Buying a second home is a breeze provided you understand the nuances of your decision and keep the following points in mind.
Many years ago, only the truly wealthy had more than one home in India. Buying a weekend home or multiple properties was considered the prerogative of the rich and famous. For most people, buying their first home was an uphill task, so buying a second home was simply out of the question!
Today, however, the middle class is buying second homes like never before. Myriad options in second homes, many good locations both inside and outside city limits and good financing options from banks and financial institutions make these purchases quite easy. Also, people have a higher disposable income than before, so they are willing to invest in property more than ever.
It becomes easier to buy the second home after buying the first. One is familiar with the home loan process, having done it once before. Also, one may even borrow money against the first property to finance the purchase of the second. Consider these factors to keep in mind before buying the second house:
1 You can save tax, but…Earlier, buying a second home was a great option for those who wished to save on tax. The interest on the loan was tax deductible, being treated as expenditure to buy the house. However, Budget 2017-2018 capped the deduction on interest at a maximum of Rs 2 lakh per year on the second house loan. Thus, the tax benefit is comparable to that of a self-occupied house. However, there is still a good tax benefit on it, if you are serious about this aspect of the matter.
2 You can use the house for rental income. The biggest advantage of buying a second home is that you can monetise it by renting it out. You can rent out your home to private individuals, or to companies looking to house their employees, or even to corporates who require guest houses. You can even rent out the space for small events or film shoots, etc. (bungalows and villas are ideal for these purposes) to make rental income. The rent you charge is dependent on prevalent market rates and the overall condition of your house. However, companies may be amenable to paying much more than the market rates if the house is fully furnished and well maintained. The rental income can be a valuable second income for you, or it can help you repay the EMIs on your home loan.
3 It becomes a retirement nest egg. The second home you buy can serve another important function for the future – it can become your retirement home. A stand-alone dwelling, such as a villa or row house, in a quiet setting outside the city is ideal for retirees. This is an important consideration and you must make the decision right now – if the second home doubles up as a weekend home and a possible retirement home in the future, then you must invest in a house which is in a quieter location, easy to maintain and easy to access from your current home.
4 Interest rates have dropped, so buying a second home is easier. If you wish to invest in a second home, the time is now. Home loan rates have dropped across banks, post-demonetisation of 2016 – with an influx of money in their coffers, banks could afford to lower their lending rates. Thus, the lowest home loan rates at the moment are at 8.6%, while upper rates are at 9%. So the best time to invest in a second house by taking a home loan is now.
5 Despite a slowdown, real estate is still an appreciating investment. The real estate sector in India is in a veritable crisis, with millions of unsold housing units all over the country. High prices have reduced the demand for housing, while affordable housing projects are still receiving queries from interested buyers. Property has always been an appreciating asset in India, and this trend is still being seen, despite the slowdown in real estate buying and selling. Other investments in shares and stocks and even gold are not doing as good a job of appreciating as real estate is.
6 Your loan eligibility is reduced. However, a key factor to consider while taking the second home loan while still repaying the first, is that your loan eligibility is reduced for the second loan. This is because of the previously unpaid loan, for which your bank considers that you have less money for repaying the second loan. Thus, you might get a lower loan amount and even a higher rate of interest. You can discuss your options with your bank and use a home loan calculator to find out about the loan amount as well as the EMI you must pay every month. When using the home loan calculator, do not forget to tick the box that asks if you have any existing home loans – your eligibility will be calculated accordingly.
7 You can apply for the loan online. The best banks in India let customers initiate the loan application process online. You can browse through the product’s features, ask a query and even fill out a preliminary application form to kick start the process. Your bank will then ask you for a meeting and hand you a detailed application form and list of documents to submit with it, post which the process of evaluating the application and the property commences.