Buying a home is a once in a lifetime decision and one of the biggest dreams in life for many of us. Every individual has a desire of buying a home of his own. It is one of the most important financial decisions for any individual as it involves a lot of planning, execution and your hard-earned money. Owning a home will likely be the largest investment that you will ever make and you want to do it wisely. One of the major decisions one has to take is that how will he / she be funding the dream purchase? Every individual does not have such an amount of surplus cash which will be able to cover the purchase of the dream home.
If you are unable to purchase your dream home through your savings, then you can opt for a home loan. The key to success in building a dream home of your own lies in the planning stage which starts with budgeting for your dream purchase. Individuals need to figure out a step-by-step financial guide to know how to save money while making their dream purchase, decide whether they want to buy a home by availing a home loan or not. If you opt for home loan, then you should compare different home loan offers and the tax benefits that they come with.
But, availing a home loan is not that easy as it is said. Availing a home loan can be a tedious task as it involves a lot of paperwork and documentation which is time consuming and exhaustive. While banks and financial institutions always appear to be ready to lend, you should always research and plan for the whole process before applying for a home loan. So, let us explore some of the key steps that you should consider before buying your dream home, which can help you save money and financially plan your dream purchase.
- Determine your Budget
The first step in planning your dream purchase should be to set a budget. Depending upon your budget, you can make a decision whether you want to buy a constructed home or apartment or a fully furnished home. After you have successfully made your budget, you need to decide how will you finance the home property? For instance, if you set a budget of Rs 50 lakhs for the purchase of your home property and decide to go for an apartment the next decision that you need to make is how you will fund this. Do you have sufficient savings to completely fund the home property value? If not, how much loan will you be required to avail? These are some of the important questions that you need to answer before you start arranging your finances or applying for a home loan.
- Decide how you will fund the home purchase
After you have decided a budget for your home purchase, you should begin figuring out how you will fund the entire home purchase, using your savings to fund your property completely or availing a home loan. If you want to fund your home purchase using your savings and home loan as well, then you need to evaluate how much you have in hand and what amount is required to borrow. So, it is always advisable to first compare home loan interest rates of different lenders to know what your home purchase will cost you.
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- Find the right home loan
Before you avail a home loan for your house purchase, you should check and compare with different banks and financial institutions. To avail the right home loan, you should look for the bank that offers lowest interest rates on your home loan. Also, you should compare other charges related to your home loan like prepayment charges, foreclosure penalty etc.
- Choose the total loan amount
Most of the banks and financial institutions in India provide home loan applicants at least 80% of the home cost as loan. For instance, if you are looking to purchase a house property worth Rs 50 lakhs and your bank decides to provide you 80% of the cost as loan, then you will be able to avail a loan of Rs 40 lakhs. But, you will be required to arrange Rs 10 lakhs to purchase your dream home. So, if you are planning to buy a home, it is always recommended to start with financial planning in advance and saving money for the down payment of your house loan. Note that making higher down payment or margin contribution might also increase your home loan eligibility as it reduces the credit risk for the lenders.
- Fixed v/s Floating Interest Rate
Home Loan Interest Rate is one of the most important factors which can directly impact the overall cost of the loan. So, it is always advisable to first understand about the different types of interest rates before availing a home loan as it will also leave an impact on your EMIs. It is essential to know the difference between a fixed and floating home loan interest rate. Under fixed home loan interest rate, the EMIs don’t vary over the loan tenure. This proves to be beneficial when the interest rates are expected to rise in coming future. If you opt for floating home loan interest rate, then the interest rate is calculated based on the MCLR. So, a floating interest rate changes with time and proves to be beneficial if home loan interest rates are expected to fall in near future. Floating interest rates keep on changing according to the market fluctuations.
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- Read all the documents carefully
Before finalizing your home loan deal with a lender, you should understand all the terms and conditions related to your home loan. You should be aware of the regulations related to your settlement, foreclosure and prepayment of your home loan to avoid any misunderstanding at a later stage. Also, read all your documents related to home loan carefully before signing them. Check all the terms and conditions to know about different charges applicable.
- Tax Benefits of a home loan
Home loan borrowers are eligible to avail a number of tax deductions on their home loan. As per Income Tax Act, 1961 you can claim deductions on the interest paid on your home loan, the principal invested and charges like registration and stamp duty fees. For interest payment of your home loan, a deduction up to Rs.2 lakhs can be availed and for principal, a claim for tax benefit can be made for up to Rs.1.5 lakhs under section 80C of the Income Tax Act, 1961. The deduction for registration and stamp duty also falls under the total deduction of Rs.1.5 lakhs under section 80C.
Conclusion
Financial planning is essential before buying a home as it provides buyers enough time to arrange and plan the funds for their dream purchase. All the points mentioned above can help you save your money on your home purchase and help you from any confusion or financial stress.
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