Key factors to consider before buying a second property

According to data from the Economic Survey 2017-18, an increasing number of people now prefer buying property instead of renting. In 1961, 61% of Indians used to live in rented houses in urban areas, whereas 72% had their own home in 2017. Not only do more people live in homes they own today, but an increasing number of people are deciding to buy more than one property.

If you too are thinking about buying a second property, here are some factors you must consider, not the least of which is a home loan with a low-interest rate.

Tax implications

In case you have decided to buy a second home for saving tax or rental income purposes, it is also important to consider the tax implications. If you own more than one home, then only one of the houses is considered as self-occupied, and the other is believed to be rented out, even if that is not the case. Whatever you earn in the form of rental income will be subject to tax under the Income Tax Act.

You can claim a deduction for the interest paid in case you have bought the house with a home loan. The maximum deduction on interest is capped at ₹2 lakhs, as of 2019. However, there is an option to carry the losses forward for eight consecutive financial years. It must also be remembered that the tax benefits on principal repayment are only allowed for one house and not the second one, under Section 80C of the Income Tax Act.

Deciding on the right loan

Once you have decided on the property, the next step would be to choose the most suitable home loan. Choose one that is easy to repay. The loan amount depends on the value of the property as well as your monthly income. Banks prefer to maintain the EMI amount smaller than 50% of your salary. In case you are paying EMIs for your first home, or have taken any other type of loan, the amount sanctioned might go down.

But, if you take a joint home loan with your spouse, the amount could increase. There is also option to transfer your home loan to another bank, in case you find that the interest rates can be reduced this way. There are tools such as balance transfer calculator which show you how much you would save via home loan transfer.

Calculate other expenses

Buying a house is more than just paying for the property; there are other charges as well. You must take into account the registration fee, documentation charges, lawyer’s fee, a commission of the real estate agent, charges for repair and renovation if required. It is advisable to calculate these expenses beforehand so that you are able to calculate your overall budget accordingly.

Apart from these tips, it is important to be informed about property laws. This information comes in handy, especially if you are looking to buy a property in a city other than the one you reside in. The property laws can vary from state to state.

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