First Time Home Buyers: Should you buy that House now?

Most people in India would love to have their own house. It's a dream come true. The Government wants all citizens to have their own house and has launched an ambitious program called 'Housing for all by 2022' Mission. If you're a first time home buyer, this might be the right time to buy your own house.

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First Time Home Buyers: Should you buy that house now?

Consider these factors when buying your first home.

1. Real Estate (Regulation and Development) Act (RERA)

The Government had launched RERA on 1^st May 2017, to bring transparency and fair practices in the real estate sector. Under RERA, developers of all residential and commercial projects, have to register themselves with a regulatory authority and get their registration number. Without registering the project, builders cannot advertise, market, book, sell or invite anyone to buy an apartment or a building in this project.

It is compulsory for developers to provide project details such as cost of land, cost of construction, development agreement, sanctioned plans, covered parking lots, construction deadlines and so on. Under RERA, the builder has to transfer 70% of the money received from a home buyer, to an escrow account. This money would be used as the stages of construction are approved by the engineers.

If the builder delays possession of the apartment within the agreed time period, he must return your (the buyers) entire amount with interest.

See Also: Should You Buy Under Construction Property In RERA Regime?

2. Property prices are falling

Developers used to hold the property as stock-in-trade, with the hope of an increase in property prices in the near future. To stop this practice, the income tax department has started imposing tax on such properties.

Those properties will be taxed at the rate of 8-12%, if they are in stock for more than one year from the date of receiving the project completion certificate. With the implementation of this practice, buyers can expect a further fall in the rates in the sector, which is already facing slow growth.

3. Tax benefits

First-time home buyers can claim income tax benefits under Section 80EE of the Income Tax Act.  If you are a first time home buyer, you can claim a deduction on home loan interest paid, up to Rs 50,000 a year under this Section. You can claim this deduction until your home loan is fully repaid. This deduction is over and above the Rs 2 Lakh deduction, under Section 24 of the Income Tax Act.

To claim this deduction the home buyer should meet the following criteria:

a) The home buyer should not have any other residential property in his name and the home loan should be sanctioned between 1^st April 2016 and 31^st March 2017. It would be good if the time period is extended further in the Union Budget 2018-19.

b) The value of the loan should not be more than Rs 35 Lakhs and the value of the property should not exceed Rs 50 Lakhs.

SEE ALSO: PMAY Gives You A Bigger Home

4.  Credit Linked Subsidy Scheme under PMAY

Credit Linked Subsidy Scheme (CLSS) for the Middle Income Group (MIG), was launched under Pradhan Mantri Awas Yojana (PMAY). Citizens with an annual income between Rs 6 Lakhs to Rs 12 Lakhs, come under the MIG-I category. Citizens under MIG-I category, get a 4% interest subsidy on a home loan up to Rs 9 Lakhs.

Citizens with an annual income between Rs 12 Lakhs to Rs 18 Lakhs come under the MIG- II  category. Citizens under MIG-II category, get a 3% interest subsidy on a home loan up to Rs 12 Lakhs.

This is an excellent time to buy your first house. Don't miss this opportunity.

Home Loan for First Time Home Buyers

Home loans are a boon for those who want to fulfill the dream of buying a house. However, the budget for constructing or purchasing a house is quite high and people struggle to fulfill their dreams. The government has identified this problem and has come up with certain schemes in order to meet the housing needs of the urban population.

The CLSS and PMAY schemes offer subsidies to eligible groups of people under the affordable housing segment. Now, people with budget constraints can also own a house. The scheme aims to provide financial support as well as rehabilitate the low and mid-income groups in the cities/urban areas.

Credit Linked Subsidy Scheme (CLSS):

The credit linked subsidy scheme or CLSS is an initiative taken by the central government to provide subsidies on affordable housing, to the urban population, mainly those belonging to the low and mid-income groups. The scheme aims to rehabilitate the urban poor living in slums and provide them with a subsidy on purchase of a house. This benefits a huge section of the urban population, who cannot afford to bear the entire cost of purchasing homes in cities.

Types of Home Loans:

There are several categories of home loans available in the market today. Some of the home loans commonly availed by borrowers are as follows:

• Loans for purchase of land: Under this type of loan, the borrower can purchase land and construct a house. The borrower can also avail a loan to buy land where the bank finances 85-90% of the cost and the remaining 10-15% must be paid by the borrower. All major banks in India provide loans for the purchase of land.
• Loans for purchase of a home: Most of the home buyers or real estate buyers avail this category of loan. The borrower can purchase an already existing property or a new property from the loan sanctioned. The rate of interest ranges from 9.85% to 11.25% a year. This is a secured loan where the property purchased is used as collateral for the loan.
• Loans for construction of a house: This type of loan is sanctioned by banks for the purpose of construction of a house. This type of loan is generally availed for a plot that is bought within a year, as the cost of the plot is included to determine the loan amount. The amount of funds granted is determined, based on a rough estimate of the construction cost of the house.
• Loans for house expansion: Some banks offer loans for expansion of a residential dwelling. Borrowers can apply these loans for the construction of an additional structure or rooms within an already existing structure.
• Loans for house repair: Home loans are also provided by banks to carry out home renovation and repair works like roof/ceiling repair, painting, construction of overhead water tank and electrical renovation.

First Time Home Buyers under PMAY:

The PMAY scheme is regulated by the Ministry of Housing and Urban Poverty Alleviation. The Ministry has laid down certain specific eligibility criteria which a prospective buyer must meet. Most of the commercial banks offer loans to home buyers under the PMAY subsidy scheme. However, the subsidy can be availed only by first time home buyers who do not own a property anywhere in India. The scheme offers subsidy even if the home loan is taken under a joint name.

Eligibility Criteria under PMAY Scheme:

Listed below are the sections that can avail the PMAY subsidy, if they fulfill the eligibility criteria as stated by the PMAY committee.

• Economically weaker sections: These are the low-income groups, who can avail PMAY subsidy provided they have an annual household income of 3 Lakhs or below.
• Light income group: The light income group comprises of people who have an annual household income of Rs 3 to 6 Lakhs.
• Medium income group (MIG-1): People who earn under Rs 12 Lakh a year, fall under the category of Medium income group.
• Medium income group (MIG-2): People with an annual household income of Rs 12 Lakh to 18 Lakhs, fall under the MIG-2 category.
• Minorities: people belonging to the minority groups like SC/ST/ OBC are eligible to receive the PMAY subsidy by providing respective caste certificates.
• Women belonging to the EWS/LIG group can apply for the PMAY subsidy.

SEE ALSO: How To Avail Tax Benefits On Home Loan?

Documents Required Under PMAY Scheme:

The loan applicant must furnish:

• Duly filled and signed application form.
• Identity proof: Aadhaar card, PAN card, passport, driving license.
• Address proof: Utility bills, voter ID, rental agreement, telecom bills.
• Proof of income: salary slip of last 2 months, bank statement (previous 6 months), latest form 16 or income tax returns
• Property documents: buyer agreement, copy of payment receipt, copy of allotment letter
• Other documents: caste certificate (if applicable).

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