Regular income is essential to apply for a home loan, however, if you are 60 and not working here are some crucial factors you need focus on while making a decision.
For many, buying a house tops the list of aspirations and is considered as one of the most important life events. However, this important life event is not guided by choice, but by ‘finance’. In India, typically a working individual purchases his or her first home in their mid to late 30’s or in their early 40’s. But what if, you are retired or close to retirement and want to buy a home of your own? Will you just sweep your dream under the carpet because the naysayers believe that it’s too late to buy a second home? If the major reason for the hesitation is the lack of a disposable income from a regular job or from a business let this article help you by addressing the primary factors you need to think about while taking this decision .
Financial support from banks and financial institutions
Regular income is a must for a loan. But, if you are retired and not working, what do you do? In such a case, at least two or more of the below mentioned factors would usually provide a solution.
A stable income source like a pension from i.e. reputed companies, central or state government pensioners, public-listed banks or insurance companies.
- Life insurance policy
A collateral such as a life insurance policy to assign for the security of the loan.
- A co-borrower
An existence of a co-borrower (someone who shares the burden of the loan with you) such as a child with regular employment and income.
- Long-term lease on commercial property
An existence of a term lease on a property which is long term in nature, providing, a relatively regular source of income.
- Existing collateral
You can also obtain loans against the collateral of assets you already have. For e.g. a real estate property or a bank fixed deposit.
The government has now relaxed the norms to withdraw Employees Provident Fund (EPF) to fund the purchase or construction of a house or to buy land. Hence, people who have worked for the government or had a pensionable job can avail this facility.
Tenure for repayment of the loan
Many financial institutions do not provide finance to borrowers beyond 75 years of age. Therefore, if you take a loan at the age of 60, the tenure will be for a maximum period of 15 years.
Possibilities of rejection/acceptance of application for Home Finance Let us look at some of the factors that may go against you while seeking financial aid.
Let us look at some of the factors that may go against you while seeking financial aid.
- A borrower above 65 years looking for a longer tenure loan (e.g. exceeding 10 years) may not be considered by the bank.
- If the income source is uncertain or subject to fluctuation, for e.g. income from the lease of a property that is subject to the risk of premature termination of the lease or dividend income, from equity shares.
- The property to be purchased is in a remote location or not easily marketable.
- The Fixed Obligations to Income Ratio is more than 50-55%. This could indicate that the borrower will face difficulties in case there are any unforeseen expenses or a variation/reduction in his income due to any causes beyond his/her control.
- If the borrower had no regular fixed streams of income
- Loans where the Loan to Value ( a component of a loan as compared to the value of the property) is higher than 55 -60 % have a higher probability of being rejected.
- Lack of a co-borrower.
How rebates and subsidies from the government can help?
The Pradhan Mantri Awas Yojna (PMAY), aims to help economically weaker sections, low and middle-income group citizens to buy or build homes through finance facility offered by lending institutions. The scheme grants upfront subsidy which is deducted from loan amount, thereby increasing affordability by a reduction in EMI. Credit Linked Subsidy Scheme (CLSS) that is applicable only for affordable housing loans availed by Economically Weaker Sections (EWS) and Low Income Groups (LIG) seeking housing loans classifies eligible beneficiaries in three categories as highlighted below:
Though the aim of subsidy is to increase house ownership for all borrowers up to the middle-income group, the initiative is targeted to spurt housing demand primarily by EWS and LIG borrowers who are sensitive to affordability quotient.
Let’s sum up
Getting back to your decision to buy a house. The greater your awareness, the more will you control the situation. So, to give you a deeper perspective let us summarize.
Here are the areas you need to focus:
Focus on annuity income
At the age group of 60 years, the primary financial goals should be of preserving capital and creating a stable and growing (it should grow to offset effects of inflation) annuity income.
Avoid speculative investment activity
Investing huge amounts in volatile asset classes should be avoided. The good news is that buying a house for the following reasons does not come under speculation:
- You do not own one or
- The existing house is not in a good locality or
- The house is now too big or for your requirements.
- The existing home is not capable of meeting longer-term family requirements i.e. for this children/extended family.
The emphasis should be on sufficient cash flows after factoring the investment decision in purchasing a house and meeting the EMI/other obligations such as maintenance costs, property taxes etc.
Status of construction
At a more advanced age purchase of a ready-to-move property rather than an under-construction project makes more sense. Everyone deserves a home so don’t let worry and lack of information stop you from achieving your dream home.
Disclaimer: The views expressed in the article are solely of the author and may not represent 99acres.com's opinions on the subject. 99acres.com does not take responsibility for any actions taken based on the information shared by the author.