8 Financial Tips if You’re Planning to Buy Your Dream Home
Buying a home is one of the most expensive investments one makes in a lifetime. You can achieve this by Applying for a Home Loan. However, here are some tips that will help you achieve your dream faster.
1. Your first job!
Buying a home requires extensive planning and saving. Once you complete college and land a good job that pays well, planning for a home should start there.
2. Budget your salary
The money you earn may be additional income for your family. You may also have taken an education loan. Your priority should be towards repaying your loan. Keep 20- 25% of your earnings towards repayment of your education loan. You may choose to contribute about 20% of your salary towards household expenses. You can use the balance for your personal expenses. After all that you are left with around 40 to 45% of your income. Save it for your dream house. The contribution might look very small initially, but over a period of time, you will collect a good corpus.
3. Home prices will go up
The sooner you start saving money for your home, the better it is for you. By the time you are around 26-27 years, you may want to get married and start a family. This would be the right time to search for a new home. Your salary would also have increased, and you would have attained job stability too. If the education loan is fully paid up, you would be starting with a clean slate.
4. Start checking out loan options
Consider that you started with a salary of around 40,000 per month. With a steady increase or around 10% per year, you would have easily saved 15 to 20 Lakhs by now. This amount can serve as your margin towards your dream home. Banks usually give 75 to 90% of the cost of the new house depending on your eligibility. But, it is not necessary to avail the entire amount. The best LTV (Loan-to-Value) ratio should be around 75%. LTV is the amount you get as a loan based on the market value of the property to be mortgaged. Suppose you have saved 15 Lakhs, you can aim for a house in the range of 55 to 60 Lakhs. In case you have a working spouse, you may add their income for determining eligibility if they wish.
5. Tax Benefits
If you are earning around 70,000 per month with your prospective spouse in a similar salary, you will be shelling out a minimum of 50,000 per annum as your income tax liability (after considering the statutory deductions like PF, insurance, and so forth). A Home Loan of 40 lakhs will enable you to save more than 50,000 in tax deductions. Therefore, you end up paying a minimum tax. Your prospective spouse will also end up saving a significant amount of tax as they would be a co-borrower in the Home Loan.
6. Understand the tax benefits
Repayment of your Home Loan will save you income tax. At the same time, you will also save tax on the stamp duty and registration charges while purchasing the house. The total exemption limit is 1.5 lakhs. In a state like Tamil Nadu, a home with a value of around 60 lakhs would attract stamp duty of 8%. This amounts to 4.8 lakhs. Many banks include the stamp duty and registration charges as part of the cost of the project. Hence, this can work towards your contribution towards the margin money. You can save 1.5 lakhs as income tax deduction. As far as repayment of interest portion is concerned, males are entitled to a deduction of a maximum of 1.5 Lakhs. Women get an additional 50,000 as a deduction. Also, you are eligible for a deduction of 1 Lakh in the repayment of your principal amount (principal repayment component of your EMI). Thus, you end up saving quite a lot of money on your income tax payments.
7. Avoid relying on Personal Loans.
Many people rely on Personal Loans to bridge the gap. Although it is the only logical option for many, you may try out the PF loan option in case you are facing a shortfall. Repayment of PF loans taken for housing purposes counts towards your income tax deductions subject to the limits discussed above. Also, the rates of interest would be lower in comparison to the Personal Loans.
8. Opt for an extended repayment period.
Banks nowadays stretch the repayment of the Home Loans to 30 years. Go for the longest period. But, try to pay more every month so that you close the loan within 15 years. Do not go for the shorter option at the initial stage because it will put additional strain on your resources. A default of even a single instalment can bring down your credit score.
These tips can be beneficial as you move towards purchasing your dream house. Keep these in mind and enjoy your dream house along with your family.
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