Things to consider while deciding how much down payment you should make

If a person has the ability to make a larger down payment then he/she should rather give a thought on buying a more cheaper house.

Nov 01, 2014 06:11 IST India Infoline News Service

Owning a house is one of the major financial goal in an individual's life. But arranging the down payment and getting through with home loan formalities are even bigger tasks, which could create distress if not handled properly. There are some basic considerations, which a person must evaluate before buying a house.
 
Larger Down Payment or Cheaper House: If a person has the ability to make a larger down payment then he/she should rather give a thought on buying a more cheaper house. These days houses in gated communities with facilities like pool, club, park are priced a way higher than stand-alone houses or apartments, without these amenities. One could assess if all the facilities are worth paying twice the amount of a standalone house. In case, the idea strikes, then a person could save a lot in home loan installments by paying the same down payment for a cheaper house. For example, A house in gated community costs Rs. 1 Crore, while a standalone house could be available for just Rs. 50 to 60 Lakhs. Moreover, if you are able to pay Rs. 20 lakhs of down payment, then the mortgage payment will be half on Rs. 30 to 40 lakhs than on Rs. 80 lakhs.
 
Other Benefits: Buying a cheaper house means lower mortgage payments and more income in hand to direct to other goals. In above case if a person was supposed to pay Rs. 80,000 for a gated community house, he might have to pay just Rs. 30,000 to 40,000 monthly in another option. The rest of the amount could be utilized to prepay and close the home loan or could be diverted to other goals like retirement, child education etc.
 
Alternate Solutions: It is more than usual that despite the reason of seeing financial advantage in buying a cheaper house, a person could have his heart set on a long dreamt house like one with facilities. Here the best way is to scan more areas to get a better deal as a person with ability to pay large down payment should try best to minimize mortgage payments too. An ignorance on this fact could come at cost of other important financial goals.

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