Rohit planned to avail a home loan to fulfil his dream of owning a house. When he inquired about the requirements from the lender, he was asked to arrange for a down payment. Having started working recently, he didn’t have much accumulated savings. While he was wondering what to do, he came across a newspaper article by a housing loan expert that suggested some tips to plan the down payment.
Down payment is an up-front payment that you need to make while availing a home loan. Depending on the lender, you might have to pay 20% or above as a down payment for loan approval. As there is no maximum limit for down payment, you can pay as much as you can afford. A higher down payment reduces your loan amount and thus your EMI.
If you wish to buy your dream house and are unsure how to arrange a down payment for your first home, these tips can help you.
- Create a budget
The foremost thing you need to do is to create a budget. Decide the amount you wish to spend on the house, as it will help you decide the amount of down payment you need. It is best to pay a higher down payment to reduce the burden of the loan amount. Therefore, set a quantifiable goal for your down payment and start managing your daily finances accordingly.
- Set aside savings every month
Start saving early. You must start saving as soon as you start earning, even if it is a small amount. Consistent savings would help you accumulate enough money for a down payment by the time you are ready to avail a home loan. Set aside some amount from your income every month for a down payment without fail.
- Start an investment fund
Investments are a systematic way to fund your financial goals, such as buying a house. An investment vehicle that gives profitable returns can help you arrange for the down payment in a few years. Mutual funds are lucrative investments that help you invest in diversified funds. You can also invest in provident funds, fixed deposits or debts funds.
- Improve financial health
While planning for a down payment, it is important to review your finances from time to time. Prepare a daily budget where you can monitor your expenses and income. Avoid wasteful spending or reckless shopping. Your goal of saving for a down payment should always be present in your mind while you are spending money. Prune all unnecessary expenses like vacation, eating out, entertainment and save as much money as you can.
In addition, you must avoid taking debts. Avoid using credit cards, as you can end up spending more than you expect using them. Use credit cards only during emergencies.
Your down payment amount can determine the approval of your loan application. Therefore, you must plan for it well. Before you apply for home loan, make sure to use a home loan EMI calculator in order to get an estimate of your loan EMIs. That way, you can consider your budget before you decide the amount you choose to opt the loan for, while also deciding how much you can down pay.
Besides the above-mentioned ways, you can also plan additional income like freelancing, or rental income to arrange a down payment. Moreover, if you already have a thriving investment portfolio, you can liquidate some of the investments, which give low returns.
