When choosing a city to settle down and purchase a property, most prospective homebuyers can choose between settling in a Tier 1 and a Tier 2 city. An understanding of what is tier 1 and tier 2 cities in India is important before understanding which of the two offers more opportunities for housing. This categorization is of extreme significance in home affordability, infrastructure, job sectors, and even home loan eligibility.
What is a Tier 1 City?
A Tier 1 city in India refers to an extremely advanced metropolitan urban centre in terms of infrastructure, population density, job opportunities, and overall connectivity. Some of the cities included in this category are Mumbai, Delhi, Bengaluru, and Chennai. These cities are all hubs of economic activities and tend to be the hubs of the headquarters of multinational companies, international airports, top education institutions, and top-class healthcare centres.
Owing to the advantages, Tier 1 cities are also among the most expensive places to live. Property prices are high, rental yields are normal, and the competition in the residential market is fierce. The applicants for home loan in Tier 1 cities tend to need a higher income such that they meet the eligibility criteria in view of the high property prices.
What is a Tier 2 City?
Conversely, Tier 2 cities are medium-sized urban cities that are quickly developing and expanding. Among the cities classified as such are Jaipur, Indore, Surat, Lucknow, Coimbatore, and Nagpur. Though they may not yet be as large or economically powerful as Tier 1 cities, Tier 2 cities in India are increasingly emerging as attractive investment and real estate destinations driven by enhanced infrastructure, lower property values, and improving employment opportunities.
While the tier 1 cities are just becoming more expensive over time, the tier 2 cities are a perfect blend of cost of living and lifestyle. For many, the tier 2 cities are a better option while choosing to reside in budget housing and make comfortably low home loan EMIs.
Also Read - What is LTV in a Home Loan?
Difference Between Tier 1 and Tier 2 Cities
The primary difference between tier 1 and tier 2 cities is economic maturity, cost of living, real estate dynamics, and social infrastructure.
- Affordability: Tier 2 cities offer less expensive housing. Buyers can buy bigger homes at less expensive prices, which impacts direct house loan EMIs and monthly financial liabilities.
- Loan Eligibility: Since property prices are lower, home loan eligibility is also relatively straightforward, making it simple for middle-class families to attain.
- Lifestyle and Infrastructure: Tier 1 cities provide better infrastructure and proximity to high-end services, whereas Tier 2 cities are still in the developing stage but in rapid progress.
- Growth Potential: Tier 2 cities are seeing significant infrastructure spending. Some are earmarked as smart cities, providing tremendous long-term appreciation potential.
Home Loan or Rent Option: What Makes More Sense?
Choosing between home loan or rent option typically depends on the city under consideration. In Tier 1 cities, with the high cost of property, most find it more convenient to rent, at least initially. But it can lead to heavy monthly outgo without asset creation.
On the contrary, buying in Tier 2 cities allows for smaller home loan sizes with simple-to-afford EMIs. Thus, individuals can build property equity without over-extending themselves. Home ownership becomes more of a reality, even for first-home buyers.
Home Loan Eligibility in Tier 1 vs Tier 2 Cities
One of the key tipping points of the buy vs. rent question is mortgage eligibility. In Tier 1 cities, the premium cost of real estate leads to a scenario where, even with decent incomes, a larger loan amount is required. This can result in longer tenure or higher EMIs.
While in the Tier 2 cities, lower-income buyers are frequently in a position to qualify for sufficient home loan sizes without pushing their affordability limits. Financial institutions like Grihum Housing Finance note such realities and offer tailored solutions for Tier 1 and Tier 2 market shoppers alike.
Grihum Housing Finance: Your Partner in Home Ownership
At Grihum Housing Finance, it is focused on facilitating everyone and families to turn their dream of house ownership into a reality. Whether you are looking at a home in a Tier 1 metro or an emerging Tier 2 city, Grihum Housing Finance offers cost-effective, affordable, and borrower-friendly home loan offerings.
What sets Grihum apart is that it focuses on inclusive lending. If you are in the unorganised income segment or a first-time homebuyer, Grihum offers relaxed documentation processes and customised home loan eligibility verification to help you avail of finance.
Additionally, the company helps you understand how your EMI commitments align with your salary so that the home loan EMIs fit within and do not overload your monthly budget. Grihum's experts work alongside you to get the ideal balance, be it buying a compact city flat in a Tier 1 location or a larger home in a Tier 2 location.
Also Read - Home Loans for Self-Employed: Eligibility Criteria & Required Documents
Conclusion
Deciding whether to opt for Tier 1 or Tier 2 cities while buying a home largely depends on your preferences, wallet, and long-term aspirations. Tier 1 cities have unparalleled urban advantages but at a cost. Tier 2 cities, on the other hand, bring a promising mix of affordability, growth, and lifestyle benefits.
Understanding what tier 1 and tier 2 cities are, how tier 1 and tier 2 cities differ, and how these classifications impact your home loan eligibility and EMI affordability can make a huge difference in your home purchasing experience.
Grihum Housing Finance aims to make homeownership accessible, whether it's in a crowded metro or a booming Tier 2 city, through affordable housing finance that is fair, flexible, and centred on you.
