How to Raise Funds for Your Home Loan Down Payment?

In today's world, buying a home requires a lot of money. This is especially true if you are considering buying a house in one of the metro cities. In cities like Mumbai, home prices typically start from ₹1 crore for a 1 BHK (Bedroom-Hall-Kitchen) and can go as high as ₹3 crores for a 1 BHK in South Mumbai.Considering the average income, it might take decades to save enough money to buy a home with cash. Even after you save money for decades, you would have to do so while paying rent. Moreover, in the meantime, the price of your desired home could go up.Ideally, you would want to borrow money, buy the home and set aside some of your income to repay the Home Loan. An important factor in getting a home loan depends on how much down payment you can make.In this guide, we discuss the meaning of a down payment, how much down payment you should make, and how to raise money for a down payment on a Home Loan.

When you take a Home Loan, lenders will not give you a loan for the entire value of the house. Typically, lenders will provide a loan worth 70% to 80% of the entire value of the house. You must come up with the rest of the money while purchasing the house. A down payment is the initial payment you must make while buying a home.Lenders appreciate you making a down payment because it shows you saved money to buy the house. It indicates that you are not a risky borrower.If you are an NRI considering buying a home in India, click here to determine your Home Loan eligibility.

A down payment is a way to reduce the amount on which you need to pay interest. Therefore, the higher the cash down payment, the lower the interest expenses.However, making a huge cash down payment can keep you short on cash, making it difficult to respond to emergencies such as job loss, a drop in income, or medical emergencies.Therefore, the cash down payment you can make should equal the amount you can raise minus the money required to respond to foreseeable emergencies.

Here are some effective ways to acquire the sum required for making a down payment on your dream house:

Personal Loans

Many lenders, like Aditya Birla Capital, offer personal loans without requiring any collateral. The maximum loan amount for a Personal Loan can be as high as ₹50 lakhs. Additionally, the tenure of a Personal Loan can be as long as seven years. You can club the income of a co-applicant to enhance the amount you can get from a Personal Loan.The interest rates on a Personal Loan do not change throughout the tenure of the loan, making it easy to find out the interest cost of a Personal Loan.Personal Loans come with flexible repayment options, including structure repayment, which refers to paying interest regularly and repaying the principal amount at the maturity of the loan.Thus, an unsecured Personal Loan can be an appropriate way to Raise Cash for Home Loan down payments.Note that your credit score greatly affects your interest on your Personal or Home Loan. Click here to find out why a strong CIBIL score is important.

Loans from employers

Various companies offer employees loans for personal hardships, medical emergencies, and Home Loan down payments.If you have been working for your current employer for more than a year, you should check if you can Raise Cash for Home Loan down payments by taking a loan from your employer.Typically, employers will extend loans to their employees for short tenures ranging from one to three years.Some employers prefer deductions from your salary as the repayment method. If you decide to borrow from your employer, be sure to discuss the following:

• Repayment schedule
• Mode of repayment
• Applicable interest rate
• Fees for disbursing the loan
• Tax impact

PMAY scheme

The Pradhan Mantri Awas Yojana (PMAY) scheme is a government scheme launched in 2015. It aims to promote housing for all Indians. One objective of this scheme is to enable affordable housing through credit-linked subsidies.If no one in your family owns a house in any part of India, you should apply for financial assistance through the PMAY scheme. The benefits of this scheme are available to individuals with an income of less than ₹18 lakhs .Through this scheme, you can get interest rate subsidies of up to 6.5% for a tenure of 20 years, which should help you save on EMI. You can employ these savings to Raise Cash for the down payment on the Home Loan.

Loan against provident fund

The government manages a compulsory retirement savings scheme called the provident fund. The money for your provident fund comes from your monthly salary (or rather, your cost to the company) and employer contributions.It is possible to withdraw funds from your provident fund as a loan for various purposes, including raising cash for a Home Loan down payment.To take a loan against your provident fund, you must be employed for at least five years . You must also fill out an Advance Form or Form 31 and submit all required documents. This procedure can be completed on the Employees’ Provident Fund Organisation (EPFO) portal itself.

Loan against insurance schemes

Nowadays, lenders provide loans against various types of policies, such as endowment plans and unit-linked schemes . You can get such a loan even if your policy is currently under a lock-in period.Additionally, you can still get insurance benefits after taking a loan against it, as this option doesn’t make you surrender your policy.Some lenders provide loans worth as much as ₹25 crores against insurance policies.If you or people in your family have insurance policies, you can Raise Cash for a Home Loan down payment.

Proportionate release facility

For some properties, lenders might let you make down payments in instalments instead of a lump sum payment. To do this, you must make use of the proportionate release facility. Typically, the proportionate release facility is available for properties under construction, as construction can take years.Using the proportionate release facility, you can use the extra time to Raise Cash for the Home Loan down payment.For more insights into Home Loans and related terminology, click here .

Sell some of your belongings

By the time you resolve to buy a house, you will have accumulated various assets. Some of these may include old bikes, cars, or furniture. These items might get in your way as it's challenging to store them. Nowadays, you can sell such items on sites like OLX and Quikr. How much you can get from selling these items will depend on your negotiation skills and the inherent value of these items. Even though it might be difficult for everyone to raise enough money for a Home Loan down payment from selling belongings, it might still contribute to some extent.

Downsize your lifestyle

You can save a considerable amount of money by cutting down on recurring expenses. For example, if you are currently renting, moving to a smaller property for a short period can save a considerable amount of money. Similarly, you can raise some money by downgrading your vehicle. Cutting back on dining out, going out for movies, or other similar activities can lead to savings over the long term.

Take a loan from family members

Family members of a generation higher than you, i.e. your uncles and aunts, might have some cash to spare. If you take a loan from them and repay it responsibly, it can be a win-win situation for both parties. Your relatives will get a steady inflow of cash for their old age, and you will get the money you need for your down payment.If you take this option, getting the loan agreement in writing is best to avoid any family disputes.

Ask for a gift from your family

If a loan from your family members does not work for you, consider asking for a gift. If you take a gift from your or spouse's lineal ascendants, your or your spouse's sibling, or sibling of your or your spouse's lineal ascendants, the lender can get a tax write-off for the gift amount. Thus, you will receive the money for the down payment on your house, while your relative gets a tax write-off.

• When you take a Home Loan, you must make a down payment worth 20% to 30% of the property value. You can use the PMAY scheme to save on interest costs and lower your Home Loan EMIs. You can use the savings for the Home Loan down payment.
• To further lessen your strain, you can use the proportionate release facility to make the down payment in instalments.
• To Raise Cash for a Home Loan down payment, consider opting for Personal Loans, loans against insurance policies and provident funds, and loans from employers.
• If making a down payment seems easier after reading this article, apply now for a Home Loan from Aditya Birla Capital.