Home is that one place where you can be yourself, especially without having to worry about what people would say or think. As a matter of fact, your own home gives a different vibe than that of a rented place. You can design the interiors of your home, as you want. Whereas, in a rented apartment you have to seek permission from your property owner for every minor change that you wish to make.
Overall, your home is a reflection of your personality. It also depicts your social status and accomplishments. Often, purchasing a home is one of the biggest decisions and transactions of your life. However, it is not an easy one. It involves a huge sum and certainly requires thorough planning.
Previously, people use to purchase a home in their late 40’s and 50’s – the time when they would have saved enough money after years of working a job and are done providing for other important needs, such as their children’s education and marriage. In today’s world, the scenario is slightly different.
Now, people in their late 20’s and in their 30’s plan on buying their own home. This generation does not want to wait until their late 50’s to become proud owners of their dream home.
Funding Your Home Purchase
Make sure that you avoid liquidating your long-term investments in haste and at sub-optimal prices, so as to fund your home purchase. If you do so, you will be putting your financial future in jeopardy.
In fact, you can opt for a home loan. This way, you are not only able to buy a home early in life but it also leverages your future incomes. Hence, one of the optimal solutions of funding a home purchase would be by availing a home loan and repaying the amount according to the schedule set by your lender.
Home Loan Down Payment Challenges
While seeking a home loan, you are required to personally fund a portion of the cost of your new home. This amount is calculated based on your eligibility, with a minimum of 10%. Your lender pays the remaining amount.
The amount that you are required to pay towards the cost of your new home is termed as the home loan down payment, and this amount is essential to be eligible for a home loan.
Having decided on a home, you might come across a situation where you need to set aside a certain amount towards the down payment. This might take a toll on your other financial commitments and goals. However, there are certain ways in which you can fund your down payment.
How to Accumulate the Down Payment on House?
1: Build a Corpus
One of the simplest ways of accumulating funds for the down payment is by building a corpus from your savings. For this, you have to start saving early in life (right from the start of your career). Initially, consider investing your savings in high-return investments, such as equity, which comes with certain levels of risk. Later, book your gains and transfer the funds to safer investments, such as a bank fixed deposit.
Additionally, you can prepare a budget and monitor your monthly expenses. Make concrete efforts towards saving as much as you possibly can.
2: Opt for a Loan against Your Life Insurance Policies or Provident Fund
Since your home is nothing but a long term asset that appreciates in value over time, you might as well consider utilizing your long term savings (in case you don’t have any other option).
By taking a loan against your life insurance policies or provident fund, you will be able to repay this loan amount over the time with your savings.
How Big a Down Payment to Make?
Lenders usually specify a minimum amount for your down payment. However, you can either stick to that or opt to make a larger down payment.
Pros and Cons of Large Down Payment
- Since you own larger equity in the property, it thus lowers your dependence on the borrowed funds.
- Seeking a low loan amount means you will pay a low-interest rate. For instance, the interest rate for Rs.20 lakh loan amount is comparatively lower than that for Rs.30 lakh loan amount. However, this depends on your lender’s policies.
- With a lower loan amount, the chances of your loan application getting approved are high.
- All this eventually leads to cost savings, as the processing fees and home loan insurance premiums depend on your loan amount.
- Chances are that your own funds might get locked up for the long term. This may result in lower liquidity for you and would, in turn, lead to a financial crunch during an emergency.
- Home loan repayments provide you with tax benefits, both on the principal as well as interest component. Having to pay a lower loan would mean lower tax benefits.
A home loan is essential while buying your dream home. Bajaj Finserv Home Loans have no hidden charges and are designed to meet your specific requirements. Apply for Bajaj Finserv Home Loans or if you are eligible for a PMAY scheme join with Finserv MARKETS, today!
Finserv MARKETS, from the house of Bajaj Finserv is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment and exclusive EMI store, all under one roof- anytime, anywhere!