Who doesn’t dream of owning a home someday in life? Surely everyone does. Even if you currently live on rent, you certainly wish to get rid of this burden and risk of living in someone else’s house for too long. Even sometimes, a person does own a house property which may be ancestral or self purchases, but they might prefer to either keep it idle or rent it out and live somewhere else. In such cases, owning a second house can assist. But remember that, as this is a big step, lack of financial planning, selection of poor location and/or failure to take a home loan can make this a tedious task for you.
Thus, to make sure your decision and process of second home purchase turn out to be financially rewarding and successful, follow these smart tips before purchasing it with the help of RBL bank Home Loan:
Review your current and expected financial position
The first & foremost step to take when buying a second home is a thorough assessment of your current as well as expected financial position, including your cash flow, liabilities, assets etc. Remember that going ahead to buy a house, even if you are taking the help of RBL bank Home Loan. Demands a relatively big chunk of money in the form of down-payment, along with a solid long term commitment to serve the chosen repayment tenure. In case you are planning to fund the second house through a home loan with a low and attractive RBL bank Home Loan interest rate, make sure you can service the loan EMIs without spiking up your EMI to income ratio beyond 50-60% because lenders prefer lending to borrowers with a higher EMI to income ratio. However, for those whose this ratio is beyond 60%, then you can either select a longer repayment tenure and/or make a bigger down payment to reduce your EMI as well as EMI to income ratio too.
To boost your eligibility, some lenders can also consider the suggestion of including your spouse’s income while computing your net monthly income, thus making you avail of a joint home loan. Also, many lenders offer the EMI calculator and loan eligibility tool on their websites in order to ease prospective customers’ overall experience to evaluate their affordability.
The purpose of a second house purchase should be the base behind the location’s choice.
The primary aim behind buying a second home can, in all likelihood, either be for rental income, investment or vacation. It’s highly unlikely for someone to buy a second house, let alone first, for no reason. Hence, the choice of that second home’s location should be anchored by the purpose for which it is being bought. If the purpose is to provide a source of additional income through rent, then the location should have a high rental demand and also offer a decent infrastructure. If the house’s aim is for vocational purposes, then probably an isolated location that is peaceful and closer to nature can be ideal. Last but not least, a location offering good value coupled with a high scope of capital appreciation every year would be suitable for those whose aim behind the second house is investment purposes like funding for child’s marriage or retirement. Hence, before finalizing your location and property and subsequently applying for an RBL bank Home Loan, consider checking whether the location and property are amongst the list of supported properties and locations by the lender to ensure ease of loan processing.
Assess your credit profile before submitting a home loan application
With the rising importance and role of credit score in lending, banks and HFCs generally prefer lending to applicants having a strong credit profile, including a good credit score and satisfactory repayment capacity. Hence, if you are planning to submit an RBL bank Home Loan application to fund your second house property, ensure to check your credit score before applying for the loan. Doing so assists in knowing your eligibility and creditworthiness and gives you sufficient time to take the required steps to improve the score to avoid getting the applicant rejected on the grounds of a low credit score. Moreover, having a good credit score can even fetch you a better RBL bank Home Loan interest rate apart from boosting approval chances.
Carry out analysis of ROI prospects if buying for investment purpose
When finalizing the property to call as your second home for the purpose of investment, always ensure to carefully carry out an analysis of the expected return on investment (ROI) prospects of the property. ROI mostly measures the investment’s performance by measuring the return on investment through the net profit relative to the cost of investment. A higher ROI means the net returns from the investment are higher than its cost. Numerous diverse factors like location of the property, infrastructure, availability of public transportation, rental demand, overhead costs affect the ROI prospects of a property to a great extent. Finalizing a property with good ROI and availing of a home loan with a low RBL bank Home Loan interest rate are two aspects that can make this decision of owning a second home a financially rewarding one.
Never disturb investments earmarked for other financial goals.
In your quest to own a second house, make sure to never compromise with your other crucial life goals like child’s marriage/higher education or retirement. Also, avoid disturbing your emergency fund to attempt at paying a bigger down payment, as the primary purpose of this fund is to tackle financial exigencies, which can harm your regular income inflow temporarily. Usually, it is advised that your emergency fund should ideally be at least 6 times your monthly living expenses.
So, while choosing your RBL bank Home Loan EMI amount, ensure to consider your existing EMIs, monthly contributions towards the investments or emergency fund so that these aren’t compromised or sacrificed upon to fund your second home. Doing so can have consequences in the form of pushing you towards borrowing at a much higher cost in the future whenever the need arises. And with a low and attractive RBL bank Home Loan interest rate currently on offer, taking a home loan might be a good idea to grab hold of these rates to buy your second house.
Keep in mind the tax benefits.
Both the principal as well as interest paid on home loans are eligible to be claimed for income tax deduction up to Rs.1.5 lakhs and Rs.2 lakhs, respectively, for a self-occupied property. But for a property that is not acquired or constructed within 5 years from the end of the financial year in which the RBL home loan was taken, this interest benefit would drop down to just Rs.30,000. Moreover, the principal deduction’s claim is only valid if the property is held for a minimum of 5 years from the end of the year in which possession has been taken.
For those taking a joint home loan, then it would entitle both the co-borrowers to avail the tax benefits separately, therefore reducing the total tax outflow. Moreover, having a female co-applicant can help to fetch a marginally lower RBL bank Home Loan interest rate. However, to ensure that both co-borrowers can claim the available tax deductions separately, make sure that both are not only the co-borrower/co-applicant but also co-owners of the property.