Financing Your Home: Should You Take a Home Loan or Make Cash Payment?

One of the most common dilemmas in home buying is the method of payment. The two available methods include getting a housing loan or buying a house with cash. But, which one to choose, you may ask. Let’s look at both these methods and understand which suits you the best.

Features of a housing loan for home buying

#1 High loan amounts

Due to the ever-increasing property costs, it’s prudent to get a loan to reduce your upfront financial burden. You can avail of loan amounts worth Rs. 5 crores. This way, you won’t be digging into your retirement corpus, emergency funds, or additional savings to purchase a property, and your funds won’t be locked in a single investment.

#2 Credit score requirements

Before approving your housing loan, lenders review your loan repayment ability. This means you need a solid credit or CIBIL score, ideally over 750, to get a good loan offer. However, by applying for a home loan, you can build a spot-free credit history through timely EMI repayments and boost your credit score.

#3 Filing paperwork

The housing loan process involves filling out the loan application, property verification, and submitting relevant paperwork. At Tata Capital, we only request mandatory information like your income source, employment certificate, the purpose for the housing loan, etc., making it easier to get a loan.

#4 Immediate ownership of property

Once the loan is sanctioned and funds are disbursed into your account, the new house belongs to you.

#5 Tax benefits associated with housing loans

With housing loans, you become eligible for tax deductions of up to Rs. 1.5 lakhs according to Section 80C of the Income Tax Act. You can get an additional Rs. 2 lakhs deduction if your family stays in the same property.

Thus, housing loans allow you to save immediate funds, build credit scores, immediately own property, and get tax benefits. Paying cash for purchasing a house, conversely, has the following features.

Additional Read: Should You Be Using another Loan to Make a Big Home Loan Down payment?    

Cash purchase property features

#1 High costs

When you pay from your pocket to buy your dream house, you may compromise your financial stability in case an emergency strikes. While it is a suitable option if you have adequate funds, it can make you vulnerable to financial stress.

#2 No credit requirements

Using cash directly doesn’t require a good credit score, and cash payments have no specified eligibility criteria. However, unlike loan repayments, paying cash for a house doesn’t build your credit score.

#3 No interest rates

Unlike loans, there are no interest rates applicable on cash payments, meaning you save significant funds otherwise expendable on interest payments. However, these processes still have additional costs, such as stamp duty and registration costs.

Additional Read: Top 5 Tips for the Self-Employed to Avail Home Loan

Over to you

Ultimately, getting a loan or making a cash payment depends on your financial fitness. If you lack the financial backing to buy your dream house, turn to Tata Capital. We provide a range of housing loans at attractive home loan interest rates tailored to your needs. Visit our site to learn more.