The First Step to Home Ownership: Down Payment
One of the biggest hurdles to buying a house is not the EMI, but the Down Payment. In India, banks typically lend only 80% to 90% of the property value (Loan to Value Ratio). The remaining 10% to 20% must come from your own pocket.
How Much Should You Save?
Ideally, aim for at least 20% of the property value. A higher down payment has multiple benefits:
- Lower EMI: Borrowing less means smaller monthly payments.
- Lower Interest: Some banks offer better interest rates (10-15 basis points less) if your LTV is low (e.g., <75%).
- Instant Equity: You start with a significant ownership stake in your home.
Strategies to Reach Your Goal Faster
This calculator assumes you are saving cash in a savings account (0% growth for simplicity in calculation). However, to reach your goal faster:
- Use Liquid Funds: Instead of a savings account, park your down payment fund in Liquid Mutual Funds or Arbitrage Funds for better post-tax returns (6-7%).
- Windfalls: Direct any annual bonus or tax refund straight into this fund.
- Automate: Set up a rigid SIP or Recurring Deposit (RD) so the money leaves your account before you can spend it.
Don't Forget "Closing Costs"
Your savings goal shouldn't just be the Down Payment. You need an additional 5-8% for Stamp Duty and Registration. These cannot be funded by the loan in most cases. So if your home is ₹50 Lakhs, your Down Payment goal isn't ₹10 Lakhs (20%); it is actually closer to ₹13-14 Lakhs.
Where to Park Your Savings?
Since your horizon is likely 3-5 years, avoid high-risk equity. Instead, choose:
- Recurring Deposit (RD): Safe, predictable, approx 6-7% return.
- Arbitrage Funds: Tax-efficient (treated as equity) but low risk.
- Debt Mutual Funds: Better than FD returns if held for >3 years (indexation benefits removed now, but still liquid).
FAQs
- Can I take a personal loan for down payment?
- Never do this. Personal loans have high interest (12-15%). Adding a high-interest EMI on top of your Home Loan EMI significantly increases your default risk and lowers your eligibility.
- What is the minimum down payment in India?
- RBI mandates 10% for loans up to ₹30 Lakhs, and 20% for loans above ₹75 Lakhs. Most banks, however, ask for 15-20% as a standard margin.