A home brings warmth, security, happiness, and helps create joyful memories of the time that you spend with your family. All homeowners speak about their homes with pride and a sense of identity. You, too, can experience the pride of being a homeowner with some planning.
While owning a home is an aspiration for most of us, one may want to compare home-ownership with living in a rented home. Read on to find out whether it makes sense to buy a home or live in a rented house.
Advantages of owning a house
While it’s true that renting a home involves a lower cash outlay, the benefits of buying outweigh renting.
- You have the security and permanency of your own home; you don’t need to deal with a landlord and the hassles that may come along with it.
- Your home gives you a sense of emotional security; it’s your very own space where you can simply be yourself.
- Your home is a symbol of your success and accomplishments.
- Your home is an asset with the potential to appreciate in value over time. It makes sense not to delay your home purchase since this may result in higher cash outlays due to value appreciation of property.
Benefits of home loan
When you plan to buy property, the first thing that comes to mind is the need to have sufficient funds for this purchase. Buying a house is usually the largest asset that an individual purchases. It can take years to accumulate sufficient funds for this purchase. However, you don’t need to wait this long. You can simply take a loan to purchase your home. This way, you can enjoy the benefits of owning a house today instead of waiting for years. A home loan is offered by lenders with the home mortgaged as security. The lender also carries out due diligence of the property by verifying all title deeds and other property-related documents. While this doesn’t absolve the buyer from the responsibility of carrying out an independent check of the property documents, it does gives some added comfort of a clear title of the property.
Home loan providers tailor your home loan repayment to suit your present and future income patterns. Interest rate levied on this loan is very affordable and repayment is done in the form of Equated Monthly Instalments (EMIs). EMI is a fixed amount payable every month and is made up of part principal repayment and part interest payment. Home loans are available for long tenures spanning up to 30 years.
Home ownership has become even more affordable with the introduction of the interest subsidy scheme called the Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (URBAN)-Housing for All.
This scheme primarily caters to two income segments:
- Economical Weaker Section (EWS)/Lower Income Group (LIG)
- Middle Income Group (MIG). First time home buyers can get interest subsidy up to Rs. 2.67 lakh on their home loan.
The amount of PMAY subsidy under the scheme depends on the category of income that a customer belongs to and the size of the property unit being financed. In addition to the above, first-time home buyers can enjoy several tax benefits on availing home loans.
Is it a good time to buy property?
‘Home’ brings to mind comfort, security and joy. If you are single, your home becomes a place where you rest, work, exercise, cook, invite friends, and so on. If you are married, giving your family a home that they can call their very own will give them a sense of security and comfort.
Availing a home loan for your home purchase offers a number of benefits.
Increasingly, home loans are available at affordable interest rates. They also come with a number of tax benefits. For affordable housing, the government offers incentives, such as the interest subsidy scheme called Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (URBAN)-Housing for All, for purchase/ construction/ extension/ improvement of house to cater to Economical Weaker Section (EWS)/Lower Income Group (LIG)/Middle Income Group (MIG). Under this scheme, first-time home buyers can get interest subsidy up to Rs.2.67 lakh on their home loan.
More importantly, your home is an asset that has the potential to appreciate in value over time. Buying your home today will help you build your home equity with the potential property appreciation over time.
Types of Properties
If you have decided that you are ready to purchase your own home, the next step is to decide on the kind of home you want. You have a number of options.
- You can opt for a new house, which means purchasing directly from the builder, development authorities, or cooperative housing societies.
- If you are not ready to shift immediately, you can opt for an Under Construction home. This gives you the advantage of paying for the home in instalments based on the stage of construction.
- You could also opt for a resale house, i.e., purchasing a property from existing owners. You may decide to buy a resale house if your priority is the location where there is no new construction.
- Some people prefer to purchase a plot of land and construct their home based on their specific requirements. Plot loans are available for this. You can also avail a home loan for constructing the property.
- Bungalows/villas are available in various locations across the country. You may prefer to live in this form of construction (and not a housing society).
Where to buy a house?
It’s important to carefully think about where to buy your first home. Your decision will depend on your daily schedule, work location, the need for good schools for your children, and so on. You may also opt for a location with a hospital in the area for medical emergencies. While some people need good access to public transport (metro stations, bus stops, train stations, etc.) others may opt for a quiet neighbourhood or with a market nearby. Consider all these factors very carefully when purchasing a house.
Financial planning to buy a house
When you think about home buying, financial planning is a must. While you may have saved some funds, you may need to consider taking a home loan to fund the gap. Always opt for a reputed housing finance company, which offers timely sanctions and disbursals, customised repayment options, etc.
However, it is important to note that the lender requires you to fund a portion of the home with your own funds upfront. The lender assesses the loan amount you are eligible for based on your income, age, credit score, etc. Use HDFC’s home loan eligibility calculator to get a better idea of the numbers. Let’s say you are eligible to get a home loan to the extent of 80% of the property value. You will need to fund the balance with 20% of your own funds.
It’s true that a larger down payment will reduce your loan amount and cost of loan. However, keep in mind that increasing your down payment may result in a liquidity crunch during an emergency and reduce the tax benefits available on taking a home loan. Hence, give careful consideration to this aspect. You can use our affordability calculator to set a budget for your home purchase.
Home Insurance
For most of us, our home is our largest asset. Property insurance is a must to provide you protection against any loss as a result of unforeseen circumstances. House insurance provides protection against loss resulting from man-made perils (thefts, strikes, etc.) or natural calamities (floods, earthquakes, etc.). There are numerous benefits of home insurance. Such policies cover the home and your belongings. Typically, there are two types of home insurance policies:
This policy covers the structure of your house against damage caused by fire or natural disasters like earthquakes and storms, and terrorism (at an additional premium).
Comprehensive Home Insurance PolicyThis policy covers the structure as well as the contents of your home. In addition to the cover offered under the Standard Fire and Special Perils Home Insurance Policy, this policy also offers cover in case of theft and burglary.
What is a home loan?
Becoming a homeowner requires sufficient funds which can take years to save. However, you don’t need to wait this long. You can simply take a home loan to purchase your house. This way, you can enjoy your own space today instead of waiting for years. A housing loan is offered by lenders on the property/home of the customer. The interest rate levied on this loan is very affordable. Repayment is done in the form of Equated Monthly Instalments (EMIs).
Home loans are available for long tenures spanning up to 30 years. Taking a home loan also makes you eligible for a number of tax benefits (as may be applicable subject to the provisions of the Income Tax Act, 1961 (“ITA”) amended from time to time). Hence, availing home loans is one of the most convenient ways to make your home purchase.
What is EMI?
EMI (Equated Monthly Instalment), is the amount you pay each month to the lender. Each EMI comprises of interest payable on your home loan and the principal repayment. Although the EMI remains a fixed sum throughout the loan tenure, during the initial years, the interest component of the EMI is higher compared to the principal component. When you are closer to completing your home loan repayment, the situation reverses, i.e., the principal component of your EMI is higher while the interest component becomes lower. To calculate the EMI on your home loan, you can use our Home Loan EMI Calculator..
Factors that determine home loan eligibility
Once you decide to take a home loan to purchase your home, the next question that could come to mind is the loan amount you are eligible for. Your housing loan eligibility depends on a number of factors such as: your present age and retirement age, your financial position, CIBIL score, savings, investments, employment status, etc. You can increase your home loan eligibility by adding an immediate family member with an independent income source as a co-applicant. Your co-applicant can be salaried or self-employed. The co-applicant needn’t be a co-owner of the property. However, all co-owners must be co-applicants. To help you assess your house loan eligibility, you can use our loan eligibility calculator.
Benefits of availing a home loan
What are pre-approved home loans?
A pre-approved home loan is an in-principal approval for a loan given on the basis of your income, creditworthiness, and financial position. It is valid for a limited period, usually 3 months. Generally, pre-approved loans are taken prior to property selection. Some lenders also provide the facility to get an instant e-approval by allowing you to make an online application for the home loan. The lender will disburse the home loan once the property is selected, the property titles are verified, and the customer has complied with all the conditions laid down in the in-principal approval as per the internal policies of the lender (developed in lines with the regulatory requirements).
The final loan terms are worked out at the time of disbursement. A pre-approved loan will give you a clear idea of the budget for home purchase. Accordingly, if you have not selected your property yet, you can focus your search on properties as per the budget without wasting time and effort in considering unreasonable deals.
A pre-approved loan offer in hand can give you better bargaining power with the developer or property seller.
The turnaround time on the entire loan process (from loan approval to disbursement) is also quicker. Quick processing of the loan facilitates easy purchase of property. You do not have to miss out on a good property deal or worry about an increase in prices.
Affordable Home Loans
Home ownership has become even more affordable with the introduction of the interest subsidy scheme called the Credit Linked Subsidy Scheme (CLSS) under Pradhan Mantri Awas Yojana (URBAN) – Housing for All. This scheme primarily caters to two income segments:
- Economical Weaker Section (EWS)/Lower Income Group (LIG).
- Middle Income Group (MIG).
Under PMAY, CLSS makes home loans affordable for individuals in the aforementioned categories. First-time home buyers can get interest subsidy up to Rs.2.67 lakhs on their home loan. The amount of PMAY subsidy under the scheme depends on the income bracket that a customer belongs to and the size of the property unit being financed.
The benefits as per the income categories are as follows:
Economical Weaker Section (EWS)/Lower Income Group (LIG)
EWS category comprises of individuals whose annual household income is up to ₹3 lakhs. LIG category is defined as those whose annual household incomes are above ₹3 lakhs but below ₹6 lakhs. The maximum interest subsidy for this group is 6.5%, provided that the unit being constructed or purchased does not exceed a carpet area of 30 square metres (approx. 322.917 square feet) in case of the EWS category and 60 square metres (approx. 645.83 square feet) in case of the LIG category. The interest subsidy is limited to a maximum loan amount of ₹6 lakhs. The maximum subsidy available over the loan tenure is Rs. 2.67 lakhs. The houses constructed/acquired with central assistance under the Mission should be in the name of the adult female member/woman of the household or in joint name with the adult male member of the household, and only in cases when there is no adult female member in the family, the house can be in the name of male member of the household. However, this is not compulsory for construction of the house. This scheme is valid up to 31/03/2022.
Middle Income Group (MIG) 1
MIG 1 category comprises of individuals with a household income above ₹6 lakhs but below ₹12 lakhs. The maximum interest subsidy for this group is 4%, provided that the unit being constructed or purchased does not exceed the carpet area requirement of 160 square metres (approx. 1,722.23 square feet). This subsidy is however limited to a maximum loan amount of ₹9 lakhs over a home loan tenure of up to 20 years. The maximum subsidy available over the loan tenure is Rs. 2.35 lakhs. This scheme was valid up to 31/03/2021.
Middle Income Group (MIG) 2
MIG 2 category comprises of individuals with a household income above ₹12 lakhs but below ₹18 lakhs. The maximum interest subsidy for this group is 3%, provided that the unit being constructed or purchased does not exceed the carpet area requirement of 200 square metres (approximately 2,152.78 square feet). This subsidy is however limited to a maximum loan amount of ₹12 lakhs over a home loan tenure of up to 20 years. The maximum subsidy available over the loan tenure is Rs. 2.30 lakhs. This scheme was valid up to 31/03/2021.
Tax benefits on homes loans
Benefits for first time home buyers under the Indian income tax laws are numerous. Take a look at the income tax benefits available on availing a home loan to purchase your home.
The buyer will use the property either for self-occupation or the property will remain unoccupied due to his employment, business or profession carried on at any other place, he has to reside in a property that does not belong to him.
The buyer will not let out whole or any part of house property for any period of time during the year or will not derive any other benefit from the said property.
| SECTION | COMPONENT | BENEFIT* |
|---|---|---|
| Section 23 | Annual Value (See note 1) | Annual value is considered Nil for up to two houses. |
| Section 24 | Interest on home loan | Deduction of interest on home loan is allowed up to Rs. 2,00,000 or Rs30,000 as the case may be. Deduction of interest on home loan is limited to Rs 30,000 if the property is acquired or constructed with the loan on or after 01.04.1999 and the acquisition or construction is not completed within 5 years from the end of the financial year in which the loan was availed. |
| Section 26 | Co- owner | If the house property is owned by two or more persons, each co-owner is entitled to a deduction of Rs. 2,00,000 or Rs 30,000 as the case may be, on account of interest paid on the home loan. The deduction is allowed only if the share of each owner is definite and ascertainable. |
Note : The basis of calculating income from house property is annual value. Annual Value is inherent capacity of the property to earn income. Tax is levied on inherent capacity of the property to generate income not on actual receipt of the income.
Gross Annual Value of the house property is higher of the following
- Expected rent, it is the sum for which property might reasonably expected to let out from year to year.
- Actual rent received or receivable
If the property is let and vacant for whole or any part of the year. The actual rent received or receivable is less than a) above owing to owing to vacancy of the house property. In such situations the rent received or receivable shall be considered as Gross Annual Value.
Tax Benefits in form of deductions out of total income under Chapter VIA
The buyer is also allowed following deductions for certain payments from the ‘Gross Total Income’. The Gross Total Income included income under each head of taxation after giving effect to the provisions for clubbing of income and set off of losses.
The deductions are not allowed from the following income though it forms part of ‘Gross Total Income’.
- Long term capital gains
- Short term capital gains on transfer of equity shares and units of equity oriented fund through a recognized stock exchange ie short term capital gain covered under section 111 A
- Winning from lotteries, races etc.
- Incomes referred to in sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D.
Further, it is not necessary fulfil the conditions mentioned in section ‘A’ above. The deductions are allowed subject to conditions mentioned in the relevant section.
| SECTION | PAYMENT TYPE | MAXIMUM DEDUCTION | BENEFIT* |
|---|---|---|---|
| Section 80C | Repayment of principal amount of loan availed for construction or acquisition of house property. | Up to Rs. 1,50,000 |
|
| Section 80EE | Interest payable on loan availed from any financial institution in FY16-17 for the purpose of acquisition of a residential property. | Up to Rs. 50,000 |
Note: If the deduction is claimed for any interest under this section, no other deduction shall be allowed for that interest under any other sections. |
| Section 80EEA | Interest payable on loan availed from any financial institution in FY19-20 and FY20-21 for the purpose of acquisition of a residential property. | Up to Rs. 1,50,000 |
Note: If the deduction is claimed for any interest under this section, no other deduction shall be allowed for that interest under any other sections. |
Note:
The above table and computation are only illustrative in nature. Readers are advised not to rely on the same and seek independent advice from your tax consultant to compute the amount of tax deduction which readers may be eligible for as a first time home buyer.
The tax benefits discussed above can be claimed only if the first-time home buyer has not opted for new concessional tax regime (under section 115 BAC). It is advisable for every individual to undertake the exercise of comparing his/her tax liability under the two tax regimes to understand which one is more beneficial.
Document Checklist
Filled in application form.
PAN card (this is mandatory to complete KYC).
Proof of identity and residence – Passport, voter ID or driving license
Proof of income: Salary Slips (Last 3 Months);
Bank Statements showing salary credits (Last 6 Months).
Latest Form-16 and IT returns
Filled in application form.
PAN card (this is mandatory to complete KYC)
Proof of identity and residence (Passport, Voter ID, or Driving License)
Proof of Income
Income Tax Returns along with computation of income for the last 3 Assessment Years (of both the individual and the business entity and attested by a CA), Last 3 years’ Balance sheet and Profit & Loss A/c Statements, with Notes to accounts/Annexures/Schedules (of both the individual and the business entity and attested by a CA), Last 6 months’ Current A/c Statements of the business entity and savings Account Statements of the individual.
Note:
1. The home loan documents must be self-attested.
2. The above list is indicative in nature and additional documents can be asked for.
For New Homes:
Copy of the Allotment Letter / Buyer Agreement, and receipt(s) of payment(s) made to the developer.
For Resale Homes:
Title Deeds including previous chain of the property documents; Receipt(s) of initial payment(s) made to the seller, and a copy of the Agreement to Sell (if already executed).
For Construction :
Copy of the Allotment Letter / Buyer Agreement and Receipt(s) of payment(s) made to the developer; Title Deeds of the Plot; Proof of number of encumbrances on the property; Copy of the plans; approved by the Local Authorities, and construction estimate by an Architect / Civil Engineer.
Other Documents:
Own Contribution Proof; Employment Contract / Appointment Letter (in case current employment is less than year old); Bank Statements from the last 6 months, showing repayment of any ongoing loans; Passport size photograph of all the applicants / co-applicants to be affixed on the application form and signed across, and a cheque for the processing fee.
How to choose a home loan lender
Finding a suitable home loan provider is critical to ensure your home purchase is successful. With a little bit of research, talking to your friends, and searching the internet, you can shortlist a handful of home loan lenders. Here are a few points to consider:
Is the lender able to guide you and make the borrowing process smooth and easy? The last thing that you want is a harrowing and unpleasant overall house ownership experience.
Is the lender an established player? Policies, practices, and charges differ for each institution. You don’t want your dream to fall through by opting for a lender that is yet to be established in the industry, especially as this could be the biggest financial transaction that you do in your life.
Does the lender understand the housing market? The real estate industry in India continues to be unorganised and fragmented. Market and industry behaviour tend to vary across regions and cities. Your lender should have a good understanding of the market.
Do they provide you assistance in identifying the right project? This makes your search process that much simpler. Do they maintain a database of pre-approved projects after legal and technical due diligence? A project with a clean legal title, adhering to the sanctioned plan, and with all required permissions, can give you peace of mind.
Does the lender provide you with counselling facilities to help you understand all aspects of a loan (types of interest rate, loan term, repayment process, etc.)? Remember, each and every aspect of the home loan has a financial implication and expertise does help.
The lender needs to be customer-focused with a culture of fair dealing and ethical conduct. Confidentiality of customer information has to be a part of the company’s DNA. Secure storage facilities to store your original property documents safely is another critical aspect that you may look out for.
Flexible repayment options with varying EMI structures would certainly be a great advantage over the long term. Tailor-made repayment schemes could benefit you.
Small add-ons such as a doorstep service and online loan approval simplifies your life greatly. In this technological era, online and mobile access to your loan account is necessary. A wide interconnected branch network further makes life easy for you.
Find out if the lender can offer assistance in procuring insurance on your home or your home loan.
All About Home Loan Disbursement
The housing finance company will disburse the loan amount usually on completion of the following:
- The property has been technically appraised;
- All legal documentation has been completed and title clearance has been done;
- You have paid your own contribution in full (i.e. made the down payment).
You can then make your request for home loan disbursement offline or online. To make your request offline, you need to visit the office/branch of the housing finance company. Making your disbursement request online will require you to visit the website of the housing finance company:
- Log in with your user ID/loan account number and password
- Click on the ‘disbursement request’ tab
- Upload your own contribution details (upload receipts)
- Update the status of the property (ready or under construction).
- For an under-construction property, fill in the details of the stage of construction and upload the necessary documents including builder’s demand letter, architect’s certificate, etc.
- For ready property, simply add the demand letter date. You will then need to add the payment details (the payee’s account details); this would be the builder in case of an under-construction property; it would be the seller in case of a ‘resale’ property.
The loan will be disbursed either in stages or in full depending on the stage of completion of construction.
The lender shall consider only the construction stage based on the regulations issued by the Reserve Bank of India (RBI)/ National Housing Bank (NHB) and not any instalment payment timelines stipulated by the builder.
In case of full disbursement, your EMI payments may start from the month following the month in which the full disbursement has been made.
In case of partial disbursement, you may need to pay pre-EMI (which is only the interest component) till full disbursement is made after which the EMI payment starts.
Mortgage registration
A home loan is offered by the lender with the home taken as security. Until repayment of the home loan, the title to the property resides with the lender. Similar to property registration, in some states such as Maharashtra, Rajasthan, etc., loan documents also need to be registered with the sub-registrar on payment of stipulated fees. Stamp duty payable on security creation/deposit of title deeds/memorandum of deposit of title deeds from state to state.
For instance, in Rajasthan, stamp duty payable is 0.25% of the loan amount subject to a maximum of Rs.25 lakhs (subject to conditions) + Surcharge on stamp duty (30%); registration fee payable is 1% subject to a maximum of Rs.25,000 (subject to conditions)1.
In Punjab, stamp duty payable is 0.25% of the amount secured, while the registration fee payable is 2% of the value of the document subject to maximum of Rs.2,00,000/- (subject to conditions)2. Your lender will guide you through the process.
1.https://igrs.rajasthan.gov.in/writereaddata/Portal/Images/fees_new.pdf
2.https://revenue.punjab.gov.in/sites/default/files/Document%20wise%20Detail%20of%20Stamp%20Duty.pdf
Home loan insurance
Life can be unpredictable. Hence, it’s always preferable to secure the future of your loved ones. If you have concerns about the outstanding home loan in case of the unfortunate event of your demise, you can buy insurance for the property against which the loan is secured and/or a life insurance.
In the case of any unfortunate event, the insurance company will pay off the outstanding home loan and you and your loved ones will continue to have the security of owning a home.
Taking insurance on your home loan is an important step in this direction. It’s important to opt for insurance that not only covers death, but also disability and unemployment. It’s important to study all policies available and select the one that meets your requirements.
Taking a home loan protection plan while you are paying your home loan EMIs is essential. It protects you from financial losses in case of any damage to your home or if you are unable to continue paying your EMIs. In an unfortunate event, the home insurance policy helps repay your home loan and protects you from financial losses. While HDFC does not insist on taking property / life insurance in any manner whatsoever, HDFC helps customers understand the benefits of taking an insurance.
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