Buying a home is a dream for many, but arranging funds can be challenging. While a home loan covers most of the property cost, you still need to pay a down payment. But what exactly is a down payment in a home loan, and how does it impact your loan approval?
At Today Finserv Consulting India, we help you understand key home loan concepts so you can make informed financial decisions. In this guide, we’ll explain everything about down payments—how they work, why they matter, and how to plan for them.
What is a Down Payment in a Home Loan?
A down payment is the upfront amount you pay from your savings when purchasing a property, while the remaining cost is covered by a home loan.
For example:
- Property Value: ₹50 lakhs
- Loan Approved: ₹40 lakhs
- Down Payment: ₹10 lakhs (20% of property value)
The down payment reduces the lender’s risk, making loan approval easier.
Why is a Down Payment Required?
- Reduces Lender’s Risk – Banks finance only a portion (usually 75-90%) of the property value.
- Improves Loan Approval Chances – A higher down payment shows financial stability.
- Lowers Loan Burden – A smaller loan means lower EMIs and interest costs.
- Helps Avoid Mortgage Insurance – Some lenders waive insurance for larger down payments.
How Much Down Payment is Required for a Home Loan?
The down payment depends on the Loan-to-Value (LTV) ratio set by lenders:
| Loan Amount | Max LTV (Loan-to-Value) | Minimum Down Payment |
|---|---|---|
| Below ₹30 lakhs | Up to 90% | 10% |
| ₹30-75 lakhs | Up to 80% | 20% |
| Above ₹75 lakhs | Up to 75% | 25% |
Example:
- For a ₹50 lakh property, if the bank offers 80% LTV, your down payment will be ₹10 lakhs (20%).
How to Arrange a Down Payment for a Home Loan?
- Personal Savings – The most common and preferred source.
- Fixed Deposits/Mutual Funds – Liquidate investments if needed.
- Gifts from Family – Parents or relatives can contribute tax-free.
- Bonus/Provident Fund (PF) Withdrawal – Partial PF withdrawal is allowed for home purchases.
- Gold Loan or Personal Loan – Only if you can repay quickly (high interest risk).
FAQs on Down Payment for Home Loans
1. Can I get a home loan without a down payment?
No, Indian lenders require at least 10-25% down payment based on the loan amount.
2. Does a higher down payment reduce EMI?
Yes! A larger down payment means a smaller loan, leading to lower EMIs and interest costs.
3. Can I use a personal loan for a down payment?
Technically yes, but lenders may reject your home loan application if they detect a debt-funded down payment.
4. Is the down payment included in the home loan?
No, the down payment is paid separately (via cash/cheque) before loan disbursal.
5. What happens if I can’t pay the full down payment?
You may lose your booking amount or face loan rejection. Plan your finances in advance.
