How To Accumulate Down Payment Funds For Your First Home?

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  • 30 Jan 2023
How To Accumulate Down Payment Funds For Your First Home?

A home is a necessity for all, and buying your first home can give you unmatchable satisfaction. However, buying a home is an expensive affair, even if you avail a loan, simply because you have to consider the down payment paid at the beginning.

The loan's down payment is the amount the borrower has to pay upfront. This amount is a part of the loan itself. For instance, if the value of your home is Rs. 50,00,000, and the bank sanctioned loan amount of Rs. 40,00,000. Then you have to arrange Rs. 10,00,000 as a down payment, 20% of the home price.

So, here you have to pay Rs. 10 lakhs upfront, and the bank will pay the remaining Rs. 40 lakhs on your behalf, which you must repay within the loan tenure.

There are different ways you can accumulate funds for a down payment, which includes:

  • Start saving and investing: Once you decide to buy a home, start saving for the down payment. You can save a portion of your income every month only for accumulating the down payment funds you will require in the future. You can invest in short-term investment vehicles that can provide good returns over the period so that your savings can grow.

  • Proportionate Release: Selected lenders offer this Proportionate Release option to selected borrowers. Using this option, a lender can make the down payment in parts. Since the construction of the property will take at least a few years, the down payment can be made across a period. This will bring down the pressure of paying a bulk amount as a down payment.

  • Loan against insurance policy: If you have life insurance or term insurance, you can use that as collateral for the loan and get around 80% to 90% of the surrender value as a loan. The surrender value is the policyholder's amount if they voluntarily terminate the insurance policy. Suppose the surrender value of your insurance policy is Rs. 10 lakhs, while the sum assured is Rs. 20 lakhs. If you opt for a loan against the insurance policy, you can expect a loan of around Rs. 8 lakhs to 9 lakhs. You can use this amount for the down payment of the home loan.

  • Take help from Friends and Family members: If you have a good circle of friends who will help you, you can take a personal loan from your friends or family members and return it once you accumulate the fund.

One of the most crucial factors while accumulating funds of down payment, which the homeowner needs to keep in mind, is that the larger the down payment, the lower your interest rate and burden of paying EMIs. So, if you have decided to buy your first home, start accumulating funds for down payment today, as the sooner you start, the more you can accumulate.

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