Saving For Down Payment Of Home Loan? Plan Your Investments

Saving for the down-payment is the first step towards achieving your dream of being a homeowner. Read this post to know the three best investments to save for home loan down-payment.Being a homeowner is a dream shared by millions in India. But the high real estate price in the country means that most people have to rely on home loans for achieving this dream. But to be eligible for a home loan , you are first required to save enough for making the down-payment.While a savings bank account is a go-to option for keeping your savings, there are a few other options that can offer better returns. Let us first have a look at what is down-payment and then 3 of the best investment options for better returns on your savings.

When you take a home loan, the lender will mostly approve only 70%-80% of the property value as the loan amount. You are required to arrange the remaining 20%-30%. This remaining amount that you are required to pay from your pockets is known as down-payment.Apart from the mandatory down-payment required by your lender, you can also pay a higher amount to reduce your repayment obligation.

Now that you know what down-payment is, the next question you might have is “ Where to save money for down-payment ?” As down-payment is generally a short-term to medium-term goal, you need to select investment option accordingly. Let us have a look at 3 top options-

1. Debt Mutual Funds Debt mutual funds are very popular for their safety and decent returns potential, which can be considerably higher than what you can generate from a savings bank account. Based on when you'd like to purchase a home, you can select a debt fund and keep your savings, either in a lump-sum or through SIP.

1. Hybrid Funds For down-payment on a house , you can also consider hybrid funds if you have at least 3-5 years for the purchase. These funds combine debt and equity investments to offer an excellent combination of safety and high returns.

1. Direct Equity Investment If you have around 4-6 years for the purchase and want your investment to generate handsome returns, you can also consider direct equity investments along with professional PMS (Portfolio Management Services). The investment professionals can help you earn higher returns while keeping the risks at a minimum.

Saving for the down-payment can be a long and tedious process without proper planning and investments. Know how much money you will need for down-payment and the duration within which you'd like to purchase to make the right investment decision.

According to a proverb, each human has three basic needs: food, clothing, and a place to call home. While the first two are basic necessities that most people can afford, putting a roof over one's head necessitates a significant outlay of cash. Home loans have been several people's saviours in this situation. But it's a common fallacy that a lender will provide a house loan for the full amount of the property.People frequently overlook the need for a down payment forhouse loan . Yes, according to RBI regulations, lenders are only allowed to finance up to 80% of any value of the property beyond Rs. 30 Lakhs. The borrower must make a down payment on the remaining balance.The down payment needed for home financing is referred to as an upfront payment. You should be thinking that asking borrowers to pay any such sum is a big ask. But once you know more about it, you'll see that making a down payment has advantages of its own.

You must contribute personally to a minimum of 10% of the cost of the house in a home loan, and the lender (a banking firm or a housing finance company) will cover the remaining costs (the home loan amount). The down payment is the sum you must contribute on your dime toward the price of the home. A down payment is required in order to qualify for a house loan.After choosing a home, you can find yourself in a somewhat challenging scenario regarding the down payment. Even if you have other urgent financial obligations and objectives, you still need to set money away for this. The high cost of real estate exacerbates this issue. Also, delaying your house purchase while saving up for the down payment implies that you risk seeing real estate prices rise even further. While it may seem difficult, there are specific ways to simplify funding your down payment.

Tip 1: Build a corpus

Creating a corpus out of your savings is the easiest approach for saving money for down payment . You may rely on the power of compounding to grow your savings into a significant corpus by beginning to save early on in life, ideally from the start of your work.In the early years, you could think about putting your assets into high-risk, high-return investments like stocks. You must then record your profits and move the money into safer investments, like bank fixed deposits.Create a budget, keep track of your monthly expenses, and make an attempt to spend less on impulsive items and unneeded expenses. Additionally, you should combine your debt by repaying expensive loans to raise your monthly savings gradually.

Tip 2: Try opting for the ‘Proportionate Release’ option

Specific lenders covertly provide consumers with this capacity for new building projects marketed by select developers. With this choice, you can pay your down payment in incremental amounts rather than all at once.Due to the lengthy nature of construction, you may choose to pay your down payment in instalments, upon which the lender will issue loan disbursements. The stress of making a sizable lump sum down payment is lessened as a result.

Tip 3: Consider getting a loan against your life insurance plan or Provident Fund (PF)

If you have no choice and consider that the property is a long-term investment that goes up in value over time, then you might consider releasing your long-term savings. You might think about taking out loans against your Provident Fund or life insurance plans. You can use your money to pay back this loan gradually.

Tip 4: Ask friends and family members for help

You can consider borrowing from your relatives or friends as a last resort. You are the perfect candidate to determine the viability and advice of this potentially sensitive matter.

Taking out a second loan for a down payment can negatively impact your EMI to income ratio & keep you from receiving a favourable home loan offer. It's also not a good idea to use emergency savings because they can be needed in case of emergencies, natural disasters, or other unanticipated circumstances.

You can build up more equity in a home by putting down more money than the required amount. As a result, you no longer need to take out a sizable home loan. You can obtain more advantageous terms for the lower principal amount if you make a bigger down payment for the home loan. Given that different loan slabs are offered by various lenders, a lesser loan slab may result in a lower rate of interest and EMI.Last but not least, a smaller loan amount gives the lending institution more comfort and, as a result, enhances the possibility that the loan will be approved more quickly.

Here are the things for you to keep in mind when applying for housing loan:1) Review your CIBIL score and work to improve it so you can get the best terms. Make sure to pay off your EMIs on schedule and, if at all possible, then pay off any other loans to demonstrate a greater capacity for payments.2) Use a home loan EMI calculator to determine your eligibility for and affordability of a home loan. To determine which loan amount and tenor combination is ideal for your budget, you can examine the home loan EMI amount for various loan amounts and tenor combinations.3) Request an amount of the loan that you can quickly repay. You decrease your chances of being approved when you apply for a sum for which you are ineligible.4) Consider your loan tenor carefully. A long tenor comes with smaller EMIs and higher interest costs throughout the tenor. On the contrary, choosing a short tenor allows you to pay off your debt faster, but you risk having a tighter monthly budget. The ideal tenor between the two is one in which you can repay your EMIs quickly and with little interest.5) Lessen your other commitments. The FOIR, or Fixed Obligation to Income Ratio, is a consideration when you apply for house loan to determine your profile and eligibility. This demonstrates your ability to make payments by calculating how much discretionary income you have after meeting your monthly obligations. Therefore, you should pay off other loans before applying to allocate that much money to your house loan EMI.

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.