MUMBAI
:
With real estate prices going through the roof post the pandemic-induced slump, the aspiration for homeownership has become notably challenging for many Indian millennials.
Mint has designed this guide to clarify the path to owning a home for millennials, address the obstacles mid-career professionals face, explore available government assistance, and offer actionable financial strategies for purchasing their first home.
Down payment: Managing the down payment is one of the first hurdles that new homebuyers face, especially in metropolitan cities where property prices are extremely high. A two-bedroom-hall-kitchen (BHK) apartment in a metro city can cost anywhere from ₹70 lakh to ₹2 crore. Lenders can finance, at the most, up to 90% of the property value. So, if you wish to purchase a property in a good locality of any tier I or tier II city, then the down payment can be somewhere around ₹10 lakh to 20 lakh.
Affordable EMIs: Affordability is another challenge that determines the decision to purchase a new home. Many millennials find that even with a stable income, the price of homes outpaces their saving ability. A person earning ₹1 lakh per month may not be able to afford an apartment with an EMI of ₹30,000 because of other monthly expenses. On the other hand, a person earning ₹70,000 can afford that apartment if he or she has maintained financial discipline and keeps other expenses under check.
Loan eligibility: This is the part where banks and financial institutions come into play. Every lending institution has its own set of parameters to decide the eligibility of your loan amount. If loan eligibility is low then purchasing an expensive home can be a distant reality. Normally, this involves checking the applicant’s credit report, monthly liabilities and spending behaviour among other things.
Higher interest rates: This challenge comes into the picture after applying for the loan, and your loan eligibility has been calculated. When your credit score is low, your bargaining power is lost as home loan interest rates are influenced by the repo rate and the spread that banks are going to charge you with. Higher interest rates will directly affect the total amount you repay to the lender.
Tax breaks: The Pradhan Mantri Awas Yojana (PMAY) offers income-based tax breaks, providing substantial relief to eligible homeowners.
Section 80C of the Income Tax Act allows for a beneficial deduction of up to ₹ ₹1.5 lakh on the repayment of the principal amount, which can significantly reduce your income tax liability. Additionally, sections 80EE and 80EEA offer a noteworthy deduction of ₹50,000 on interest repayments, enhancing the financial appeal of homeownership.
Moreover, Section 24 allows homeowners to claim a deduction on interest payments up to ₹2 lakh, offering considerable financial relief.
The PMAY: The first thing that the housing scheme’s applicants need to understand is whether they are eligible for the subsidy. Keep in mind that family income calculation takes into account the income of all family members from various sources, including investments, jobs, and others.
Prepare for down payment, EMI
Budgeting: Any big financial commitment always starts with good budgeting. Start by revising your monthly budget where you give high priority to saving money. Cut down on unnecessary expenses that will help accumulate that down payment for your dream home.
Credit score: Always monitor your credit score if you use credit cards and other credit instruments frequently. Look for any discrepancies in your credit report and raise a dispute in case of a mismatch. Don’t forget to settle any outstanding credit card bills in a timely manner to ensure your credit score remains intact. Remember, a low credit score means low bargaining power with lenders.
Long-term planning: Consider your long-term career path and potential income growth. Buying a home is a long-term commitment. Ensure your career trajectory can support future mortgage payments.
Start to invest early: Early investments are the key to good financial health. By the time you start planning about owning your dream home, you will have amassed a decent corpus that can be used for the down payment.
While the path to buying your first home will always be a challenging one, timely financial planning will ensure fewer surprises on the way.
Raj Khosla is the founder and managing director of MyMoneyMantra.com.
