Embarking on the journey to owning a home is a cherished dream for many individuals. For first-time homebuyers, this dream represents a significant milestone. They may even take the assistance of various home financing options to turn their vision of owning the dream home into reality. For this, they need to consider the other finances involved in the homebuying journey that are not included in the home loan amount, such as the down payment, administrative charges, and others. However, a down payment is an important aspect as it helps in determining the feasibility of owning a property.

Let us first discuss a few things that first-time homebuyers must keep in mind to experience a smooth and hassle-free loan application and repayment process and then discuss the down payment in detail and how the down payment affects home loan eligibility and home loan interest rates.

First-Time Homebuyers: Things to Keep in Mind

  1. If you are planning to avail of a home loan, it is advised that you get yourself a pre-approved home loan offer first. When you are pre-approved for a loan, applying for a home loan and availing yourself of the loan becomes much easier. Further, when one is pre-approved, one has a clearer idea of the properties within their budget. Thus, getting pre-approved not only makes the process of applying for a home loan and getting approved for it much easier but it also aligns the property research.
  2. When deciding the home loan amount to be borrowed, most borrowers consider only the cost of the home. Buying a house involves a sizeable investment and there are many additional things to take care of in the process. When deciding the loan amount to apply for, also consider additional costs, such as loan processing fees, administrative charges, etc. Also, consider shifting charges and interior costs if planning to get the interiors done.
  3. When applying for a home loan, you will have to submit several documents. These include KYC, address-proof documents as well as income-proof and property documents. All these documents must be arranged beforehand to experience a hassle-free and smooth loan application process. Loan applicants can easily find the list of documents to be submitted for the successful processing of a home loan on their lender’s website. However, Lenders may also ask for a few additional documents during the loan processing.
  4. Before signing the loan agreement, borrowers must get full clarity on various fees and charges. For instance, the processing fee, late fee, or EMI bounce charges. Getting full clarity on these additional costs and charges will help in calculating the overall cost involved in purchasing a property.
  5. Use a home loan EMI calculator to calculate your EMI obligation in advance. The home loan EMI calculator is an easy-to-use online tool that can be used to calculate the EMIs for the loan amount borrowed. This calculator can also be used to try out various combinations of loan tenor and loan value and arrive at a combination that gives suitable home loan EMIs for hassle-free repayment.

Let us now familiarize ourselves with the concept of a home loan down payment and discuss the minimum down payment for a home loan.

What is a Home Loan Down Payment?

Individuals applying for a home loan can get only a certain percentage of their property’s current market value as a loan. The remaining loan amount, known as the home loan down payment, must be arranged by the home loan borrower.

Lenders may ask borrowers to pay 10% to 25% of the property’s market value as a down payment, depending on the property price. In other words, the minimum down payment for a home loan is 10% for properties up to Rs.30 Lakh. This down payment goes up in the case of high-value properties. Lenders ask for a higher down payment in the case of high-value properties as the risk for the lender goes up when the loan amount is higher and therefore, lenders ask borrowers to have a higher stake in the property so that chances of loan default go down.

The Impact of Down Payment on Home Loan Eligibility and Interest Rates

So, how does the down payment affect one’s eligibility for home loan and the rate of interest that one gets on their loan? Lenders ask home loan borrowers to pay down payment to ensure they are invested in the property and are, therefore, unlikely to default on loan repayment. When home loan applicants pay a higher down payment, the risk involved for the lender considerably goes down and therefore, lenders become more open to negotiating for better loan terms and conditions, such as a better repayment tenor and a lower home loan interest rate. On the other hand, when individuals pay a lower down payment and opt for a high LTV ratio loan, the risk for the lender considerably goes up and therefore, lenders extend loan offers on terms and conditions that work more in favour of the lender than the borrower.

So, here is what first-time home loan borrowers must know about down payment.  The minimum down payment for home loans ranges between 10% to 25% depending on the price of the property.  However, if you can pay a higher down payment, do so. Doing this will give you better negotiating power and allow you to avail a housing loan on beneficial loan terms and conditions that will help you keep the cost of borrowing money to a minimum. If you are planning to apply for a home loan, start saving for the down payment and save as much as you can.

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