While a home loan is the easiest route to home ownership for most middle-income families in India, one must be prepared to bear the cost of some of the value of the property themselves. same. The RBI requires that lenders only finance up to a certain share of the value of the property. Thus, aspiring borrowers should prepare for the remaining amount before initiating the home loan application.
How the down payment is decided – Your profile and the LTV of the property
Home loan offers are extremely suitable. Although there are internal and external guidelines that lenders adhere to, the exact loan amount, term and interest rate you are offered depends entirely on your profile and the property in question.
What is LTV?
The guideline for loan amount, in particular, depends on the LTV of the lender. LTV, or loan to value ratio, is a financial term used to describe the loan amount as a percentage of the overall property value. It is calculated by dividing the amount of the loan by the value of the property.
For example, if the value of your property is Rs.50 Lakh and your lender offers you a home loan of Rs.40 Lakh, then the LTV would be:
So in this example, the LTV is 80%.
What is the impact of LTV on your mortgage offer
Lenders decide the LTV based on external and internal guidelines. In terms of external guideline, the RBI requires lenders to adhere to the limits below based on the value of the property.
For properties valued up to Rs.30 Lakh, lenders can finance up to 90% of the property value
For properties worth Rs.30 Lakh to Rs.75 Lakh, lenders can finance up to 80% of the property value
For properties worth more than Rs.75 Lakh, lenders can finance up to 75% of the property value
Separately, lenders can have internal LTV standards as long as they comply with RBI guidelines. For example, in the case of a property valued at Rs.25 Lakh, the RBI allows lenders to finance up to 90% of the value of the property. However, a lender may choose to set an internal standard and limit financing in this bracket to, say, 75% of the property’s value.
How much down payment should you plan?
As per the guidelines mentioned above, aspiring borrowers should plan the amount of down payment based on the value of the property.
Looking to buy a property worth up to Rs.30 Lakh? Be prepared to pay at least 10% of the property value as a deposit
Looking to buy a property worth Rs.30 Lakh to Rs.75 Lakh? Be prepared to pay at least 20% of the property value as a deposit
Looking to buy a property worth more than Rs.75 Lakh? Be prepared to pay at least 25% of the property value as a deposit
Note that the lender could choose to offer a lower amount of financing, which would require you to pay a higher amount as a deposit.
How to accumulate a large sum for the down payment
The most obvious answer to how you can organize a substantial amount of funds over time is to save; however, it may be difficult to accumulate the sum due to unforeseen circumstances. Many choose to avail a personal loan or borrow the sum if the shortfall is relatively small.
But if you haven’t been able to manage almost the entire amount of the down payment, you may need to postpone your plan. Those who already own another property have a solution here. You may consider availing funds against the existing property.
If you have a mortgage on the other property, you can ask your existing lender for a Additional loan. Alternatively, you can transfer your loan balance amount and receive a top-up through the new lender. If the property is entirely yours, you can opt for a loan against property.
Both solutions will give you access to large funds at a relatively low interest rate, with the advantage of a long repayment term. Apply today with a reputable lender to start your homeownership journey without delay.