Make Down Payment of your dream home from your PF Money

Buying a dream home is out of reach for many since the housing prices are highly over valued (Especially in metros)  and it becomes extremely difficult for the mid level income to invest 

As you know, banks grant a home loan for only up to 75% to 80% of the value of property. In other words, before you could even think of buying a house, you need to raise about 20% -25% of the funds to be able to make a down payment. And sometimes, more than securing a home loan, ensuring you have the down payment becomes a herculean task.

People who are in their mid-40s often face a common problem of liquidity. Meaning, it isn’t that they don’t have money to buy a house, however, their funds are locked due to withdrawal restrictions. In some cases, their investments may incur mark-to-market losses if they happen to sell them to raise money.

In such situations, people have no other option but to opt for expensive personal loans or turn to private moneylenders who charge them usurious interest rates. Being considerate about this practical difficulty, the Government recently relaxed norms dealing with the withdrawal from Employee’s Provident Fund (EPF).

Employees Provident Fund (EPF) Scheme, 1952, has inserted a new para under 68 BD allowing its subscribers to withdraw up to 90% of their accumulated corpus to make a down payment while buying a home or pay EMI through an EPF account.

However, there are some conditions attached to make such withdrawal:

  • Only a person becoming a member of a co-operative or housing society having at least 10 members can avail this facility.  
  • He/she should have contributed to EPF at least for 3 years.  
  • This facility can be availed once in a lifetime by any member of EPFO.  
  • A subscriber and his/her spouse, both together shall have at least Rs 20,000 of balance in their accounts. 

While this is a welcome move, it has a flip side as well which should be considered too.
Allowing subscribers of EPFO to utilise up to 90% of their retirement savings to buy a home may prove to be catastrophic. Considering the social structure that we have in India, this facility can be ill-utilised. And in the absence of any other social security system, an elderly person may end up spending his entire life-savings on buying a house for his children and not saving enough for his/her retirement.

The Government should try to clamp down bully real estate developers who jack up property prices. The impact of implementation of Real Estate Regulation and Development Act (RERA Act) will be crucial to the housing market.

Instead of utilising your retirement savings to buy your dream home, consider fulfilling your financial objectives through meticulous financial planning.

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