BEFORE scrambling to buy a home, you should consider a few aspects.
First, whether you are buying a house as a residence or as an investment? If it is for residential, the most important thing to ask is, whether you would continue to live in the same city? There are people who have bought a home and then had to move to another city and have put their house on rent. It beats the purpose of acquiring the house in the first place.
But if you have bought a house for availing of tax break, think again. A Rs 1,00,00,000 home with probably a Rs 70,00,000 loan, hardly offers a tax shelter worth speaking of. Home loan offers up to Rs 1,50,000 deduction on interest.
The loan interest a person may be paying would be over Rs 5,00,000.
If this home is a second home, then things become interesting – 30 per cent of rent can be set off as expenses; the interest paid on the home loan can be set off entirely against the balance rental income. In some cases, this may show a loss. Only the balance income or the loss is added to the gross taxable income. This becomes advantageous when one has taken a huge loan to service a property.
The other important aspect to consider is the kind of property to buy and the price up to which one could stretch oneself. Many get excited when they see some interesting property. When they are 'sold' on some property, they tend to lose their rationality and seek every possible means to acquire it even if the price is way beyond what they had budgeted for. That locks them into loans, which they would find onerous to service. Even a small-unforeseen financial expense can spell crisis for such people.
Only the balance income or the loss is added to the gross taxable income. This becomes advantageous when one has taken a huge loan to service a property.
The other important aspect to consider is the kind of property to buy and the price up to which one could stretch oneself. Many get excited when they see some interesting property. When they are `sold' on some property, they tend to lose their rationality and seek every possible means to acquire it even if the price is way beyond what they had budgeted for. That locks them into loans, which they would find onerous to service. Even a small-unforeseen financial expense can spell crisis for such people.
Things to consider before buying a home are: Before seeing any property at all, you need to be clear whether they really want to buy the property in that city. Thinking that you can always sell it, is not a great idea in itself because properties are not really liquid.
Even if it is sold after three years, long term capital gains have to be paid for or you will need to invest in another residential property or in capital gain bonds.
After that, you need to decide on how big a property you want to buy, in which locality and the price point up to which you are comfortable. This clarity is important as otherwise, people look at all kinds of property, get confused and end up stretching themselves financially.
When buying a property, you have to budget for registration and stamp duty, brokerage, other incidental expenses, interior work, and add all these to the cost.
That will give them an estimate of how much it will totally cost and whether it is really within your budget or not.
When buying on loan, it is better to increase self-contribution as much as practicable, unless the loan is really low-cost. If the loan EMI is more than 40 per cent of your net income, it would be a good idea to start prepaying at regular intervals.
Provisioning for this from the beginning is a good idea. Also, when the tenure extends be yond your retirement age, it is a good to prepay and get it within your working tenure.
For people with irregular incomes, the amount of payment upfront should be higher compared to someone in service. Also, they should consider prepaying as and when they get lump sums and reduce their exposure.
Consider the ongoing costs in the home you are buying as that can impact you adversely over time. A resale property might have lower outgoings compared to a new property. When considering a property, evaluate whether you might really be using the amenities such as gymnasium and swimming pool, otherwise, you will still have to pay for them.
Before signing on the dotted line ensure that the papers are in order. An easy way here is to apply for a loan and the papers are automatically vetted for you. If the loan is sanctioned after the due process, it would mean that the papers are in order.
Buying a home is an important decision. You need to consider all aspects before you conclude your purchase.
Happy Investing!!
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