Going for home loan? Beware! Calculate worst-case scenario first, say experts
Homebuyers generally go for the home loan while buying their dream home. However, they need to know one thing that taking a loan is fraught with danger.
Homebuyers generally go for a home loan while buying their dream home. However, they need to know one thing that taking a loan is always a burden and dangers abound. While applying for a home loan, it has been found that people consider the the annual increment and income growth in their salaries but not the negatives like a slowdown in the industry they belong to, the bad financial year of their recruiter or, in worst-case scenario, job loss. According to tax and investment expert they should also think of the negatives while going for a home loan or any other loan. In fact, the expert says they should try and avoid taking a loan. Instead, he says homebuyers should first generate a lump sum amount for a better downpayment and bring down the loan value to around 50-60 per cent. This means homebuyers should have enough savings that allows for a downpayment to be made of as much as 40-50 per cent while buying a home.
Manikaran Singhal, a SEBI registered tax and investment expert said, "Going for a loan should be the last option of an earning individual. While going for any loan, it has been found that people calculate their salary growth but not the worst case of job loss. Job loss is also an important variable that one must keep in mind while going for a home loan or any other loan."
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Manikaran said that a tendency to buy a home as early as possible in one's career has caught momentum in the last few decades, especially after the flow of private banks and various lending platforms in the NBFC sector. He advised homebuyers to first raise a lump sum amount that should be to the tune of 40-50 per cent. The homebuyer should keep the time-period of the loan as short as possible as the lesser number of EMI means greater space for financial freedom.
Another Option Available
Advising homebuyers to use EPF option while purchasing a home, Balwant Jain, a Mumbai-based tax and investment expert said, "An employee who has completed 5 years of PF or EPF contribution can withdraw up to 90 per cent of PF or EPF balance, subject, however, to the cost of asset to be acquired." This means 90 per cent of the EPF balance or price of the house whichever is lesser can be granted as the EPF withdrawal amount.
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