Vivek Kaul

Mumbai: Sunaina had finally zeroed in on a flat after searching for nearly six months. Her husband, Ashish, was happy to have found a house, as for the fact that the long search was over.

The bank Ashish approached for a home loan was ready to finance 85% of the cost of the flat. The bank official said he had to pay the rest, as a down payment, or margin.

Ashish couldn’t figure out why the bank wasn’t willing to pay the full cost of the flat.

The official explained: “Essentially, the bank wants to ensure that the individual buying the house has some stake in maintaining it. Also, if the market value of the flat were to fall in the days to come, the borrower’s contribution will ensure that the outstanding amount of the loan is less than the market value.”

Ashish has a gross income of Rs 45,000 per month. On the basis of this, he would be eligible for a loan of around Rs 20 lakh. If he is buying a house of Rs 25 lakh, then 85% of Rs 25 lakh works out to Rs 21.25 lakh.

Even then, Ashish would be eligible for a loan of only Rs 20 lakh. The amount of down payment required also depends on the age of the building the buyer is buying the flat in.

If the individual wants to reduce the equated monthly installments for the repayment of the home loan in the days to come, then a good thing to do is to make a greater down payment initially.

So, how does Choudhary go about raising the down payment? The first principle to remember here is to use one’s own money as far as possible. Then one should decide which investments to liquidate for the down payment.

First, those investments which give the lowest returns should be liquidated. So, if a borrower has a lot of money lying in the savings account, some part of it can go towards servicing the down payment.

Fixed deposits can also be considered, as also investments in debt mutual funds. Stocks that have given more-than-expected returns and those that haven’t given significant returns can be done away with.

Ideally, the provident fund contribution for employed individuals buying a house should be left untouched because those savings are meant to fund life after retirement.

A personal loan option is also available, but is a very expensive one. Interest rates on personal loan can go above 20%. Also, it will be difficult for an individual to take two loans at the same time.

If you are short of money right now, but expect to earn some money within the next one year, it might be a good idea to pledge some extra security like fixed deposits, insurance policies, etc to raise the money required for the down payment.

Experts are of the view that this option should be exercised if an individual can repay within one year.

If some problem arises, while raising the money, then it is best to look for a flat which is affordable or postpone the purchase till the financial position improves.

Source : DNA