All You Need To Know About Home Loan Down Payment And EMI

How to enhance your chances of getting a Home Loan?

1. Having an earning co-applicant increases chances of eligibility.

2. Make sure you have a consistent and regular source of income. Having substantial amount of savings and investments also helps in arranging the down-payment.

3. Close all your current loans and short term debts.

4.  Maintain a clean credit or CIBIL score.

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How to arrange money for down-payment?

You have to start saving for the down-payment well in advance, in order to construct or purchase a house. Banks usually give loans ranging from 75 - 90% of the total value of the property. You have to arrange the remaining amount called down-payment. Following are some tips for down-payment:

1. Decide on quantum of down-payment: Saving money and arranging down-payment requires disciplined financial management. Start planning for months or even years, before actually applying for a Home Loan.
2. Investment portfolio: You can save money through Fixed Deposits, Recurring Deposits, Mutual Funds, Post Office Deposits and so on. Bear in mind that the investments have to be liquidated at the time of down-payment.
3. Borrow from friends and family: If you cannot arrange money by yourself, borrow from close friends or family for a short time, so that you can repay as soon as possible.
4. Check Loan-to-Value offered by banks: Loan-to-value (LTV) is the ratio between the Market Value of the property to the amount which the bank is ready to sanction as Home Loan.
5. Make as much down payment as possible: Don’t disclose all sources of funds when you apply for a Home Loan. Try to make a high down payment. This helps you close the loan faster.
6. Check for government housing schemes: Government comes up with useful housing schemes from time to time. Be sure to check schemes like Pradhan Mantri Awas Yojana.

SEE ALSO: Prepayment Of Home Loan

What is an Equated Monthly Installment (EMI)?

An Equated Monthly Installment (EMI) is a fixed amount to be paid by a borrower (you) to a lender (bank) at a specified date each month. An EMI is a combination of interest and principal. The entire loan amount and interest is added and then divided into EMIs. EMI makes the budgeting process easy as you precisely know the amount of money needed to be paid each month.

See also: No Cost EMI

Quick notes:

1. Initial EMIs have higher interest component and lower principal component. Interest component keeps reducing and principal component keeps increasing with each successive EMI.
2. If you skip an EMI payment the loan tenure may go up. You may also be charged a penalty for skipping an EMI.

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