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With the skyrocketing prices of real estate, it could be a challenge to purchase a house with your savings. Even if you have enough funds, buying a house entirely from your pocket can exhaust your savings, leading to a cash crunch in future. Instead, availing a home loan could be a better option. You can purchase your dream home with a home loan and repay over a comfortable tenure. However, to get a housing loan, you need to pay margin money to the lender.
What Is Margin Money?
When you apply for a home loan, the lender approves a percentage of the total cost of your house. It is usually 70-90% of the property value, depending on your home loan eligibility and credit score. The remaining amount that you need to pay to purchase the house is called margin money. Also called down payment, you need to pay this margin money upfront while availing a home loan. Usually, lenders require you to pay at least 20% of the property value as margin money. However, you can pay a higher amount too. It is considered as sign of trust and lowers the risk for the lender.
If you are planning to purchase a house through a home loan, here are some tips to arrange the margin money.
Tips to Arrange Margin Money
You can liquidate your savings to arrange for the down payment. But, ensure that you leave enough savings behind for contingencies. Similarly, do not dig into your insurance policy or emergency fund to pay the margin money.
Investments are an easy way to arrange for the down payment and even home loan EMIs. If you invest in any profitable instrument, its returns can help you pay the down payment. However, it is crucial to start goal-based investments focusing on the target amount, time in hand and risk profile. You can invest in mutual funds, bonds or equity funds depending on your risk tolerance. Usually, equity funds are preferred for long-term investments. For the short term, you can opt for bonds and deposits. Moreover, you can liquidate low yielding investments like bank deposits to finance your down payment. You can always liquidate investments that don't fit into your financial plan or are not earning expected returns. But while liquidating investments, ensure to consider their lock-in period.
While taking an unsecured loan such as a personal loan might not be beneficial, you can avail secured loans to arrange funds. Many lenders allow you to avail loan against your savings or insurance policy. Moreover, you can also borrow money from your family and friends and pay the margin money on time.
It could be difficult to arrange for margin money immediately when you apply for a home loan. Therefore, experts suggest starting saving a few years before purchasing a home so that you can comfortably arrange for a down payment. You might need to save some extra money or postpone any expensive purchases. However, saving for your home at an early age would help you arrange margin money easily.
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