17 MAY, 2021

Buying a house requires a significant amount of money. While a home loan can help finance a major portion of your home purchase, you would still need additional funds for the down payment. A down payment is essential to be eligible for a home loan, and thus, you will have to set aside money for the same despite other financial commitments you may have. Most homebuyers exhaust their years of hard-earned savings to make the down payment while purchasing a property. While it’s alright to use a portion of your savings for the down payment, liquidating all of it can disrupt your long-term financial planning. Therefore, it’s advisable to consider some alternate ways to arrange funds for the down payment while purchasing a house. Let’s have a look at some common alternatives:

Tips to Arrange Funds for home loan Down Payment

Take Help of Your Family Members

Purchasing a property is an expensive affair and your near ones are most likely to offer a helping hand. So, check if your parents or close relatives can help you with it. It’s an easy way of arranging funds and can save a great amount of time and energy.

Take a Loan Against life Insurance Policy. Can also write about PPF

You can consider availing a loan against your insurance policies to meet your fund requirements. It’s possible to get a loan up to 80%-90% of the surrender value of the insurance policy. For instance, if you have an insurance cover of Rs 60 lakh, and its surrender value at the time of applying for the loan is Rs 30 lakhs, it’s possible to get a loan up to Rs 24-27 lakh.

Proportionate Release Option

Some lenders provide proportionate release option to their home loan borrowers. Under this option, homebuyers can break their down payment into smaller portions and pay it periodically over a few months. This reduces the burden of paying a lump sum down payment.

Avail a Personal Loan

A personal loan is an unsecured loan that can be used for various purposes, including the down payment of a property. However, availing a personal loan for down payment should be your last option as it can increase your repayment burden significantly. You will have two monthly EMIs to pay, i.e. home loan EMI and personal loan EMI. Therefore, evaluate your repayment capacity carefully before availing a personal loan for down payment alongside a home loan. Make sure that the sum of both your EMIs does not exceed 40%-45% of your monthly income.

The above-mentioned tips can help you arrange funds for the down payment of your home loan. By making a higher down payment and availing a lower home loan, you can save on the interest pay-out in the long run. When applying for a home loan, ensure to check your home loan eligibility beforehand. Lastly, make sure to read and understand the terms and conditions of the loan agreement carefully. Since home loan is a long-term financial obligation, it’s better to be well-versed with all its nuances before taking the final call.

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Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.