Buying A House With Low Income

10 minutes

While some low-income households, particularly those at the lower end, struggle to afford decent housing without government assistance, many others, including the upper end, can manage with housing loans.

Government initiatives, tax benefits, and affordable housing projects provide support, making homeownership achievable even for those with limited income. With careful planning and available resources, owning a home in India is possible for all.

Expert Tips To Secure Your Dream Home

Determine your budget

• Start by calculating your monthly income and fixed expenses. This will help you determine what you can comfortably afford for a home loan EMI (Equated Monthly Installment).
  
• Don’t forget to factor in additional costs like property taxes, maintenance, and utilities.
  
• Utilize online EMI calculators to estimate your monthly payments and find a loan amount that fits your budget
  

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Explore affordable housing options

• Look for homes in less expensive neighborhoods or on the outskirts of the city
  
• Consider buying a smaller apartment or a resale property
  
• Research government-sponsored affordable housing projects like Pradhan Mantri Awas Yojana (PMAY)
  
• Look into cooperative housing societies, which often have lower prices than private developers
  

Take advantage of government schemes and subsidies

• Research government programs that offer assistance to low-income, first-time homebuyers, such as the Credit Linked Subsidy Scheme (CLSS) under PMAY
  
• Look into home loans offered by public sector banks, which often have lower interest rates and more flexible eligibility criteria
  
• Explore state-specific housing schemes and subsidies available in your area

Improve your credit score

• Pay your bills on time and reduce your debt-to-income ratio
  
• Check your credit report for errors and dispute any inaccuracies
  
• Consider working with a financial advisor to develop a plan for improving your credit
  

Save for a down payment

• Start saving as early as possible, even if it’s just a small amount each month
  
• Look into the Employee Provident Fund (EPF) withdrawal scheme for down payment assistance
  
• Consider asking family members for a gift towards your down payment
  

Work with a housing finance company

• Find a reputable housing finance company in your area
  
• Work with a representative to understand the home loan process and eligibility criteria
  
• Take advantage of educational resources and workshops offered by the company
  

Shop around for the best home loan rates

• Compare rates from multiple lenders, including public sector banks, private banks, and housing finance companies
  
• Consider working with a home loan broker who can help you find the best deal
  
• Don’t be afraid to negotiate with lenders to secure a better rate

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Things To Keep In Mind For First Time Homeowners

1. Understanding Your Budget and Income

• Assess Your Finances: Calculate your monthly earnings, expenses, and savings to get a realistic picture of what you can afford.
  
• Set a Comfortable Housing Budget: Ensure that your housing costs don’t compromise your financial stability. Ideally, allocate around 30-40% of your monthly income for housing expenses.
  
• Example: If you earn ₹50,000 a month, aim to allocate no more than ₹15,000-₹20,000 towards monthly housing expenses.
  

2. Credit Score and Financial Stability

• Importance of Credit Score: A strong credit score tells lenders you’re reliable, increasing your chances of approval and potentially lowering your interest rate.
  
• Managing Debts: Pay off any outstanding debts or loans to improve your credit score.
  
• Example: Review your credit report for errors, pay off high-interest loans first, and avoid missing monthly payments, which can hurt your credit.

3. The Reality for Lower-Income Groups

• Limited Loan Eligibility: Lower-income families often face challenges in meeting the eligibility requirements for home loans due to lower, inconsistent earnings.
  
• Example: For Economically Weaker Sections (EWS) or Low-Income Groups (LIG), banks often require additional guarantees or offer smaller loan amounts.
  
• Challenges in Access to Essentials: Many struggle to secure basic necessities like food, clothing, and shelter, making homeownership even more challenging.
  
• Reality Check: Despite India’s advancements, rapid urbanization and limited affordable housing mean that over 26 million families still live in informal, low-quality housing.
  

4. Path to Homeownership for Lower-Income Groups

• Government Assistance Programs: Look into schemes like PMAY (Pradhan Mantri Awas Yojana), which provides subsidies and benefits to make housing more affordable.
  
• Affordable Housing Initiatives: Some developers and state governments are working on affordable housing projects specifically designed for lower-income families.
  
• Financial Literacy and Planning: Understanding and managing your finances can significantly improve eligibility. Budget wisely, manage your debts, and aim for steady income sources.

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Government’s helping hand to low income individuals

What has the government done to resolve this issue and is there any handholding for those who dream of having their own house? 

Well, yes, there are some schemes offered and here are the details —

The Pradhan Mantri Awas Yojana 

The Pradhan Mantri Awas Yojana (PMAY) is a flagship housing scheme launched by the Government of India to provide affordable housing to the economically weaker sections (EWS), low-income groups (LIG), and middle-income groups (MIG) in urban and rural areas.

It aims to address the housing shortage in the country and ensure that every Indian has a safe and secure home.

1.PMAY-Urban (PMAY-U)

This component focuses on providing affordable housing to urban poor including slum dwellers and those living in informal settlements. The beneficiaries receive assistance for the construction or enhancement of their houses.

2.PMAY-Gramin (PMAY-G)

The PMAY scheme also incorporates various other initiatives such as the Credit-Linked Subsidy Scheme (CLSS) for home loans, technology innovation in construction, and beneficiary-led construction. It aims to promote sustainable and inclusive urban and rural development by ensuring housing for all by 2022 (now extended to 2025).

Karnataka and other states have implemented housing schemes similar to the Pradhan Mantri Awas Yojana (PMAY) to provide affordable housing to its residents.

Some of the housing schemes in Karnataka are:

1.Basava Vasati Yojana (BVY)

This scheme is aimed at providing houses to economically weaker sections in rural areas of Karnataka. Under BVY, eligible beneficiaries receive financial assistance for the construction of houses.

2.Ashraya Yojana

 Ashraya Yojana is a housing scheme targeted at providing shelter to the urban poor in Karnataka. It provides financial assistance for the construction of houses or for the purchase of houses/flats from Karnataka Housing Board.

3.Ambedkar Awas Yojana

 This scheme is specifically for scheduled caste(SC) and scheduled tribe(ST) families living below the poverty line. It provides financial assistance for the construction or upgradation of houses.

4.Indira Awas Yojana (IAY)

Although this was a centrally sponsored scheme earlier, it provided housing for the rural poor, including SC/ST households. The scheme has been subsumed under the PMAY-G now.

These are some of the prominent housing schemes in Karnataka aimed at providing affordable housing to various sections of society. Each scheme has its own eligibility criteria and benefits, but they all share the common goal of ensuring housing for all.

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Taxman to the rescue for low income

First-time homebuyers in India can avail various tax benefits under the Income Tax Act. Here are some of the key tax benefits:

1. Section 80EEA

This section provides an additional deduction of up to ₹1.5 lakhs on the interest paid on a home loan by first-time homebuyers. The loan should be sanctioned from FY April 1, 2019, and March 31, 2022, and the stamp duty value of the property should not exceed ₹45 lakhs. The individual should not own any other residential property on the date of sanction of the loan.

2. Section 24(b)

Under this section, homebuyers can claim a deduction on the interest paid on a home loan. For a self-occupied property, the maximum deduction allowed is ₹2 lakhs per annum. For let-out or deemed to be let-out property, the entire interest paid can be claimed as a deduction without any upper limit. low income home

3. Section 80C

Homebuyers can claim a deduction of up to ₹1.5 lakhs under Section 80C for repayment of the principal amount of the home loan.

4. Stamp Duty and Registration Charges

Stamp duty and registration charges paid at the time of property purchase are also eligible for deduction under Section 80C within the overall limit of ₹1.5 lakhs.

5. Joint Home Loan

If you have taken a joint home loan, each co-borrower can claim the deduction for interest payment up to ₹2 lakhs individually, effectively doubling the tax benefit.

These tax benefits help reduce the tax liability of first-time homebuyers and make homeownership more affordable. It’s important to note that the availability and limits of these benefits may vary based on the specific provisions of the Income Tax Act and any amendments made by the government from time to time.

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Tips and Tricks to reduce your burden

In India, there are various affordable housing options available for individuals looking to own a home.

Housing Projects by Developers

Many developers in India, especially in emerging urban areas, offer affordable housing projects. These projects typically offer smaller-sized apartments with basic amenities at relatively lower prices.

Developers often collaborate with the government under schemes like PMAY to provide affordable housing. These projects may come with subsidies or incentives for buyers.

Resale Properties in Emerging Areas

Buying resale properties in emerging areas can be a cost-effective option. Emerging areas usually offer properties at lower prices compared to established neighborhoods.

These areas may witness rapid development in infrastructure and amenities over time, leading to potential appreciation in property value.

Co-operative Housing Societies

Co-operative housing societies are popular in India, especially in cities like Mumbai and Pune. Members collectively own and manage the housing society, which often leads to cost savings.

Buying a flat in a co-operative housing society can be more affordable than purchasing an individual property, as members share expenses like land, amenities, and maintenance. low income home

Joint Ownership

Joint ownership of property involves two or more individuals jointly owning a property and sharing the financial burden.

This option allows individuals to pool their resources and purchase a property together, making homeownership more affordable. It also enables them to share the responsibilities of loan repayment and maintenance.

Rent-to-Own or Lease-to-Own Options

Rent-to-own or lease-to-own options allow tenants to rent a property with the option to buy it at a predetermined price after a certain period.

This option is beneficial for those who may not have enough funds for a down payment immediately but want to secure a property for the future. A portion of the rent paid may go towards the eventual purchase of the property.

While rapid urbanization and income disparities pose hurdles, the government and housing finance companies are making homeownership more accessible. From PMAY schemes to affordable housing projects, there’s a buffet of options for everyone. low income home

Conclusion

Historically, access to housing finance for these customers has been limited. However, affordable housing finance companies have come in the market, recognizing that low-income customers may lack reliable documentation but have stable incomes. 

Frequently Asked Questions

Conclusion

For those dreaming of real estate, there are ways to make it happen. Consider joint ownership, co-operative housing societies, or rent-to-own options.

So, whether you’re a tech-savvy urbanite or a countryside dweller, owning a home in India is within reach. With the right ingredients and optimism, everyone can find their place in this diverse melting pot of dreams. Just remember, when life gives you lemons, make lemonade, and when it comes to homeownership, you got us at Credit Dharma.