Down payment on a home loan refers to the upfront amount paid by the buyer in the early stages of buying a home or an expensive good. As per RBI guidelines, a lender can only provide up to 90% (maximum, depending on the borrower’s eligibility) as a home loan and the remaining amount should be paid by the home buyer.

RBI Regulations for Home Loan Down Payments

As per RBI regulations, financial institutions in India are authorized to extend home loans for amounts exceeding INR 30 lakhs up to 80% of the property value, with the borrower responsible for financing the remaining portion. For loans below INR 30 lakhs, lenders may offer up to 90% of the property value. Consequently, borrowers must contribute a down payment of 10%, although this requirement may fluctuate based on property valuation. Notably, higher property values correlate with increased down payment percentages.

These guidelines ensure a structured approach to home loan disbursement, aligning with financial prudence and risk management principles.

What is Home Loan Down Payment?

Your home loan eligibility is closely linked to your down payment. Lenders assess various factors before approving a home loan application:

• Applicant's age
• Income
• Credit score
• Existing loans
• Occupation/business nature
• Income tax returns
• Property value

Based on these criteria, lenders determine the maximum housing loan amount. Typically, borrowers must make a down payment, a portion of the property cost, to the seller. This upfront payment, known as the down payment or 'one's contribution,' is a prerequisite for property purchase and is not covered entirely by the home loan.

Lenders determine your maximum housing loan based on these factors. You won't receive 100% property value as a loan; a down payment, your contribution to the purchase, is required upfront.

How Much Minimum Down Payment for Home Loan?

To avail a home loan, you need to make the minimum down payment as prescribed by the lender. Depending on your credit score and behavior, the lender may ask to provide a higher home loan down payment.

One can also make a higher down payment while availing of a home loan. It offers numerous benefits, like:

• You own higher equity in your house, thus lowering the dependence on borrowed funds to purchase the house.
• You stand a chance to get a lower interest rate on a home loan and favorable terms and conditions.
• It improves the chances of home loan application approval, as a higher down payment means lower credit risk for lenders.
• It lowers the processing cost and insurance premiums on the home loan amount.

It's better to make a higher down payment while availing of a home loan, but it’s not wise to use your entire savings or take another loan to make a higher down payment. It can affect your financial stability and you stand to gain less from the tax benefits.

How to Save for Home Loan Down Payment?

The key to securing a home loan depends on how much down payment on a house loan you can make.

The following are the tips to save for a home loan down payment:

Start Early:

Purchasing a house is a long term process as you need to find a suitable property that is well within your financial capability. You can start saving for your house the day you decide to purchase one. You can build a down payment corpus easily.

Consider Proportionate Release Option:

Under this option, the lender allows you to make your down payments in easy installments over time rather than in lump sum mode. This mode of payment can be availed when the property is under construction.

Opt for a loan against PPF or life insurance policies:

You can consider taking a loan against your provident fund or life insurance policies and repay with your savings over a period of time. However, while availing of a loan, you should consider the impact on your finances.

Benefits of Paying Minimum Down Payment for Home Loan

Opting for a smaller down payment when securing a home loan can be an attractive option for various reasons. It enhances affordability by reducing the immediate financial strain associated with a larger upfront payment. Additionally, choosing a smaller down payment means you won't need to use funds from critical savings or liquidate investments to generate the necessary funds, allowing you to retain surplus liquid cash. This cash can be redirected towards other high-yielding assets or used for unforeseen expenses.

However, it's important to consider that a smaller down payment results in a larger home loan amount, leading to higher interest payments over an extended duration.

Thus, while a smaller down payment offers short-term benefits, it's essential to weigh these against the long-term financial implications.

How to Make a Larger Down Payment for My Home Loan?

Planning is key to affording a sizable down payment without financial strain. Here are some straightforward tips to help you achieve this goal:

• Start Early: Begin saving for your home loan down payment well ahead of time, initiating investments in high-return options, then transitioning to safer choices like fixed deposits. Stick to a budget consistently to manage expenses effectively.
• Utilize Investments: Utilize investments such as fixed deposits and mutual funds to finance your down payment. If your funds fall short, consider withdrawing a portion of your investments or obtaining a secured loan against them.
• Proportionate Release Option: Certain lenders provide proportionate release options for home loans on specific construction projects. This allows you to pay the down payment gradually over time rather than in a single lump sum. As construction progresses, your down payment can be paid in installments, with loan disbursements released accordingly by the lender.

Benefits of Paying a Bigger Down Payment for Home Loan

Maximizing the down payment on the house within your financial means is advisable, ensuring it doesn't compromise savings or financial security. This approach reduces the home loan amount, lowering overall liability and potentially securing more favourable interest rates and lower EMIs from lenders. Additionally, a larger down payment facilitates quicker repayment of the home loan, saving significantly on interest payments in the long run.

While it may require careful budgeting and planning, the benefits of a substantial down payment include a more manageable financial burden and greater equity in the property, offering increased financial stability and peace of mind.

In Conclusion

Down payment is an indispensable part of a home loan, and it is better to start saving for it early to minimize the impact on your finances when you actually avail of a home loan or decide to purchase a house.

To explore your home loan options and assess your eligibility, SMFG Grihashakti is your trusted partner! Start planning for your down payment and future home purchase today with us. To kick-start your journey, apply for a home loan with us today!