Home Loan Down Payment: Here’s What You Need to Know

Imagine this: you've found your dream house, a place that perfectly embodies your vision for your future. But there's a hurdle – the down payment. Saving up a sizeable chunk of cash can take years, putting homeownership on hold for many. This begs the question: can you entirely bypass the down payment and secure a 100% Home Loan?

What is a Home Loan Down Payment?

A home loan down payment is the initial amount a buyer pays upfront while purchasing a property. It typically ranges between 10% to 25% of the property’s value, while the remaining amount is financed by the lender. This upfront payment is mandatory as per RBI norms and bank guidelines to secure the home loan.

Why is Down Payment Important in a Home Loan?

Making a down payment for home loan is a crucial step in the borrowing process. It reflects the borrower’s financial commitment and directly affects the home loan down payment terms. A higher down payment reduces the lender’s risk, improves the loan-to-value (LTV) ratio, and can lead to better interest rates, higher eligibility, and lower EMIs.

Also Read: ROI for Home Loans and How to Calculate It

How Much Down Payment is Required for a Home Loan in India?

The down payment for home loan in India generally ranges between 10% to 25% of the property's value. As per RBI guidelines, banks can finance up to 75%–90% of the property cost, depending on its value. The exact down payment depends on your income, credit profile, and the lender’s internal policies.

Typical Down Payment Requirements:

• For properties up to ₹30 lakh: LTV can be up to 90% → Down payment ~10%
• For properties ₹30 lakh to ₹75 lakh: LTV up to 80% → Down payment ~20%
• For properties above ₹75 lakh: LTV up to 75% → Down payment ~25%

Example:

Note: The actual down payment for home loan may vary based on your financial profile, co-applicants, and lender-specific terms.

Factors That Affect Your Down Payment Amount

The down payment amount for home loan isn't fixed—it varies based on several influencing factors. Understanding these can help you plan better and avoid surprises during your home loan down payment process. Here's what determines how much you’ll need to pay upfront:

1. Property Value

The higher the property value, the larger your down payment for home loan in absolute terms - even if the percentage remains the same. Luxury or high-end properties typically require a higher upfront contribution.

2. Loan-to-Value (LTV) Ratio

The LTV ratio, set by the lender and regulated by the RBI, determines how much of the property cost can be financed. A lower LTV means you’ll have to make a higher down payment.

3. Lender Policies

Different banks and housing finance companies may have varying internal guidelines on home loan down payment requirements. Factors like loan type, tenure, and risk appetite influence their terms.

4. Borrower Profile

Your credit score, income level, employment stability, and existing liabilities impact your loan eligibility. A strong profile may allow you to negotiate for lower down payments.

5. Government Schemes

Subsidy-linked housing schemes like PMAY may reduce your overall cost burden. In some cases, these schemes allow for a reduced down payment amount for home loan, especially for first-time or low-income homebuyers.

Also Read: What is prepayment in a home loan?

Can You Avoid Down payment and Buy House With 100% Loan?

If you are looking to buy a house with no down payment and wondering if you can get 100% of the property’s value as a loan, the short answer is no.

However, there are certain financial institutions like Godrej Capital that provide you with the flexibility to ease off your down payment burden by sharing the load of your initial payments for the purchase of your home.

What’s this magic sauce? It’s called parallel funding.

Parallel Funding, in the scope of real estate or home loans, means the lender splitting the cost of your Home Loan down payment with you in a certain number of tranches.

Here is an example to simply this for you-
Example 1:

Mohan is buying an under-construction property worth INR 1 crore. Let’s say that he is eligible for a loan of INR 75 lacs.

Therefore, INR 25 lacs is the down payment. If Mohan’s lender offers the option of parallel funding, he can split his down payment as per the construction stages of the house and based on the terms agreed between the lender and the developer.

Let’s assume that there are five tranches (payment stages in simple words) applicable in this situation. Now the lender can help Mohan split his down payment burden like this-

With this, Mohan got the relaxation of paying only a small part of his down payment at each construction stage, reducing his burden of the bulky upfront payment of INR 25 lacs.

This helped Mohan fulfil his dream of buying a home without facing the load of a hefty down payment.

Example 2:

There are 9 tranches and Mohan has limited funds to pay as a down payment. In this case, there’s another form of parallel funding where, post the initial booking amount (of fixed 10% of the loan amount), Mohan can relax and pay the remaining amount at any later stage. See example below –

Who Should Consider Parallel Funding for Home Purchase?

Parallel funding is ideal for homebuyers purchasing an under-construction property, where payments to the developer and disbursals by the lender happen in sync. It helps manage the home loan down payment and construction-linked payments efficiently, reducing financial pressure.

Alternatives to 100% Home Loan You Can Explore

While a 100% Home Loan might not be readily available, there are options to make homeownership more accessible:

Government Subsidy Schemes

Programs like PMAY (Pradhan Mantri Awas Yojana) offer interest subsidies and support lower-income or first-time buyers, effectively reducing the overall cost and down payment requirement.

Family Assistance

Seeking financial help from family members is a common way to cover part of the home loan down payment, especially for young or first-time buyers.

Personal Loans for Down Payment

Though not always advisable due to higher interest rates, a short-term personal loan can be used to manage urgent home loan down payment needs when cash flow is tight.

Builder Subvention Plans

Some builders offer subvention schemes where the buyer pays a smaller amount upfront, and EMIs start after possession. These plans make homeownership options more flexible during the construction period.

Use of Provident Fund (PF)

You can partially withdraw from your PF account to make the down payment for home loan, subject to conditions set by the EPFO. This helps reduce the dependency on loans or external funding.

What is loan-to-value?

• The Loan-to-Value (LTV) ratio is a crucial factor in securing a home loan. It represents the percentage of the property's value that the lender is willing to finance. For instance, if an LTV ratio is 75% for a property valued at INR 1 crore, the maximum loan amount offered would be INR 75 lakh (75% of INR 1 crore).
• Lenders typically offer home loans with a maximum Loan-to-Value (LTV) ratio, meaning they finance a portion (usually 75-90%) of the property's value. The remaining amount acts as your down payment, demonstrating your financial commitment to the purchase.

💡 Pro-tip: Use Home Loan EMI calculator to estimate your monthly EMIs and manage your home loan repayments like a pro.

Also Read: Commonly Used Home Loan Terminologies

Ready to Start Your Homeownership Journey?

Don't let the down payment hold you back from your dream home. Explore Godrej Capital Home Loan options and discover how you can unlock the door to your future.

Godrej Capital acknowledges the hurdles associated with purchasing a home. The company offers a range of features to simplify the process, including high loan amounts of up to INR 10 crore, competitive interest rates starting at 8.55% p.a., and a generous Loan-to-Value Ratio of up to 90%. One notable feature of Godrej Capital Home Loans is the flexible repayment option known as 'Design Your EMI' or DEMI, allowing borrowers to pay interest-only for specific months. Additionally, borrowers can enjoy an extended loan tenure, minimal documentation requirements, and swift loan processing. The dedicated team at Godrej Capital is committed to assisting customers every step of the way on their journey to homeownership.

Get in touch with Godrej Capital today for a personalized consultation and take the first step towards owning your dream space.

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Also Read: Ready to Move into a New Home? A Home Loan with ‘Design your EMI’ Feature is All You Need

FAQs:

Q.1. Can I buy a house with a 100% Home Loan?

A. Generally, financial institutions do not offer 100% home loans. Most lenders typically provide home loans up to 80-90% of the property's value, requiring you to make a down payment for the remaining amount. This practice ensures that both the borrower and lender have a stake in the property, reducing the financial risk involved. It’s important to assess your finances and savings to cover the down payment and any additional costs such as registration fees, stamp duty, and other charges. Always consult with your lender to understand the specific terms and conditions applicable to your home loan.

Q.2. What is a down payment in a Home Loan?

A. A down payment is the initial amount you pay upfront when purchasing a property. It is a percentage of the property's total value, typically ranging from 10-25%. The remaining amount is covered by the home loan from the lender. Making a higher down payment can reduce your loan amount and lower your monthly EMIs.

Q.3. Can I get parallel funding for a resale house?

A. No. Parallel Funding is only available for under-construction properties

Q.4. What is my monthly EMI if I get a Home Loan of INR 50 lakh?

A. The monthly EMI for a home loan of INR 50 lakh depends on the interest rate and loan tenure. For example, at an interest rate of 8.5% p.a. over a 20-year tenure, your EMI would be approximately INR 43,391. Use a Home Loan EMI calculator for precise calculations based on different rates and tenures.

Q.5. Can I get a joint Home Loan with my spouse?

A. Yes, you can get a joint home loan with your spouse. This can enhance your loan eligibility and allow you to avail tax benefits individually.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially.
The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements.
Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com