Buying a home improves our financial situation and increases our sense of security for those of us in the middle class. Even though not everyone can afford to buy a home outright, the majority of people are able to finance their dream of owning a home thanks to the typically low interest rates of mortgages compared to other types of loans. However, because the maximum loan-to-value ratio for this loan is 75–90%, you’ll need to save up a down payment for a home loan of between 15% and 30% on your own in order to have your application accepted.
For instance, if you need a loan to buy a home for Rs. 70 lakh, a bank will typically only lend you about Rs. 56 lakh; as a result, you’ll need to come up with a down payment for a Home Loan in Chennai of about Rs. 14 lakh. Undoubtedly, that sum is not small. There will also be extra costs, such as stamp duty.
The real question is how you will do that given that, if you did not inherit any money, you will have to earn it. Given how frequently personal loan interest rates are high, is doing so wise? If this is your first time buying a home, the advice in this article will help you save money for a down payment.
Friends or family
Find out if your parents, relatives, or spouse can lend you money for a down payment on a home loan and whether you intend to repay them before looking into any other options. Compared to the alternatives below, this option will save you a tonne of time, work, and paperwork in exchange for a dependable lender who will be understanding if you are unable to repay the loan by the due date due to an unforeseen circumstance. However, there is a word of caution in relation to this decision. You must act professionally in this situation because breaking your promise to return the money on time could damage your relationship.
Removing funds from the provident fund (PF)
Did you know that PF withdrawals made by EPFO members could be used to pay for some housing-related costs? You may borrow money for a home worth up to 36 times your annual salary if you have a PF account. However, withdrawing funds from your pension fund may require a lot of time and paperwork. If you select this option, you must inform your employer so they can validate your application and forward it to the regional EFP office for processing.
Loan backed by insurance
When you take out a loan against your insurance policy, you may borrow anywhere between 75% and 90% of the surrender value. Let’s just say that the surrender value is the sum you get when you voluntarily cancel your insurance policy. Consider the following illustration: When you applied for the loan, the surrender value of your insurance policy, which has a face value of 50 lakh rupees, was only 20 lakh rupees. You might be able to get a loan approved for between Rs. 18 and Rs. 19 lakh. However, you should be aware that the interest rate is significantly higher than that of a conventional Home Loan in Chennai before taking out a loan against an insurance policy (often between 10 and 12 percent). Furthermore, traditional life insurance policies rather than term insurance are used to secure the loan amount. In addition to the monthly premiums, the policyholder is responsible for loan interest payments; if they are not made on time, the policy will be void.
Personal loan
Financial experts advise against using personal loans to cover a down payment for a mortgage as a last resort. Personal loans frequently have interest rates between 11 and 24 percent, making them significantly more expensive than secured lending options due to the high risk they represent to lenders. However, it is acceptable to finance the initial investment with a personal loan. If you have good credit and a reliable source of income, you might be eligible for a personal loan with a lower interest rate.
Personal loans are frequently considered a last resort when saving for a down payment on a home is not an option; however, only use them if absolutely necessary. Remember that getting a personal loan with a high interest rate (over 11-24% annually) may make it much harder for you to get a loan in the future. Additionally, your credit report may be impacted if you default on a loan.
Although it’s best to avoid taking out any personal loans at all costs, we understand that not everyone has the luxury of time. If you have good credit, are eligible for one, can get one with a low interest rate, and have explored all other options, you might want to think about applying for a personal loan to pay for the down payment on your home.
Loan secured by shares or other assets
You can finance your down payment on a Home Loan in Chennai by using assets like stocks, bonds, insurance policies, and other forms of liquid capital, like cash, as an alternative to taking out a high-interest personal loan. Most banks accept a wide range of financial assets as collateral for loans, including Demat shares, mutual fund units, insurance policies, and securities. If you take this route, you won’t have to sell any of your stocks if you suddenly find yourself in need of cash. Another option is to sell your assets and possessions. Real estate, things you already own, and investments like FDs and MFs can all be sold to generate income.
In conclusion
mortgage financing requires a down payment of between 10 and 30 percent of the property’s value. Finding a loan with an interest rate that meets your needs shouldn’t be difficult because Home Loan in Bangalore interest rates are frequently lower than those on most other loans. Only borrow the amount necessary for a down payment. By doing this, you can ensure that paying off the debt won’t put an excessive strain on your finances.