To have one’s own sweet home, however small, is the cherished dream of almost every human being for emotional security and satisfaction. To achieve this, all that is required is an intense burning desire and will power. This has been my experience and also the experience of many others who have acquired abode.
When you want something , all the universe conspires in helping you to achieve it
– Alchemist-Paulo Coelho
Once you decide to have your own home, everything which is necessary to be done to buy or construct the house will automatically follow. Your brain and mind, both will start working sharply to locate suitable property through newspapers advertisements, estate agents, brokers, property websites, friends, references, contacts, enquiries with builders, developers, Goa Housing Board, ‘communidade plots’ etc; You should ascertain background and reliability of builders, rates offered, mode of payments, date of possession, proximity to work-place and other amenities such as market, education and medical facilities, quality of neighbourhood and other surrounding amenities. You will also find various ways and means to raise funds to finance the house as well as ascertain eligibility of Income Tax benefits. And you will not rest till your goal is reached.
Financing: There was a time, till few years back, when one could think of having a home only in retirement after accumulating sufficient funds through savings or after getting retirement benefits. Housing loan facilities, as in the western world, were unheard of. Now in India, apart from housing finance institution like LIC Housing Finance Corp, HDFC, Can Fin, DHFL, GIC Housing, Indiabulls, etc, most of the commercial banks provide home loans at competitive interest rate of around 9% to10% per anum of varying terms upto thirty years. You can get list of comparative rates with terms offered by different financial institutions from websites dedicated to finance and investments. Finance is provided for purchase of new or resale home, for buying plot of land and construction of home thereon. Maximum loan available is 80% of the agreement value of the premises and not what you might have actually paid under the table. The agreement value should also be supported by valuation report from bank valuers. Stamp duty, registration and any other charges are ignored. Balance 20% is required to be contributed by you as margin money. You have option of fix or floating interest rate or reset of these interest rates after 3-5 years. While budgeting the house, you should ascertain your financial capacity to pay equitable monthly installments (EMI) which covers principal and interest for repayment of housing loan based on reducing balance method.
Banks decides your eligibility for loan amount based on total annual income of applicant including spouse, age, duration of loan, interest rate, repayment capacity and various other parameters. Normally, maximum loan eligibility is sixty times your gross monthly salary income or five times average annual income based on Income Tax Return filed with tax authorities. This loan is to be repaid monthly over tenure of loan in equated monthly installments popularly known as EMI which is calculated on reducing balance basis. Under this, in initial years, interest components are high which gradually goes down with payment of EMI over a period of time.
Apart from interest rate, banks may charge loan processing fees of 0.25%. If your loan is not sanctioned for any reason, the fee paid is lost. In case you prepay the loan for any reason, prepayment fees are levied. Before you go for home loan hunting, you should finalise the property deal. You will be in position to confidently negotiate better terms with the bank.
Precautions: While buying property, you should always ensure that you are dealing with the right owner. You must check original sale agreement that traces the history of ownership; encumbrance certificate; NOC from local bodies, electricity and water department; clauses in joint development agreement, if property is developed by developer; approved building plans; occupancy certificate; mutation extracts. Also ensure that property is clear from any loan liability. After purchasing the property and registering with registering authorities you should ensure that your name is included in land records and municipality or Gram Panchayat property card records. If you have purchased a unit from a member of co-operative housing society, check that your name is recorded in all records of the society such as membership certificate, electricity, water bills and in registers of local bodies.
Planning Design: If you are constructing the house, a few suggestions: Have compact house to facilitate proper maintenance; have servant room and at least one bed-room on ground floor for use of elders and in your old age; have floorings at same level to avoid falls; have non-skidding tiles for bathrooms; do not have attached, hardly used galleries for every room for security and to prevent rain water; do not have entry of visitors directly to drawing room; have access to house direct from garage; have space for garden.
Income Tax Benefits: Financing residential house through institutional housing loan offers income tax benefits on principal and interest component paid through EMI. Principal amount upto Rs 1.5 lakh is deductible from gross total income u/s 80C of income tax act. Interest accrued ie even if not actually paid is deductible upto Rs 2 lakh u/s 24 of the Act. In the new tax provisions, first time home buyers with house cost upto Rs 50 lakh are eligible for additional interest of Rs 50,000 for loans upto Rs 35 lakh. However, remember that principal amount is allowed only after construction is complete on the basis of completion certificate. You will not be allowed deduction during construction period. If you sell this house before expiry of 5 years deduction already granted u/s 80C will be forfeited and you will be liable for tax on entire deduction amount claimed as income in the year of sale. If property is not acquired or constructed within 5 years from end of the financial year in which loan is taken, interest will be reduced to Rs 30,000.
Interest paid during construction period is not eligible for deduction. After construction is complete, total interest paid during construction period will be aggregated and will be allowed as deduction in 5 equal installments for 5 financial years from the year construction is complete.
Investment Benefits: Having your own home, not only gives emotional security and satisfaction but also appreciation in value as investment, much higher than any other class of asset, apart from tax benefits. In old age, this can also be used as safety net under Reverse Mortgage Loan Scheme, in case of inadequate income to support your lifestyle. Under this scheme, a loan is available to senior citizens of over 60 years against mortgage of their residential premises without requiring to repay the loan during their lifetime and at the same time the senior citizen can live in the same house until death of the borrower and his spouse.
If this article inspires you to have your own home, don’t forget to invite me for house warming party.
