Here's why this could be the best time to buy property for self use

If you are looking to buy a home for self-use, these could be good times. Home prices have been soft over the past five years, and home loan interest rates have declined sharply.

A recent study by Anarock Property Consultants showed that average prices across major cities saw a mere 7 per cent increase in the past five years. And if one factored in inflation, the prices would have actually fallen. At the same time, home loan rates have declined from an average of around 10.3 per cent in 2014 to 8.85 per cent in 2018. Clearly, both rates and prices are in your favour. However, there are some basics things you need to do to get the best finance deal.

Lenders are selective: It is important to do the initial groundwork since lenders are selective on the type, geography, and title of the property. 

“It is advisable to ensure that the property’s approved map plans and title deeds are in place in case of resale property and that the project is approved by leading banks and HFCs in case of builder property.” Says Gaurav Gupta, Co-founder and CEO,

Loan eligibility: Lenders generally finalise loan eligibility at lower of the two – property value or eligibility based on your income. If a property value results in a loan where the equated monthly instalment (EMI) could eat up a major chunk of your monthly income (generally above 50 per cent of net pay), your loan can be rejected. “Checking the extent of his/her loan eligibility online will help a borrower effectively plan for his monthly EMIs and future savings,” says Ashwini Kumar Hooda, Deputy Managing Director, Indiabulls Housing Finance. In addition, a good credit score – below 750 (out of 900) – can lead to rejection of loan application.

Loan tenure, and tax benefits: A longer loan tenure can reduce EMIs, but it also leads to higher interest payout. Also, you need to factor in the tax benefit. For example: Under Section 24, you can get benefit up to Rs 2 lakh annually on interest paid on the home loan. In addition, Section 80C also allows benefit up to Rs 1.5 lakh on principal payment.

Though there are many other instruments under Section 80C, a borrower can definitely take advantage of Section 24 E. So, if you can afford it, choose a tenure that maximises the tax benefit. “Currently, a prime home loan is extended at around 8.9 per cent a year and a loan of Rs 25 lakh will allow a borrower to enjoy the complete deduction of Rs 2 lakh of interest paid annually towards the home loan from his income tax, resulting in effective cost of loan being less than 3.5 per cent,” says Hooda.

Maximise loan-to-value: Loan-to-value (LTV) is the ratio of a loan to the value of the asset/house property purchased. Under present norms, LTV varies between 75-90% depending on property price. Industry experts say since home loan rates are not linked to LTV, a borrower can go for maximum LTV available.

Government schemes: The government is offering subsidy under Credit Linked Subsidy Scheme (CLSS) to all home loan borrowers earning below Rs 6 lakh, between Rs 6-12 lakh and between Rs 12 lakh and Rs 18 lakhs. The government has introduced the Credit-Linked Subsidy Scheme as a part of Pradhan Mantri Awas Yojana. These schemes can be useful, and lead to more savings if you fulfill the criteria.

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