The fact that home loans have made life easy for millions of people in India is no understatement. It is a very affordable solution for anyone dreaming of owning a house or investing in a real estate property. Why? Because a home loan lets you pay the property cost in easy-to-manage EMIs. But do you get the entire property cost as a loan from your lender? The answer is no.
This is where a home loan down payment comes in. It is the upfront cost that you as a home buyer pay for the purchase of the property, with the remaining property cost to be paid as home loan EMIs.
In this blog, we will talk about what a down payment is, what is the minimum down payment for a home loan, tips to manage down payment and more.
What is Home Loan Down Payment?
Your home loan down payment has everything to do with your home loan eligibility.
Before sanctioning a home loan, your lender will thoroughly examine your home loan application and the pertaining documents. The factors that a lender looks at are:
- Age of the applicant
- Income of the applicant
- The credit score of the applicant
- Existing loans of the applicant
- Occupation/nature of business of the applicant
- Income tax returns of the applicant
- Property value
You can use the home loan eligibility calculator and home loan EMI calculator to check.
Depending on these factors, the lender will be able to tell you the maximum amount of housing loan you are eligible for. Ultimately, you will not get 100% property value in the form of a home loan. There is a certain percentage of the property cost that you have to pay upfront to the seller. This is called the down payment on house or ‘one’s own contribution’ to the property purchase.
Must Read: What is Down Payment for a Home Loan?
What is the Minimum Down Payment Required for Home Loan?
As per RBI/NHB guidelines, banks and financial institutions can offer up to 90% LTV (loan to value), depending upon the property cost.
- For property below 30 lakhs: maximum 90% LTV is allowed
- For property in the range of 30 to 75 lakhs: maximum 80% LTV is allowed
- For property above 75 lakhs: maximum 75% LTV is allowed
This means that the balance property cost to be paid by the home buyer as down payment in order to avail home loan.
Benefits of Paying Minimum Down Payment for Home Loan
Of course, paying a smaller down payment for a home loan sounds very reasonable and lucrative. Here are some of its benefits:
- It is more affordable.
- You will not have to eat up through your critical savings or investments to generate money for a down payment.
- You will be able to retain surplus liquid cash which you can invest in other high-yielding assets.
However, the lesser your down payment, the more will be your home loan amount. This means you will be paying a higher interest amount for a longer duration.
Benefits of Paying a Bigger Down Payment for Home Loan
If you are able, then we recommend paying as much down payment on the house as financially possible. Of course, it should not come at the expense of your savings or risking your financial security. There are many benefits of doing so:
- Your home loan amount will be reduced which ultimately reduces your overall liability.
- With a lower home loan amount, you will most likely get more favourable interest rates and lower EMI from your lender.
- You can pay off your home loan much quicker.
Must Read: How to Reduce Your Home Loan Interest Burden (4 Simple Tips)
Conclusion
There is no thumb rule as to the ideal home loan down payment that you should pay. It all depends on your financial capability. Of course, if you are able, paying a 30-40% down payment can make your home loan incredibly affordable in the long run! Hence, you should always consult with the lender on the best possible amount that you can pay as the down payment for ease of financial burden.
At PNB Housing, we are always there to answer your queries on down payments and help you get the most affordable and reliable home loan offers at an attractive interest rate. Connect with us today to know more!
