Buying a house needs lots of requirements. Good credit score, Pre-approved loan, house searching, known builder, etc. But the most important part before all these things is to arrange money for down payment. Many a times people get confused with the percentage of loan sanction amount and down payment.
Now let’s understand that what exactly is down payment amount? Are the important things to keep in mind to save for down payment? What are some of the sources from which a homebuyer can raise this amount? Here are some simple steps through which save and arrange the maximum amount:
Now, first we will start with understanding the basics of this term. Down payment is basically that margin money which has to be paid up-front by the homebuyer. This money is approved in the loan amount. Thus, the buyer has to arrange for this sum of money. In India, as per the RBI guidelines, banks are authorized to lend only up to 80% of the purchase price of a property, rest 20% has to be arranged by the borrower.
Ways to save money for Down Payment
Since the amount which a buyer needs to pay for down payment is bigger, so it is necessary that proper investments should be made before hand to arrange a larger sum for this margin money. So, these simple steps will help you in making the right move:
- Public Provident fund (PPF)
PPF is an investment tool which is risk-free and also, saves tax. Those who are getting regular monthly salary can contribute easily to PPF account. Later when ample amount is saved in the account, one can take loan against this money which is offered by many banks. The maximum loan tenure is three years.
- Recurring Deposits (RD)
These types of deposits are offered by every bank for customized period of time. If you are planning to buy a home in near future, you can start saving some amount of money every month by opening RD accounts in any bank where you can get maximum interest. The interest payable is comparable to fixed deposits. However, if the interest earned is more than Rs 10,000, you will be liable to get tax deducted at the source or TDS. RD’s are more suitable for beginners who want to be disciplined savers.
- Systematic Investment Plans (SIPs) or Mutual funds
Through mutual funds you can invest small amount periodically. You can start with a small amount of Rs 600 and can go to a higher value as much as your pocket allows. Perhaps, this can be one of the safest ways to save for down payment where you can earn returns up to 20 per cent and can liquidate the money as per the market performance.
- Online savings account
This is a new trend in Indian market which is growing at a very fast pace. Here banks offer ‘online only’ account. These accounts offer higher interest rate than other alternatives. Almost all the private banks are coming up with this offering where the user is offered with online infrastructure rather than the physical one. Since there is less operational cost linked with such kind of accounts, the rate of interest is usually double than savings account. Alternatively, you can negotiate the deal with the bank.
So whatever strategy you are choosing to save the maximum down payment amount, the most important thing is aim for a house which you can really afford. Don’t liquidate your entire amount just in down payment because all the expenses do not end here. There are many unavoidable expenses like property registration, interior works, society charges, advance maintenance charges, etc. which come on later stage.
So, Buyers go for smart investments.