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How much savings do you need for downpayment of a house?
Let’s start from the basics-
What is a downpayment?
The downpayment amount is the sum of money you need to put towards purchasing a home. This amount is not financed through home loans or any other kind of loan. Downpayment helps you to reduce the money you need to borrow. It is also referred to as Own Contribution or OCR in the mortgage industry. Additionally, more significant down payments are preferred by lenders as that assures them of lesser chances of default. It is a mandatory process to get your home loan financed.
What are the factors that affect downpayment for a property?
The amount of savings you need to put down for a downpayment on a house will vary depending on several factors like-
- Price of the property – The most crucial factor when buying a home is the price of the property. Typically, the downpayment amount required by the lender is mainly 20-40% of the price of the property. However, in some cases, it can be as low as 10% of the property value, depending on the terms and conditions.
- Type of loan – The type of loan you choose for a home loan can affect the down payment amount required for approving your home loan. Home loans offered by RBI-registered lenders such as banks and NBFCs are secured loans, and so the downpayment required in such cases varies from 10-40%. Some schemes run from time to time, like Pradhan Mantri Aawas Yojna, aimed towards making housing affordable. In such cases, the downpayment amount required is merely 3-10%.
- Credit score – Credit Score plays a vital role in how much downpayment you need to make to get a home loan approved. Usually, the higher the credit score, the lower the required downpayment amount. This is because if the credit score is less than 600, lenders perceive borrowers as risky loans.
How much amount should you save for downpayment of a home loan?
- Look for your requirements – You will have your requirements according to your income, family size, location, and so on when you decide to buy your own home. So, keep in mind the crucial needs and get an idea of the property rates nearby.
- Decide on your budget – When you get an idea of property rates nearby, you will be able to make a balance between your needs and budget. So, finalize the basic details like location, type of property (flat/land, 1/2/3 BHK), and so on. This will help you decide the savings amount you require.
- Savings Amount – When you get an idea of the savings amount required, you estimate what amount of savings each month you need to keep aside. This will help you better understand when to make a downpayment and get a lender to finance your home.
- Decide on a downpayment percentage – Evaluate your financial situation and decide on the percentage which you would like to downpay, like 10%, 20% and so on. The higher the downpayment percentage, the less will be the total interest amount, loan tenure, and total repayment amount.
Ultimately, you are going to buy a house. It depends upon your budget and requirements, such as space, locality, and so on. So, considering these factors, you will now be able to get an estimate of your budget. This budget will also help you choose your property. Based on these factors, you will now be able to calculate how much savings you need to pay the downpayment on your house.
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