Home buying involves complying with various legal procedures. For a first-time home buyer, the process may seem overwhelming, and often they commit mistakes. Read on to know the most common mistakes made by first-time home buyers and how you can avoid them.
After much deliberation, if you have finally decided to buy a new home, it is natural that you may be feeling a little overwhelmed. The joy of being able to move into your own house, coupled with the various apprehensions about the loan and complying with the legal formalities, can be tough to deal with. Often, many first-time home buyers tend to get bogged down and commit few errors in such a situation. Let us look at some of the common mistakes that most first-time homebuyers commit and how you must avoid them.
Overspending on the property
Many first-time homebuyers tend to go overboard with their purchase and opt for a property beyond their financial capacity. And consequently, they apply for a higher home loan and later struggle with the repayment. Hence, it is paramount that you carefully review your finances well in advance and determine the maximum amount you can afford to spend for the house, without compromising your other expenses and financial goals. Not to forget, make provision for emergency funds.
Not checking the loan eligibility
Often first-time homebuyers, in their bid to complete the purchase, tend to make decisions in a rush. And one of them is to apply for a loan without knowing if they qualify for the loan. Different lenders in India have additional eligibility requirements, and before you submit your home loan application, you must ensure that you meet the lender-specific requirements. This will not only help you avoid the risk of rejection but also help you have a smooth borrowing experience.
Not comparing the home loan offers
Many people get lured by the various home offers marketed by the lenders and tend to choose the lender that provides the loan at a lower interest rate. But, it would be best if you did not make your decision based on home loan interest rates alone. You must carefully compare the offers, in terms of repayment terms, prepayment charges, loan tenure, etc. and choose the right lender with favourable terms and conditions.
Not considering a joint home loan
A joint home loan is an excellent facility that allows you to increase your home loan eligibility and help you buy a better property. Additionally, if you apply for a home loan interest subsidy under Pradhan Mantri Awas Yojana, you may have to include your spouse or any other female member of the female as the co-applicant.
While applying for a joint loan is beneficial, it also comes with its share of cons. If you fail to repay the loan, the onus of repayment will fall on the co-applicant. In case of delay in the repayment of an EMI, the co-borrowers’ credit score will be affected.
Not taking advantage of tax deductions
Most people in India have limited knowledge about the various taxes they must pay while buying a new house and the deductions they can claim under the Indian Income Tax Act. Not paying your taxes can attract a hefty penalty, and not claiming the deductions available can lead to financial losses.
As per the IT Act, first-time homebuyers are eligible to get various tax benefits. Under Section 24(b), you can claim a maximum deduction of Rs. Two lakhs in a financial year on the repayment of home loan interest. Section 80EE allows you to get an additional tax benefit of up to Rs. 50,000 [excluding the deduction under 24 (b)] on the interest repayment if your loan is sanctioned between April 1, 2016, and March 31, 2017. Under Section 80C of the IT Act, you can claim a deduction up to Rs. 1,50,000 for repayment of the principal amount.
Now that you are aware of first-time homebuyers’ mistakes make sure that you avoid them and have a pleasant home buying experience.