While a housing loan helps you fund your property purchase, lenders still don’t usually give you a hundred percent of the property’s value as the loan amount. The ratio that lenders use to sanction your loan amount against the property’s value is called to loan to value ratio.
The remainder of the property’s cost must be directly borne by you, in the form of a down payment and you must take it into account when you plan to buy a house.
In this article, you will be equipped with the right information about your home loan down payment.
To take a home loan, you need to fund a portion of the cost of the home while the lender the rest. Usually, the amount you pay depends on your home loan eligibility, and it’s usually a minimum of 20%.
This portion that you need to fund from your pocket towards the cost of your home loan is referred to as the home down payment, and it’s a vital aspect of a home loan application. In fact, when lenders see that you are liquid enough to comfortably fund your down payment, their faith in your repayment capacity is boosted.
According to the Reserve Bank of India (RBI) rules, lenders in India can only provide 80% of the property value as a home loan, while the borrower has to arrange for the balance of 20%. There is no maximum limit for the down payment on a home loan.
A higher down payment leads to a smaller home loan amount and consequently reduces the home loan EMI. Therefore, you should go for a higher down payment whenever possible.
The minimum down payment for a home loan is 20% of the total value of the property. For houses aged 15 years or more, lenders may sanction home loan amounts not exceeding 50% of the total market price at the time of valuation. In such a case, the minimum down payment will be more than 20% of the total value of the property.
To answer the above question, be informed that lenders determine the minimum amount for your down payment. You may opt to stick to the minimum or make a larger down payment if you can afford it.
Lenders may also charge a fee after you make a small down payment. This fee is a premium fee for mortgage insurance—the lower your down payment, the higher the fee. The lender can also charge a higher home loan interest rate instead of the fee.
Paying a larger down payment on a home loan reduces the likelihood and severity of the price decline that can put you in a negative equity situation. For a conventional home loan, the lender may ask for private mortgage insurance to be added to the monthly payment if the borrower is offering only the minimum down payment for the home loan. This can increase the Equated Monthly Instalment (EMI) substantially.
A large down payment on a home loan means a smaller home loan amount, meaning that the monthly payments will be lower for you. Also, you will get a better home loan interest rate and better terms if you’re offering a higher down payment. This may be important if you have a bad credit score.
Below are the benefits of making a larger down payment on a home loan:
Home Loan Interest Rate
Home Loan Eligibility Calculator
Home Loan EMI Calculator
Home Loan Balance Transfer
How to Reduce Home Loan Tenure?
How to Download Home Loan Statement?
Home Loan Tax Benefit
What is Home Loan?
CIBIL Score for Home Loan
GST on Home Loan
How to Apply for a Home Loan?
Pradhan Mantri Awas Yojana
Last update on 11-Mar-2021
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