Factors Important For First-time Homebuyers While Considering Home Loan Apart from other considerations, the loan aspect needs proper research and consultation
By Abhishikta Munjal •
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The experience of having the first home is exceptional. Buying it at any age takes a lot of planning and support from the family, as well as right guidance on factors such as the developer, location, home size, neighborhood/community and the arrangement of funds for purchasing it. The loan aspect needs a proper research and consultation. This may require loan with affordable EMIs, research on lenders offering best customer service and comparatively better interest rates, the tenure, credibility, eligibility to a certain amount and other important factors.
Home Loan
A home loan is a secured loan offered by housing finance companies or banks against the security of your house and are generally provided to individuals who wish to purchase or construct a house. The property remains with the lender as a security till the repayment of the loan. Home loans and the companies offering the same makes it possible for the applicants to buy the house of their dreams.
Different types of home loans: These include home purchase loan, residential plot loan, home construction loan and home improvement loan.
Key factors for loan eligibility: Age, income level, repayment capacity (EMI to income ratio), the repayment history of other loans, and most importantly the credit score. A loan amount is also approved depending on the age of the property, kind of property its location and, the title of the property has to be clear.
Maximum loan amount: The total amount of loan that is borrowed depends on the repaying capacity of the customer, his credit score, his income level and the type of home loan. The maximum loan can be offered up to 90 per cent of the cost of the property, depending upon the loan amount required and if the rest of the conditions have been fulfilled.
Stamp Duty, Registration Charges and GST
In most states in India, 5-7 per cent of the total market value of the property is charged as stamp duty while 1 per cent is charged as registration fee, in some states it is even lesser than 5 per cent. Government's plan of implementing RERA and GST, has helped improve the transparency and build confidence among first-time homebuyers.
Types of Interest Rates
Financial Institutions offer fixed/variable or floating/mixed rate of interest depending on the needs of the borrower. The fixed-rate loan comes at a pre-specified interest rate for a certain period, after which it is repayable at a floating rate. In the case of the floating-rate loan, the rate may vary throughout the loan tenure as it is tied to the current money market rate and varies with changes in interest levels.
First-Time Homebuyer Benefits And Tax Exemptions
First-time homebuyers in India fall under the lower-income group (LIG) or middle-income group (MIG). They often face difficulty in gathering funds for their dream homes. The government has provided some benefits under the Pradhan Mantri Awas Yojana (PMAY) and (CLSS – Credit Linked Subsidy Scheme is one of the components under PMAY-U) for economically weaker sections (EWS) in 2015. There are various sections also extending relief to first-time homebuyers on the payable interest on the home loan.
Section 80C: Under section 80C, the tax benefit can be claimed to an amount up to INR 1.5 lakh on the repayment of the principal amount of the home loan.
Section 24: Under section 24, tax benefit up to INR 2 lakh can be availed on the repayment of interest of your home loan. Only applicable to the self-occupied property, if one is renting his/her property, there is no maximum limit on the amount for claiming a tax deduction. Hence, one can claim the entire interest amount or the amount exceeding INR 2 lakh.
Section 80EE: Under this section, a first-time homebuyer can avail a tax deduction of INR 50,000 as a tax benefit on the interest repayment and another INR 50,000 tax benefit can be claimed as "interest on home loan" provided the home loan has been availed from FY 2016-17 onwards, the value of the house is less than INR 50 lakh, the home loan amount is less than INR 35 lakh and on the date of sanction of the loan the taxpayer should not own any property.
The Pradhan Mantri Awas Yojana (PMAY): The subsidy is provided at different rates depending on the income of the people. A person having income up to INR 18 lakh can avail this subsidy. For annual income below INR 6 lakh, the subsidy is 6.5 percentage points on a principal component of INR 6 lakh, this is regardless of their total home loan. For income up to INR 12 lakh, the subsidy is 4 percentage points on a principal component of INR 9 lakh. The highest income category eligible for the subsidy, which is people up to the annual income of INR 18 lakh, the subsidy is 3 percentage points on a principal component of INR 12 lakh.
Maximum subsidy-eligible under CLSS for MIG (I) is around INR 2.35 lakh INR 2.30 lakh for MIG (II).
Benefits To Women First-Time Homebuyers
- Most Indian states charge a lower stamp duty, if property is registered in the name of a woman.
- Many financial institutions, also offer lesser rate of interest of 50-100 basis points for women co-borrowers.
- If a woman jointly applies for a home loan, both spouses will be able to claim tax deductions on their individual incomes. Women also get home loan at different interest rates.
- Under the PMAY scheme, the property bought must be registered under the name of at least one woman as a co-applicant. In the case of a woman applicant applying for a home loan under the flagship program's credit-linked subsidy scheme (CLSS). She can also avail of the concessions on interest. Women borrowers from the economically weaker section (those earning up to INR 3 lakh per annum) and low-income group (LIG) category can avail of an interest subsidy of 6.5 per cent on housing loans of up to INR 6 lakh.
Documents Required To Apply For Home Loan
Salaried: Most new-age lenders offer services digitally, otherwise basic requirements include duly filled application form with photograph, age proof (PAN card, passport, any other Certificate from statutory authority), residence proof (passport, driving license, telephone bill, ration card, election card, any other certificate from statutory authority), education qualifications (latest degree), latest salary-slips for 3 months, Form 16 for last two years, last 6 months bank statements (salary account), processing fee cheque in favor of the financial institution who will be facilitating your loan and photocopy of title documents of the property, and approved plan.
Self-employed: Certificate and proof of business existence along with business profile, last 3 years income tax returns (self and business) with profit and loss account, and balance sheets duly certified/audited by a chartered accountant, last 12 months bank account statement (self & business).
All documents need self-attestation if physical copy of these documents is submitted.
As a conclusion, owning a home is an unexceptional feeling. With the falling rates of the properties, one can apply for a home loan and invest in a property keeping additional factors in check such as location of the property, property approved by RERA and completion certificate from the builder, OC and CC certification from the main authorities, duly registered land and other permissions and documents of the builders and developers. This makes it easier for the repayment of the loan.
