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Everything You Need To Know About Margin Money And Encumbrance Certificate



With the rising real estate prices, purchasing a house solely from savings may be daunting. Not only will it deplete savings entirely, but it will also lead to a potential cash crunch in the future. Opting for a home loan is a viable solution to this financial conundrum.

Housing loans enable you to acquire your dream home and repay it over an extended period comfortably. Patta chitta is a land record document that is maintained by the government. It contains information about the land, such as its ownership, location, and area. Patta chitta is an important document that is required by lenders when approving home loans. When it comes to home financing, several terms may sound confusing for many borrowers. Two such terms are “margin money” and ” encumbrance certificate.”

Read on as we decode the basics of these terms in this guide.

What Is Margin Money?

Home loans ease the financial burden off your shoulder. Borrowers must contribute a small amount towards the purchased property. Lenders only cover up to 70% to 90% of the total property value. The borrower is supposed to pay the remaining 10% to 30%, termed as margin money or down payment. The amount extended by the lender depends on the eligibility and CIBIL score of the borrower.

Margin money denotes the interest of the borrower in the property and reduces the risk for the lender. A borrower must make the down payment upfront while applying for a home loan. The importance of savings in this regard is immense.

Simple Ways To Arrange For Margin Money

With a far-sighted approach, you can accumulate margin money without much difficulty.

Proper planning and prioritising your needs can help you save for the down payment on your dream home.

Given below are some of the ways to arrange for margin money:

1.  Leverage Your Savings

Savings are the most common source of paying margin money. With regular and diligent saving habits, you can accumulate the required margin money to ease the loan application process. While using savings, you must be mindful not to deplete savings completely, as you do not want to be caught off guard by misfortunes that may arrive at your door unannounced.

2.  Investments

You can utilise your investment returns to make the down payment for your house. You must consider your risk appetite and make goal-based investments. Liquidating bank deposits and investments not yielding expected profits can help you arrange for margin money.

3.  Secured Loans

A better alternative to an unsecured loan is a secured loan, acquired against savings, an insurance policy, or any other asset as security. Secured loans are relatively easy to get and enable you to pay the margin money with much less hassle.

What Is An Encumbrance Certificate?

An Encumbrance Certificate (EC) is a legal document in the property transfer procedure. It is a document of great value for both borrowers and lenders. It verifies ownership and outlines any monetary or legal liabilities tied to a property. It maintains a record of up to 30 years. You can obtain an EC by applying to the sub-registrar’s office.

Why Is An Encumbrance Certificate Important?

An Encumbrance Certificate is of immense importance when considering a home loan. Listed below are some of its significance:

Verified Property Ownership

An EC serves as the primary proof validating an individual as the owner of a property. The document is an assurance for potential buyers of a property. It officiates that the seller is the official owner and can legally transfer the property after purchase.

Your Best Bet Against Deceit

Fraudulent practices pervade the real estate market. Legal documents like EC shield you from being cheated during property dealings. With an EC in hand, you can speed up your home loan process and gain the confidence of lenders.

Identifying Liabilities On Property

An EC specifies any liabilities that are associated with the property. The EC highlights if a previous owner has an outstanding loan against the property. It provides transparency to potential property buyers and keeps them from fraudulence.

Smooth Processing Of Loan

Lenders exclusively demand an EC before sanctioning home loans as it is a legal assurance of the property being free from encumbrances that can hinder the loan approval. It establishes the legal ownership of the property. In the case of a Loan Against Property (LAP), an EC also assures lenders that the property can be used as collateral against the 35 lakh home loan emi and guarantees a hassle-free loan approval process.


The current dynamics of the real estate sphere make home loans an accessible financial tool. Ensure you calculate the amount of margin money you can shell out from your financial resources before applying for a loan. Setting up a sound repayment system is also crucial after taking a loan. Additionally, act cautiously throughout the process and take possession of important documents like a certificate of encumbrance to avoid falling prey to sharp practices.

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