Buying a second home is a dream for many people and the thought of owing a second home is itself very tempting. Nowadays the availability of home loans at lower interest rate has made it possible all the way. People who dream to have their second home at their favorite spot (place) can easily have now. Apart from the dream second home is something which provides many benefits to the owner and tax benefit is among such a benefit. A second home can be an investment for someone or it can be a plan to live in after retirement. But before going for a second home there are many things which should be considered and those things are –
Affordability
Affordability is the first question that should come in your mind when you are going for a second home and you should ask yourself, can you afford purchasing a second home? And is it really needed?
Well the answer of these questions lies in your income and expenditure ratio. If you are going to take a home loan for your second home, the important thing you should think about is can you afford the monthly EMIs and it is even more important to think this when you already have your outstanding first home loan. If your income is sufficient to pay the EMIs then you can definitely go for it.
If you are purchasing a second home for the purpose of investment and for rental purpose before going for it you should always think that what particular amount you are going to save from tax and is that worth to spend that much to save what you are saving by spending on a new home. If you are buying your second home for spending your vacations. In this case also think that how many days you are going to spend there in your second house and will that be coast worthy to stay in hotels for your vacations. Can you afford that much (the price of your second home) only for vacations?
Tax Benefits
This is the fact that no one wants to pay more taxes that too for a second home. But the fact is if you have two home governments thinks that only one is there which is self-occupied while other is rented. For the ranted home you can’t get full tax benefit. Suppose you have a second home and you have rented that.
The income from your rented house is suppose INR 2,00,000 then there will be a standard deduction of 30% i.e. INR 60,000 which is for the maintenance and paying municipal bills and all. Rest 1, 00,000 is the interest you pay for your home loan. Then only 40,000 which is left from the rented income you can file for the tax benefit. So before going for a second home always think about this point.
Where your Second Home is Located and how Big it is?
Many people take second home for investment purpose which they rent to some other people and get money against it. When you are planning to do so, the location and size of your house will matter a lot. Before buying only the owner should try to purchase the house it that area where he can get a maximum as rent. This will help in making profit even after paying the EMIs.
Before purchasing the size should also be considered as the size of your house is directly proportional to the maintenance cost. Bigger is the house more is the money needed for the maintenance.
Loan amount
Loan amount is one of most important thing anyone should think before going for a second loan. This is very important as your loan amount is the one which decides yours monthly EMIs and the down payments too. Whatever amount you are going to take as the loan don’t forget that a particular amount of that is required as down payment. For the mortgage home loans most of the lenders charge a minimum of 3% as the down payment which is to be done from your pocket only. Generally the down payment is 20% of the property sale price.
Can you Afford two Mortgage?
Before purchasing a home, have a money related arrangement set up to plan your finances and maintain a proper cash flow monthly wise. It’s basic to think little of the expenses of owning a home. You may have cash for an instalment now, however by what method will you pay your instalments later when there will no sufficient cash flow.
In case you’re buying a second home only for the investment purpose then, work with an expert (professional) to understand the tax benefits and their terms and conditions. Other important thing you should try to do is keep some emergency cash with you so that if in any case you lost your job then also you can pay your instalments from that cash.
Protect your Second Home (Home insurance)
Natural calamities and disasters like earthquake, floods can come at any time. We can’t predict them or stop them so, it always better to have an insurance to protect your home from such things. Home is such a thing which comes from years of savings and hard work and if something happens to our home that cannot be replaced, and if replaced that will cost so much. That’s why it is suggested by many builders at the time of purchasing only to have a home insurance because it safeguards our property against various kind of damages.
Apart from all these points there are some other factors too which should be considered before buying a home whether it is a first home or second home that doesn’t matter. Some of those those factors are- the location of the property, builder ( reputation of the builder), layout of the house and legal status of the property.
