A Provident Fund (PF) is a government-managed scheme for employees, in which they deposit a part of their salaries periodically. They can withdraw it as a lump sum post- retirement or after the termination of their employment. So, if you are a salaried person arranging funds for a future home purchase, PFwithdrawal for housing loan down payment makes all the sense! 

However, the process isn’t as straightforward as it sounds. You can only withdraw from the balance in your PF account according to certain conditions and use it to finance a plot or a house, even repay your home loan!

Ways to use a PF to finance your home

You can use a PF to arrange the funds for your loan’s down payment in several ways. For each case, you can withdraw only a certain amount of your basic salary and Dearness Allowance (DA) as stated in the table below:

ReasonWithdrawal LimitNo. of years of contribution to PFAdditional terms and conditions
For buying a plot      24 months basic salary and DA  5The maximum amount you can withdraw is the cost of the plot.
For constructing or buying a house36 months basic salary and DA5The maximum amount you can withdraw is the cost of the house. If your house is jointly purchased, the joint-owner should be your spouse and nobody else. If you are building a house, the construction should begin within six months and should be completed within 12 months of the last instalment of withdrawal. If you intend to buy a ready-to-move-in house, the deal for purchase also needs to be completed within six months.  

Now that you’re aware of the various regulations governing PF withdrawals, here are some advantages and disadvantages you should consider. 

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

Pros and cons of withdrawing from your PF account

PF withdrawal for home loan repayment or funding the down-payment has both advantages and disadvantages. 

Pros:

  • It helps create assets and security for you because you are using your PF to invest in property. If the percentage increase in the property prices is higher compared to returns generated by the PF, then such a decision can be profitable.

Cons: 

  • If the PF return is higher than property appreciation rate, it is better to fund the down-payment through other modes.
  • The PF provides you security after your retirement, so it is prudent to leave it for that purpose alone and enjoy its long-term benefits.

Additional Read: Home Loan Down Payment Advantages for Women

In summary

PF withdrawal for home loan can be a quick way to acquire funds but should be used only when extremely necessary.

Are you looking for a quick and easy way to finance your property purchase? Turn to Tata Capital. We offer housing loans at affordable interest rates and flexible repayment options. While you’re at it, use our handy home loan EMI calculator to estimate the EMI value before you apply.

Take a step closer to your dream home and apply today!

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