Worried about running through your personal savings to buy a house? Looking for home loans with zero down payment? Sadly, in India, the home loan process does not allow you to avail yourself of home loans without paying anything upfront. You have to finance at least 20% to 25% of the loan amount yourself, and 70% to 75% of the amount will be financed by the lending institutions. However, you can secure funds to make a down payment through other means.
How to take home loans without a down payment
- Avail of unsecured loans
If you have a decent credit score, at least 600 to 650, you can avail of unsecured loans to pay down your home loan. However, since lenders do not require collateral or guarantors to assign you personal loans, if you do not have excellent creditworthiness, you will have to pay high home loan rates.
- Try taking employee loans
Only a few companies allow their employees to borrow personal loans at low-interest rates. Employee loans require minimal documentation and are a great way to secure down payment funds if your employers offer this facility. Make a larger down payment so that you can pay lesser interest on your home loan.
- Use your investments
If you have a good investment portfolio, you need not worry about making a down payment. You can pull funds from your investments or take loans against mutual funds or fixed deposits to arrange the down payment. Since these are secured loans, you will be required to pay minimal interest rates. Thus, your repayment headache becomes lighter.
- Lend from friends or family
The easiest way to secure down payment funds is to ask your friends and family. If they can arrange the money, it will be a blessing.
- Think of zero down payment financing
Zero down payment financing is only for individuals who are looking to secure a large sum of money through home loans to buy electrical appliances. Lenders have tie-ups with product sellers, who offer zero down payment facilities, so you do not have to pay anything upfront. However, you tend to incur higher interest rates and lesser benefits, if you avail of this facility.
Other measures-home loans against the cost of property
If you already own a house and are looking for home loans to use a large sum of money for other means, you can take a home loan against the cost of your existing property. You have to keep two ratios in mind- the loan-to-value ratio (LTV) and the fixed-obligation-to-income ratio (FOIR).
An LTV ratio is a measure that allows lenders to evaluate your property’s value. You are sanctioned a loan amount that is on par with the property’s market value. And, a FOIR ratio measures your current debt and existing loans with your income to see if you have the capacity to repay the loan.
Things to consider before taking a home loan without a down payment
While RBI guidelines do not allow one to take home loans without a down payment, one can always plan ahead to secure funds. Try to secure a hefty amount of funds to make at least 30% of the loan amount as a down payment. Lenders consider borrowers, who make low down payments as risky customers. Unless your FOIR ratio convinces the loan facilitators that you can comfortably pay back the lump sum loan, you have to pay higher home loan rates.
While taking secured loans against your investments is a good alternative, it can put your investments at risk. If you withdraw a large sum of money from your personal savings, it will put a dent in your account and leave you unprepared in case of emergencies. The only way to mitigate the down payment crisis is to start planning in advance. Once you have enough funds to make a down payment comfortably, you can proceed with your home loan applications. If you are able to make a larger down payment, you can enjoy low-interest rates.
If you are finding it difficult to secure funds for a down payment, think through your decision of availing of a home loan. It is best to evaluate the home loan rates and measure your EMIs using a home loan EMI calculator to get an idea of how much you would need to put aside every month for repaying the loan amount. You may also check ApnaPaisa for attractive deals on home loans.
Home loan FAQs
Q. Can you avail of home loans without a down payment?
A. In India, you cannot take home loans with zero down payment. You have to pay at least 20% to 25% of the loan amount upfront for the loan facilitators to finance the rest of it.
Q. What is the minimum down payment I can make to get a home loan?
A. Most lending institutions will require you to pay at least 20% to 25% of the loan amount as a down payment. However, if you have a good credit score, an excellent history of paying back monthly EMIs without a gap, and a decent FOIR (fixed obligations to income ratio) score, you can negotiate with the lender and settle on a lesser percentage as a down payment.