5 Things to keep in mind while arranging down payments
Even if the borrower avails of home loans, a still down-payment needs to be arranged to purchase the house. The bank approves a maximum of 80-90% of the property value as loans. Also, it is better to avail lower than that proportion of loan to value ratio as the repayment value for the interest gets substantially reduced. Thus it is always better to arrange the maximum amount as down-payments and lower amount as loans. A buyer can also do a 100% down-payment for the property; however, it becomes difficult to manage such a huge amount at a time. Thus taking loans helps an individual plan to buy a property early with the low-cost EMI. Banks provide loans at attractive interest rates to the borrower. The interest rates for the loans start at 6.50% per annum. The loans are calculated at a cumulative interest basis; thus, the borrower should be careful about availing the loans from the bank. The repayment value of the loans is high in the case of cumulative interest rates compared to the simple interest rates. The EMI calculator helps in calculating the interest repayment amount on home loans.
The down-payment is the value that the property buyer pays from the past savings without the home loans. Thus this value needs to be arranged from various sources like breaking fixed deposits, selling up shares, withdrawing the money from the mutual funds. Etc. The buyer can also arrange funds by selling an extra property or the inheritance once to make the down-payment for the new ones. The down-payment can be done with cash or else with the cheque or demand draft payment. The token amount paid to the seller is also the down-payment which the seller adjusts into the final payment of the property. The buyer of the property should acknowledge the proof of the purchase by taking a receipt from the real estate developer or else by taking it in writing that the amount has been paid in as a down payment. The buyer should do the actual survey of the purchase of the property before purchasing it. The buyer should be aware of the prevailing rates of the property before the purchase and should buy the property at the right price by negotiating with the seller, especially in the case of the purchase of the resale property. In the case of blindly purchasing the property, the buyer may lose the excess amount to the seller and thus may have to pay a higher price for the same property.
Things to keep in mind while arranging down-payments while purchasing the property
- Plan budgeting accordingly:
For the down-payment of the property, the buyer may have to arrange the money from the past savings or else arranging the funds by selling the mutual funds, selling stocks, withdrawing part of the amount from the provident fund, or else removing the amount from postal savings scheme, or breaking the fixed deposits. These all methods can be utilized for the payment of the down-payments.
- Arranging funds from the sale of another property:
The individual can sell the extra property or sell the property gained from inheritance and pay for the down-payment. The sale of the alternate property can easily help the buyer arrange for the funds for the down-payment of the new property.
- Check for the loan to value ratio from the bank:
The LTV ratio is usually 80-90% of the property value. However, the LTV value ratio may vary according to the salary of the borrower. If the income of the borrower may be less, in that case, the borrower may get a lower amount of loans that the borrower can approve. In case the borrower’s age is high, the borrower may also get a lesser amount of loans as the tenure for the loans is lesser approved due to low years of service being available.
- Add stamp duty and registration charges to the property value:
The buyer of the property should remember to add the registration and stamp duty charges to the property value and consider it as a major payment value as it is mandatory to be paid. The cost of the registration and stamp duty charges needs to be borne by the borrower. The home loans are approved on the total property value.
The down-payment arrangement should be carefully made by the property buyer before purchasing the property. The buyer has to do a minimum of 10-20% of the property value as a down-payment while the rest is taken care of by the bank. The bank charges interest on a compounded annual basis on home loans; thus, it is always better to pay maximum down-payment to purchase the property.