Is it Important to Make a Deposit When Taking a Home Loan?

It is a popular misconception that when you avail of a home loan, the lending firms let you borrow the entire loan amount. It is not true, for lenders are allowed to finance only 80% of any property value of over INR 30 lakhs. You have to pay 20% of the remaining loan amount upfront to avail of the money. Hence, when planning to avail of a home loan, make sure to also plan your budget and expenses and save up to make a high down payment.

You can use a home loan EMI calculator, available on platforms like Andromeda to check if you are eligible to borrow your desired loan amount. You have to fill in the loan amount, interest rate, and tenure to check the monthly payment amount. With this, you can plan your expenses and check if you have enough savings for a down payment.  

Why is it important to make a deposit when taking a home loan?

Keeping a deposit, or in other words, making a down payment is one of the most important steps in availing of a home loan. Here are a few reasons why you must make a deposit to take a home loan.

• Lower interest rates: When you make a large deposit before availing of a home loan, lenders are more confident in your ability to pay off the loan. You are viewed as a non-risky borrower. Lending firms are more likely to offer you lower interest rates, which means you have to pay off a lower loan amount.

• Lower EMIs: When you make a down payment when availing of a home loan, you also reduce the amount of money you need to borrow, in turn lowering your monthly payments. If you have fewer financial obligations, you can use your spare money to make investments or live more comfortably.

• Reduced risk for lenders: Lending institutions are more likely to approve your home loan request if you make a large down payment because it shows that you have planned your finances and are ready for the financial commitment to repay the loan amount. You may also negotiate better loan terms and favorable repayment conditions if you make a large deposit.

• Increased home equity: Making a down payment allows you to begin building your home equity right away. Your home equity is the difference between the value of your house and the amount of your outstanding mortgage, and it increases as you keep paying off the monthly settlements.

• Faster loan approvals: Another benefit of making a down payment when availing of a home loan is that lenders tend to sanction your loans faster. It assures the lenders that you are financially responsible and they view you as a responsible borrower. Firms like Andromeda are known for their quick loan disbursals with minimal paperwork. You can reach out to them and see if any of their loan products fit your needs.

Making a down payment is another way to assess if you have the financial prowess to repay the loan amount in the long run. Ideally, you can pay 20% of the loan amount as a down payment. However, make sure not to exhaust your savings or take on added debt to make a huge down payment that is beyond your means. Do not dip into your emergency funds, for medical emergencies may strike at any time and you do not want to be under-prepared to deal with them.

If you manage to pay a large chunk of the loan amount in the beginning, it will save you a lot of money in the long run. You will have to pay lower EMIs with lower interest rates. In addition to the down payment, you also need to consider closing costs, property taxes, and homeowners insurance. So, make sure to plan your expenses in detail before making a huge deposit. Before availing of a home loan, also check your credit scores.

A higher credit score may help you secure more favorable loan terms and even lower interest rates. Purchasing a house is a long-term commitment, so think carefully about your future plans and how they may affect your financial stability before making a down payment. Choose a home that fits your financial goals and allows you to repay the loan comfortably.