Your Guide To Margin Money Receipts In Home Loan
Are you a first time home loan borrower? You know that you have to contribute to the home loan amount. However, you are not sure how much you will be expected to pay out of your own pocket as the down payment or margin money.
Do not worry!
You are not alone among home loan applicants.
Banks and financial institutions never fund 100 per cent of the cost of your home. Some contribution has to be from your side.
MakaaniQ tells you more about the margin money you should contribute towards the home loan.
What is Margin Money Or Down Payment?
The amount home loan borrower contributes towards the home loan amount is the Margin Money. Once you contribute the margin money from your own pocket, your developer or reseller will give you a receipt called Margin Money Receipts (MMR).
Have you ever wondered why you have to contribute too? Why can't the lender fund 100 per cent of the cost of your home?
By paying from your own pocket, you build your interest in the property and reduce the risk of the lender at the same time. The lender develops trust in you and funds the rest (i.e. total loan amount minus the owner's contribution).
How much should be the Margin Money or Down Payment?
Many home loan borrowers are not aware that the Reserve Bank of India (RBI) has stipulated norms governing the owner's contribution, based on the amount of home loan.
Banks and financial institutions take some important factors into account to determine the margin money, like the market value of the property, tenure of the home loan, opportunity cost (i.e. the value of something that is lost because you choose an alternative course of action) of investing in other assets and the total home loan amount.
For instance, the owner's contribution is as low as 10 per cent in case of a home loan of Rs 30 lakh or below. For home loans over Rs 30 lakh, the bank will fund up to 80 per cent of the market value of the property (the percentage figure may be greater in deserving cases).
One Quick Tip: Find out the total cost of the property, and keep in mind that you will have to contribute 20 per cent of the total cost of the property as the margin money. This is to roughly ascertain the margin money you may have to contribute.
How margin money is different for construction-linked properties
The margin money for construction-linked plan (CLP) properties depends on the stage of construction of the property.
Let us understand this with an example.
Let us suppose the property purchase value is Rs 80 lakh and that the CLP is divided into four stages of construction. This means that each stage of construction will require Rs 20 lakh.
The lender, let's assume, is funding at 80 per cent Loan-to-Value ratio (LTV), which is Rs 64 lakh (i.e. 80 per cent of Rs 80 lakh). So, you have to arrange Rs 16 lakh out of your own savings. You will have to pay the 20 per cent of the total margin money required upfront (20 per cent of Rs 16 lakh, which is Rs 3.2 lakh). The rest of the money funded by the bank and the margin money will be contributed as construction progresses.
Points to Remember
- Every lender permits only a fixed percentage (or amount) of margin money in “cash”, and this should reflect the home loan buyer's bank statement.
- Many lenders make home loan insurance compulsory if the margin amount is lower. But, home loan insurance is not mandatory.
- You must build ample financial corpus before applying for a home loan. You cannot take a home loan without contributing a certain percentage of the home loan amount.
- Never ever apply for another loan like unsecured debt (i.e. Personal loan) to arrange funds for the margin money.
- You can always opt for the CLP or under-construction properties if you are short of funds for margin money. You need mot pay the total margin money upfront in such cases.
- Keep photocopies and original margin receipts (MMRs) in order. You should present them to the lender during the home loan appraisal process.