What is Margin Money in Home Loan?

Date: 05th August 2024 | Read time: 3 Minutes

While buying a home, more often than not, the realization of your dream occurs because of the home loan. One of the major concepts you should know in connection with this entire process is margin money. Let us see what margin money means in a home loan, how it works, and how you can arrange for it.

It is the portion of money, out of the total property cost, which the borrower is supposed to pay from their pocket. Alternatively, it can be referred to as the difference between the sanctioned amount and the property cost. Most essentially, margin money may be defined as what down payment the borrower is to make for the same, while the rest of the home loan amount is arranged and provided by the lender.

For instance, if a lender is providing 80% of the property value as home loan, then the remaining 20% needs to be compensated by the borrower in the form of margin money. The percentage can be increased or decreased based on the financier's policy, credit score of the borrower and the property value.

A margin money receipt is a document showing an acknowledgment of the margin money paid by the borrower. When one pays the margin money for purchasing a home, a receipt for it shall be given by the builder or seller. This receipt is very vital since it acts as proof that indeed you have paid your contribution towards buying the property.

This is the receipt that lenders often insist on while disbursing the loan amount to ensure the borrower has paid their share. Without this, the lender may not release the home loan amount.

Arranging margin money for a home loan may not be easy at times, especially when the property prices are on the higher side. However, there are ways by which you can manage it:

• Savings

  The most obvious way of arranging margin money is through personal savings. If you are targeting purchasing a home, start saving well in advance so that by the time you need the money, you have enough.

• Liquidating Investments

  You can liquidate your investments in shares, mutual funds, fixed deposits, or any other financial instruments and arrange the margin money from them.

• Sale of Assets

  Assets that are not of paramount importance to one, such as a car, jewellery, and other types of valuables, can be sold to raise the required funds.

[Also Read: 10 Steps to understand Home Loan process]

Any prospective homeowner must be aware of the margin money involved in a home loan. It is your contribution towards buying the property and, at the same time, it is the reason a lender will approve your home loan. So, it is important to plan and arrange for this margin money way ahead of time in order not to be under financial stress at the last minute and have a smooth home-buying experience.

You can also use a home loan calculator to know the exact amount you need to save as margin money. Again, this shall make your home buying journey much more manageable and financially sound.