a systematic approach to accruing down payments for your housing loan, you can easily fulfil the dream of owning a house. Diligent planning, smart savings, and resource gathering lead the way to achieve the same without any undue concerns.
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