What Is Margin Money in Home Loan

Applying for a home loan is one of the most feasible ways to get the funds for buying your dream. Typically, the financial organisations in India approve a maximum of up to 80% of the property value as a loan. In some cases, if you have an existing relationship with the lender, you may get up to 90% of the property's value as a home loan. You must pay the balance 10% - 20% from your pocket. This is called margin money. It is also commonly referred to as down payment.

By paying the margin money from your pocket, you showcase your interest in buying the property to the lender. At the same time, you reduce the lender's risk; the lender develops trust in you and funds you the remaining amount.

When you pay the margin money, the lender acknowledges the payment receipt and issues a margin money receipt. You must keep this receipt handy, as you may need it for further home loan processing.

Many people find it challenging to raise funds for paying the margin money in a home loan. And, if you are wondering how to do it? Here are a few vital tips to help you raise funds and finance the down payment before your home loan application is approved.

• Start saving early One of the easiest ways to raise funds for a down payment is to save funds from an early stage. However, it is easier said than done. You can start saving a small amount every month as soon as you start working. This will help you build a significant corpus over the years. When you have a fixed goal in mind, you may feel more encouraged to save more.
• Prepare a budget When you are saving money for the down payment, it is paramount that you keep a close watch on your monthly expenses and make a budget for all the expenses. Keep track of the expenses, and try to categorise them as fixed and unavoidable, luxury and avoidable. You can then try to reduce the avoidable expenses. Also, make efforts to reduce impulsive purchases and spendings. This will help you increase your savings and remain debt-free.
• Liquidate your savings Based on the amount you need to raise for the down payment, you can liquidate some of your savings or assets and the necessary amount. These may include your mutual fund holdings, bank fixed deposits, etc.

Yes, you can pay a higher down payment than the actual amount that lenders may mandate. Many experts suggest putting in higher down payment is a good practice. It shows the lenders of your sound financial condition, and they may offer the loan at a lower interest rate.When you pay a higher amount, you can borrow a lesser loan amount. In turn, your EMI becomes more affordable, and you can manage the repayment without any hassles or making compromises on your other financial goals.

All financial organisations permit the home loan applicants to pay only a fixed percentage of margin money in cash, and the transaction must be reflected in the bank account statement.The lender may reject your loan application if you cannot raise the minimum margin money needed for home loan approval. In some cases, if the lender agrees to sanction the loan, they may make it compulsory for you to purchase a home loan insurance. Buying a home loan insurance is not mandatory otherwise.You must arrange funds for the down payment before initiating the home application process. This will help you avoid unnecessary delays in the approval and disbursement process.If you find it hard to raise the necessary funds to pay the home loan's margin money, it is advisable to postpone the home loan application. Also, you must avoid applying for unsecured loans like a personal loan or credit card loan to get the funds.The interest rates for such loans are usually high, and you may find it hard to repay the same while managing home loan repayments. Also, having debt while you apply for a home loan could affect your eligibility, and you may not get the desired amount.If you are short of funds to pay the down payment, you can consider buying an under-construction property. This way, you need not pay the total margin money upfront; you may only have to pay a specific percentage of the amount disbursed at different stages of construction.Ensure that you keep the original margin money receipt and photocopies of the same safe. You may need to present the same to the lender during the home loan appraisal process.

Paying the margin money is an integral part of the home loan application process. So, plan your finances well in advance and enjoy a hassle-free borrowing experience.

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.