Why You Should Avoid using Your Provident Fund to Buy a House
Buying a house is something everyone plans and dreams of throughout their lives. And many buyers who are ready to buy a house lack funds. These buyers prefer to opt for home loans, and lenders seek a 20 percent down payment for that. Since they lack money or have low income, making payments to these lenders can be difficult for people.
After retirement, one can use his money to buy a house. But, is it a good idea to spend all the money you have earned with so much hard work all these years into buying a house?
Employees Provident Fund (EPF) is a scheme under the government that helps members of EPFO to use 90 percent of their funds for making the down payments of their new houses. Under this scheme, a person can get a loan which is of the amount 24 times more of their wages. Employees who have an EPF account for 3 years or more and also have a minimum of 20,000 account balance are considered eligible for EPF withdrawal. Under certain conditions, one can withdraw up to 90 percent of their balance to buy a new house.
When you make payments through EPF for buying a new house, you also get the benefit to avail interest payment subsidy under Pradhan Mantri Awas Yojana (PMAY).
People who are paid a fixed amount of money for their work by the employer, EPF helps them to gather funds while they’re working. The scheme is beneficial for people who are retired and currently aren’t earning money. So it is not wise to withdraw it before maturity as it can put your retirement into risk. One should keep in mind that by using the money that is supposed to give you a comfortable life after retirement for buying a house, you are leaving no funds to live a good retired life. The banks offer you home loans to buy a house but don’t lend you any loan to live your retired life.
EPF is something that helps you save money for living your life after retirement. While you are earning, you keep contributing a small amount of your salary to your EPF account. As your salary increases the contributions, you are making keeps going up. When you retire, this will help you gather enough money to live a happy retired life unless you withdraw it for some other purpose.
In India, everyone dreams of having their own house but, making such a decision of using your provident fund should be avoided thinking about the future. Many people withdraw their provident fund money for buying a house, for their children’s education, for business and other purposes and at the end lack money to pay for their daily expenses after they retire.
If you want to buy a house, you should start planning 3 to 5 years before buying and also start saving money to pay for the down payment and debt of home loan. Even if after all these years of saving money, you cannot save enough money to buy your dream house or maybe because the price increase, you can always choose to delay your home buying for another year or more.
One should always go for saving money for buying a house or taking a home loan rather than withdrawing their provident fund money. Withdrawing your EPF money should be your last option. If you go for using your EPF money, you should keep in mind to contribute the same amount back in the course of time while you are still earning. Hence, always see that you have at least 15 years left to your retirement before withdrawing so that you can again save enough EPF money.
Before going to withdraw your provident fund money, there are few provisions or conditions that one needs to keep in mind and follow. Like:
• You should have the account for at least 5 years.
• The property which you are going to buy should be on your own name.
• If the property is jointly owned, it can be only with your spouse.
• A lot of documentation and other processes are also required to go through.
• Also, the withdrawal should only be allowed if the person belongs to a cooperative society or housing society, and there are at least 10 members living in the premises or community.
• If you are employed, it is the employer who makes an application on your behalf. After verification and examining the company sends the documents to the regional EPFO office. The approval or response can come within one month, but it also depends on the EPFO office and the employer’s promptness.
But overall using your provident fund for buying a house isn’t a good decision. One should opt for taking a home loan instead of using that. Taking a home loan and getting it approved is an easy process, and you can also choose your home loan plan according to your flexibility and affordability. You can keep clearing your debt slowly with the income that you are currently earning within the given term. Under proper guidance, you can choose your desired home loan, which you can afford with low-interest rates and more benefits. It is always wise to choose to take a home loan over withdrawing your EPF money.
Experts and financial advisers have also suggested that it is better to opt for home loans or other assets or schemes instead of touching your provident fund money. Letting your EPF amount grow helps you worry less about your life after retirement and also live a comfortable content-rich retired life. You can look through the property rates, work on your financial planning, and look into all aspects while keeping your income in mind before making any financial decision.
Tushar Sharma is a financial advisor with an experience of more than 6 years. He has worked with top-most financial firms and has been a visiting faculty at many reputed institutes in India. Currently based in Delhi, Tushar Sharma is a passionate writer and loves sharing his knowledge on the subject.