Banks may demand a higher down payment for second home loans, said expert.
Buying a second property is always a pleasing experience. It is always a good investment opportunity, especially if you do your homework appropriately. Home buyers should be aware of the purpose of buying the second house and select a location and property according to his/her essentials. In the current economic scenario, affordability and purpose of buying a house should be the key consideration, said real estate experts. Buyers should always keep the income tax factor in mind and also see whether he/she will be able to liquidate it in case of financial urgency.
10 factors to consider while buying a second property:
- "It is important to identify the right market for buying a second property which means a location that has the potential to grow further. There are locations with premeditated social and infrastructural developments", said Deepak Goradia, Vice Chairman and Managing Director, Dosti Realty.
- According to Mr Goradia, the second thing to keep in mind is budget. There are bounteous options available in the market to fit one's requirements. One should choose something that fits their budget.
- "The right time for buying a second property depends on individual profile and market scenario. Due to demonetisation, RERA and Good and Services Tax (GST), the homebuyers were adopting a wait and watch policy. In the current scenario, the market is still attractive for those planning to buy income-generating assets or for capital gains, if considered from a long-term perspective and provided they sort out their investment plans and put their finances in order. For those intending to buy a second home for their personal enjoyment, the market, considering the pricing aspects, is favourable right now and will improve even further", said Aditya Kedia , Managing Director, Transcon Developers. The Real Estate (Regulation and Development) Act or RERA came into effect last year in 13 states and union territories aimed at bringing more transparency in the sector. GST was launched in July 2017 by the government to simplify taxation process.
- According to Mr Kedia, there is a good supply of second home projects that have come up in the last two years. There are many township projects where property management is done by developers. The decision to buy a second property/home should be based on the specific project dynamics - a reputable developer with a solid track record would want to keep that legacy going. So it is advisable to invest with the same.
- Investing into affordable housing is a great idea as there is a demand-supply gap and in addition to rental income, there is a high probability of good capital appreciation, added Mr Kedia.
- Buyers can also look for micro market trends where there is no oversupply in the product category, which can be both within the city or suburbs, mentioned Mr Kedia.
- "In the current market scenario, banks and financial institutions may demand a higher down payment for second home loans. The norm at present is 10 per cent but depending on case-by-case, it can be raised to 25 per cent or more. Buyers must try to make higher down payments for the second loan as these loans are usually taken when the buyer is professionally at peak. So, the lower the loan amount, the better it is. Most of the banks require that home loans should be closed by the time the buyer retires. The offer document state that the maximum loan term is 30 years or retirement age of the borrower, whichever is earlier. Another factor to consider is the Equated monthly Instalment (EMI) to income ratio and it should not exceed 50 per cent", said Mr Kedia.
- If we talk about mortgage approval for a second home, there is absolutely no chief variance between the mortgage of the first and second home. "For a second mortgage loan, a new bank checks income details and eligibility criteria of the buyer. The interest rate related is also much higher as a second mortgage loan has a great peril that comes associated with it. The process is that if the bank has kept an adequate margin between the amount of home loan and the value of the property, then one can approach the same financial institution (where he/she approached while buying the first home) to enhance the limit by the top-up loan but this is only done if the loan account is clear", explained Mr Kedia.
- "The fresh mortgage is created for the full amount of loan in favour of the financial institution. After that a no-objection certificate (NOC) is obtained from the previous lender along with other title deeds, for no charge on the property. For any buyer, the financial credibility and repayment cycle of the current loan are the determining factors for the outcome of a second mortgage loan request", Mr Kedia further explained.
- In case a buyer wants to buy a second property with no deposit he/she needs to be careful. Based on rate of credit along with the history of lending, some lenders will allow buyers to fund 100 per cent of the total purchase value. This will lead the interest rate and payments to go much higher.
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