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A down payment is the initial non-refundable payment made for a large-ticket item or service. To put it another way, it is money that is set aside as part of the first payment for a house, car or a costly piece of furniture.
Down payment is expressed as a percentage of the asset’s total purchase price. The borrower is responsible for making an initial down payment, and this mode of payment may be utilised by banks, NBFCs, or private lenders to supply the remaining cash for the transaction. Also, sometimes when the banks offer to pay the entire value of the asset as a part of the loan, it is known as the zero(0) down payment.
Continue reading to learn more about the essential features and functionality of a down payment, as well as other information.
Let's take a look at the concept of a down payment through the prism of the real estate industry.
The part of the home's purchase price that the buyer pays in full with their own cash rather than obtaining financing from a bank or another financial institution is referred to as the down payment. It is important to note that the amount of the down payment is normally determined by the standards of the organisation.
Nonetheless, borrowers with a high CIBIL score may be eligible for loans at select banks that require no initial payment or down payment. The Reserve Bank of India (RBI) is in charge of regulating credit reporting firms, and Credit Information Bureau India Ltd. (CIBIL) is one of those agencies.
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The Reserve Bank of India (RBI) has made it clear that banks in India cannot offer home loans with 0 down payment. They can lend only up to a certain limit on the purchase cost of a property. A home loan can cover as much as seventy-five to eighty percent of the purchase price, with the borrower responsible for the remaining twenty-five to twenty-eight percent in the form of a down payment.
Let's imagine that Rita is required to make a down payment of 20% on the purchase of a home that costs Rs 50 lakh. This indicates that she can obtain a mortgage for up to Rs. 40 lakh, but she will be responsible for paying the remaining amount of Rs. 10 lakh herself.
Once the customer's down payment on the house has been received and processed, their name will be included on the deed in a partial capacity. It is also evidence that you have the financial ability to repay the loan in the future. If you decide to make
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The borrower and the lending financial institution will negotiate the amount of the down payment before the loan is issued. When you apply for a loan, the financial institution will go over all of your available choices, including the benefits of making a down payment on a house.
A reduction in the loan interest rate of half a percent to one percent may be offered by the bank in exchange for a down payment of ten percent of the total loan amount. This is a popular strategy that banks usually adopt.
When determining the required down payment for the home, another important factor to take into account is the kind of loan that will be used. For certain loans, such as student and personal loans, a down payment requirement could not even be stipulated at all.
Important factors that determine whether or not someone should take a loan, are the loan amount, the nature of the loan and the repayment period.
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To reduce the direct impact of the loan taken, it is advisable to pay a good percentage of the initial amount as the down payment when buying a property .
In addition, there are a number of other advantages that can be obtained as a result of not making a low down payment, including the following:
Now that we have discussed the concept and benefits of down payment, it is also important to know that different financial institutions have different rules and regulations for down payments and the home loan. So, it is advisable to seek expert advice, read related articles and blogs and conduct primary research and comparisons before taking a decision in this regard.
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