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Self Margin – How much money do you pay upfront?

There are two options

1. Upfront Self Margin

2. Stage wise Self Margin

Upfront Self Margin: In case of ready to move in properties, resale or first sale, your margin and the bank loan has to be paid upfront as there is no waiting period(construction period)

Stage wise Self Margin: Stage wise payment of the self margin/self contribution is applicable only for under construction properties. However, if you have funds, you may choose to pay your margin upfront. Also, in some cases the builder may insist that you pay your margin upfront

Let’s explore the options for stage wise self margin

Before we discuss the options available for stage wise self margin in detail let us be clear on the RBI Guidelines on home loan financing

Loan Amount Bank Financing Self Margin OR Self Contribution
less than 30 lakhs 90% of PV 10%
30 -75 lakhs 80% of PV 20%
greater than 75 lakhs 75% of PV 25%

PV – Property Value excluding registration charges

Two prominent options of staggered or stage wise payment of Self Margin

1) 10:80:10 Funding

2) Parallel Funding

All other funding options will be a variation of these two

Let’s look at each one of them

1) 10:80:10 Funding: As the name suggests, you pay 10% at the sale agreement stage, the bank pays 80% during the construction stage and again you pay the balance 10% towards the end at the time of registration

Benefits of 10:80:10

You get sufficient time of 1/2/3 years to organize & save your balance 10% of self margin money

Drawbacks of 10:80:10

Not all builders and not all banks will give this kind of funding mechanism

An example with numbers

Property Value: 80 lakhs
Loan Amount @ 80%: 64 lakhs
Total Self Margin @ 20%: 16 lakhs
Initial Self Margin @ 10%: 8 lakhs
Balance Self Margin @10%: 8 lakhs
Funding Ratio: 20:80 OR 1:4

 

Who pays How much and When

Who How Much When
You 8 lakhs -10 Sale Agreement
Bank 64 lakhs -80 As per construction
You 8 lakhs -10 Registration

 

2) Parallel/Proportionate Funding:

Here the bank calculates the percentage of margin you paid on your total payable self margin & proportionately releases funds from the bank’s total contribution

Let’s look at an example with the same numbers

Property Value: 80 lakhs
Loan Amount @ 80%: 64 lakhs
Total Self Margin @ 20% 16 lakhs
Initial Self Margin @ 10%:(That is 50% of your Total Self Margin PAID (8/16* 100 = 50%)) 8 lakhs
Balance Self Margin @10%: 8 lakhs
Funding Ratio: 20:80 OR 1:4

Who pays How much, When & with What consideration?

Who How Much When & What consideration
You 8 lakhs At Sale Agreement Stage, That’s 50% of your total margin
Bank UPTO 32 lakhs As per construction progress, That’s’ 50% of the bank’s contribution, it pays without asking any contribution from you
You & Bank 8 lakhs & 32 lakhs respectively In stages, as per construction progress right upto registration. You pay hand in hand or together with bank for every demand in the ratio of 20:80 or 1:4

 

Benefits of Parallel Funding

a) Most banks will offer this or in some variant to this

b) You get reasonably enough time to organize & save your balance 10% of self margin money but not time uptill possession as you have to start contributing once the bank reaches the percentage of your initial paid contribution

Drawbacks of Parallel Funding

a) Not all builders get this kind of funding tie ups from banks

b) Not all banks provide this kind of funding