Investing in residential property is a safe option and can give good returns in the medium to short term. Since investing in residential property will cost a great deal of money, it is likely that you will be taking a home loan. It’s quite easy to apply for and get a home loan sanctioned these days. You also get various tax benefits, for example, deductions under Sections 24, 80C and 80EE. Home loans are easy to repay in EMIs, which makes them the preferred choice for homebuyers.
Home loans are definitely advantageous, but they come with the assumption that you will be able to pay the EMIs every month. Paying the EMIs won’t be a problem, as long as you have a job. However, things in life are unpredictable and no one can guarantee what may happen in the future. Home loan EMIs are usually spread over 15-20 years, which is quite a long time. If you lose your job for any reason, it will become a big challenge to pay the home loan EMIs. This is why having a secure job is important when investing in residential property. Let’s take a look at some more reasons why does job security matter to invest in residential property.
#1. Lender might seize your property:
If you lose your job and are unable to pay home loan EMIs for three consecutive months, the home loan lender might seize your property. After three consecutive defaults, the lender will treat the loan as NPA (Non-performing asset) and begin the process to recover the dues, as per the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act). You will have around 3 months more to repay your dues. In case you don’t, the lender will auction the property. This will be a significant loss for you and your loved ones.
#2. Expenses will increase:
As children grow, overall family expenses will continue to rise. Losing your job during this period can create huge financial challenges. Apart from being unable to pay home loan EMIs, you will face financial challenges on various other fronts. You may have some savings, but they won’t last forever. You will have to find another job or create some other source of income.
#3. Health risks:
Financial problems can be devastating, as they lead to significant stress and anxiety. If you are stressed or depressed due to job loss, it could trigger other health issues such as cardiovascular problems, gastrointestinal problems, diabetes, etc. These would further complicate your problems and may worsen the situation. The health of your loved ones may also be affected, as they too will be experiencing stress due to your job loss.
#4. Deteriorating relations with family and friends:
When you lose your job, you may be forced to borrow money from your family or friends in order to pay home loan EMIs and for other critical needs. Repeated requests to borrow money may adversely impact your relations with your family members and friends.
#5. Home loan protection plan won’t help:
Even if you have taken a home loan protection plan, it won’t be helpful when you lose your job. These insurance plans come into effect after the death of the insured. They will not be helpful in case you lose your job. Some home loan protection plans do provide cover for job loss, but that is only for a few months.
#6. Credit rating will go down:
When you default on your home loan EMI repayment, it will adversely impact your credit rating. Your credit score will come down, making it difficult for you to secure new loans. Even if you manage to get a loan, the interest rate charged on the same will be higher than normal. People with low credit score have to pay a higher interest rate on their loan. Such factors can complicate your financial condition.
Home loans can be a great gift, but only if you are able to pay the EMIs over the duration of the loan. Since job security is vital when investing in residential property, do not buy a property beyond your means. You should also have adequate savings so that you can pay EMIs and support yourself for 6-12 months in the event of losing your job. Always ask yourself – “what if I lose my job”? “Will I be able to pay the home loan EMIs”? “How much EMI can I afford even after losing my job”? Answers to these questions will give you a clear idea about the type of residential property to invest in.
You may be tempted to stretch your salary to accommodate the largest residential property that may be available. However, this will make you totally dependent on your job and salary. If you lose your job, the consequences can be devastating, as discussed above. It’s better to buy a relatively smaller property so that you won’t be hit hard even if you lose your job. Later in life, when you have more money at your disposal, you can sell your existing property and buy a larger one. “Don’t bite off more than you can chew” should be your motto when you are dependent on your job and are planning to invest in residential property.