According to Financial Express, real estate is becoming an increasingly popular investment option among millennials that comprise 34% of India’s population. With higher purchasing power, increased financial literacy, easy access to home loans, this generation is set to drive the Indian real estate market. Unlike their previous generations, millennials prefer to opt for a ready-to-use solution or package designed for their needs over having to shift through options by themselves.
The cost of purchasing a home can be overwhelming, making it almost impossible for one to purchase it directly through savings without financial assistance. But the good news is there are several banks and non-banking finance companies offering home loans at competitive interest rates, so you can easily finance the dream of becoming a homeowner.
The loan type differs depending on whether you want to opt for an existing property or construct your house from scratch. Let’s dissect both the cases and find out the best option for you.
CASE 1 – EXISTING PROPERTY
In the case where you wish to buy an existing property, either under construction or ready-to-move house, availing an easy home loan is the most suitable financing option. A home loan is financial assistance given by banks and financial institutions to finance the purchase of a residential property.
It can finance up to 80-90% of the house’s market value(this is subject to the terms and conditions of the lending bank.) The property serves as the collateral for the loan which is repaid through EMIs (Equated Monthly Instalments).
To make it even more convenient, some banks offer quick home loan like Karnataka Bank’s Xpress Home Loan that is designed to provide borrowers with fast access to funds. They are generally processed and approved quickly.
CASE 2 – HOUSE FROM SCRATCH
In another case where you want to start from absolute scratch by planning and designing your house in a way you specifically want, a composite loan is the way to go. A composite loan is a loan taken to finance purchase of a plot/land along with construction of a house on it within a given timeline. It is a combination of site/land loan and construction loan in which the cost of both land and construction is covered under a single loan. Any individual between the age of 18 to 70 years with income that meet the eligible criteria can apply for this kind of loan, provided they have a CIBIL score of above 750 (these conditions are at the sole discretion of the bank lending the loan.)
For first-time home loan borrowers and millennials alike, this two-in-one loan eliminates the stressful process of approaching different lenders for site purchase and construction, as they can rely on a single trusted source for all their financing needs. This deal is best suited for those planning to start construction of their house as soon as they purchase the land. The time frame for construction varies from one financial institution to another, so if you wish to delay the construction, it is better to opt for a land loan.
While you can avail a home loan starting at competitive interest rate, composite loans have a slightly higher interest rate. As per experts, however, a composite loan is much more cost-effective as it includes interest for both purchase and construction in a single loan and also because land loan does not provide any tax benefits.
Like any other housing loan, the lender finances only 80% of the estimated cost, which includes land purchase and house construction(subject to the terms and conditions of the bank lending the loan.) But the loan amount is not disbursed in lump sum or in a single transaction, rather in stages: land purchase, stages of construction.
Conclusion
In both home loan and composite loan, you can claim income tax deductions up to Rs. 1.5 lakh on principal repayments, and up to Rs. 2 lakh on interest repayments, subject to terms and conditions of the Income Tax department.
Once you have identified the loan type suited for you, move forward by exploring loan offers from different lenders, weighing them on bases of interest rate, tenure, eligibility, prepayment terms, etc. and finally choosing the one that perfectly aligns with you and your dream home. Building a house is an exciting process, but not a recurring one. So, be sure to be as involved as you wish to be and celebrate the thrilling journey of becoming a homeowner.
After all there’s no place like home, so get your own with a Home loan!