Definition:
An 80-20 loan is a mortgage structure where the bank finances 80% of the property’s price, while the buyer covers the remaining 20%, usually through a down payment. Some developers offer subvention schemes, where the buyer pays 20% upfront, and the bank covers 80%, with no EMIs during construction.
How It Works:
- Main Loan (80%): The bank provides financing for 80% of the property’s value.
- Down Payment (20%): The buyer arranges the remaining 20%, typically through savings or other financial sources. In subvention schemes, developers may cover interest during the construction period.
For example, if the property costs ₹50 lakh, the bank finances ₹40 lakh, and the buyer pays ₹10 lakh.
Advantages:
- Delayed EMI in Subvention Schemes: EMIs may be postponed until construction is completed, reducing the immediate financial burden.
- Lower Upfront Payment: Buyers can access properties with a smaller initial payment.
Disadvantages:
- Higher Risk in Subvention Schemes: If construction is delayed, buyers might face EMIs before receiving the property.
- Strict Eligibility: These loans often come with stricter qualification criteria, making them less accessible.
Requirements:
- Eligibility: A good credit score, stable income, and strong repayment capacity are crucial.
- LTV Ratio: Banks usually finance up to 80% of the property’s value.
- Documentation: Proof of identity, income, and property documents are required.
- Down Payment: Buyers must provide the 20% down payment themselves.
This structure helps buyers reduce upfront costs, but it’s important to be aware of the risks, such as construction delays, that could lead to financial strain.
