Benefits of Buying Your Dream Home Through Employee Provident Fund

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09:30 AM 27 Jun 2019

If purchasing your dream home is a lifetime achievement for you, but sadly, you are at a shortage of funds. Then, no worries! all thanks to our Indian government for its rescue operation to fulfil the housing vision of employees. Any salaried person under Employee Provident Scheme, who is a part of an establishment, irrespective of it being a government or private sector can utilise their funds for the home purchase.

Employee Provident Fund is a very well-known investment scheme, that gained huge prevalence among salaried persons in India for its unmatched benefits. Governed by Employee’s Provident Fund Act 1952, it came into force to provide a supporting future to employees at the time of their retirement or to their dependents in case of the employee death.

What is EPF Housing Loan Eligibility?

To avail 90% of their Employee Provident Fund amount, the employee should have a minimum of three years of employment under the scheme and must have a minimum of Rs. 20,000/- in their PF account. Fulfilling the requirements, the Employee Provident Fund body will then sanction the amount including the principal and interest or the purchase cost of the property, whichever is lower. Under this category, an employee can only make one withdrawal of employee provident fund for buying a house during his entire employment.

Home Loan Against Employee’s Provident Fund

The Employee Provident Fund Organisation (EPFO) has launched an EPF housing loan scheme which enables employees to withdraw up to 90% of their total contributed EPF retirement money for real estate investments. Employee Provident Fund can be used to renovate homes or during the buying process. It is not mandatory for a housing project to be organised by a government body. One can use their PF amount for any non-government housing project.

The Employee Provident funds can be withdrawn to buy a plot of land or construction of the property. It can also be used for renovation purpose to an existing property that has been under the name of the applicant or at least he/she must be a joint owner for 5 years. One can also opt to pay EMIs for the particular home loan using their provident fund. Any excess amount that is not been utilised for the EMI will be refunded back to the employee's provident fund account.

Let's take a sneak peek on some of the benefits of home buyers get while purchasing a home through employee provident fund:

Shortage of Funds

Although the Indian government have launched many schemes to encourage and support the central government’s ‘Housing for All by 2022’, it has been still struggling to achieve its target.

With the employee provident fund subscribers increased to 50 million, the Indian government with a mission to fulfil the housing vision has made some amendments in its existing rule that employees can utilise their 90% of PF amount for purchasing a home. 

Employee Provident Funds are very beneficial, as compared to home loans where the loan interests are reaching sky-high, everyone can use some of their extra savings to reduce their financial burden. Employee Provident fund is considered as the best investment scheme for its profitable interest rates. As of now, the government is giving an 8.75% interest for the EPF amount, which is the best interest rate compared to any Indian banks.

EPF Debits to EMI Credits

One of the interesting beneficial fact about EPF is the increased ability of home loan. In this context, it means for EPF housing loan apart from using 90% of Employee Provident Fund, one can also pay the EMIs by using their EPF balance. Every month the employee contribution for PF account will be debited and will directly be credited as EMI for the home loan bank. This comes very handily whenever the cash flows are short.

To avail of this benefit, an individual is needed to furnish their EPF balance, monthly contributions through passbook printout to the bank. One needs to submit a form, and get it attested by the bank manager and submit it to the employee provident office. This is very advantageous in lowering the overall EMI payment and is a regular payment option until you are an EPF member and have sufficient balance in your EPF account.

Help Your Better Half in Loan Repayment

Employee Provident Fund benefits are not only limited for you, but it also includes your spouse. An individual can apply for a home loan against employee provident fund in case they are planning to purchase a house under his/her spouse ownership. They can withdraw a partial or 90% of EPF amount for the housing loan repayment.

Indian government provided these relaxation EPF rules for the spouse, is to provide aid to prospective home buyers, in some drastic cases where an employee loses his/her job and are unable to repay their home loan as they are not even eligible to do without an EPF membership. But with this rule, their spouse EPF account can be linked to their home loan as a relief to the overall process until they find a job of their own.

Conclusion

Although there are commendable benefits of taking a home loan through the Employee Provident Fund. All major financial advisors suggest that employees should withdraw their retirement fund only if its to purchase a first home and is not intended for real estate investment purpose. As in most cases, the cost of home loan is lesser than the receivable interest of the EPF amount.

Are you looking to own a home in your price range? Browse PropertyAdviser.in, India’s first ever property directory to find your dream home from a vast properties options along with accurate information on home loans.

By Govi